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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2004
Commission file number 0-12602



KABUSHIKI KAISHA MAKITA
(Exact name of registrant as specified in its charter)

MAKITA CORPORATION
(Translation of registrants name into English)

Japan
(Jurisdiction of incorporation or organization)

3-11-8, Sumiyoshi-cho, Anjo City, Aichi Prefecture, Japan
(Address of principal executive offices)

Securities registered or to be registered
pursuant to Section 12(b) of the Act.

|                   
|-------------------
|Title of each class
|                   
|None               
|                   

Securities registered or to be registered pursuant to
Section 12(g) of the Act.

* American Depositary Shares
(Title of Class)

** Common Stock
(Title of Class)

|   |  |                                                                                                                                                                                                                        
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  |  | American Depositary Receipts evidence American Depositary Shares,
each American Depositary Share representing one share of the
registrants Common Stock.                                                              
|  
|** |  | Effective October 1, 2001, no par value per share. Not for trading,
but only in connection with the registration of American Depositary
Shares, pursuant to the requirements of the Securities and Exchange
Commission.

Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act.

None
(Title of Class)

Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report.

|                                                                        |  |                   |             |                 |  |  |           | 
|----------------------------------------------------------------------- |  | ----------------- | ----------- | --------------- |  |  | --------- | 
|                                                                        |  | Outstanding as of
|                                                                        |  |                  
|                                                                        |  | March 31, 2004    |             | March 31, 2004 
|Title of Class                                                          |  | (Tokyo time)      |             | (New York time)
|                                                                        |  |                   |             |                
|Common Stock                                                            |  |                   | 148,006,992 |                 |  |  |           | 
|                                                                        |  |                   |             |                 |  |  |           | 
|American Depositary Shares, each
representing one share of Common Stock |  |                   |             |                 |  |  | 3,058,800 | 

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

|        |  |       
|------- |  | ------
|Yes [X] |  | No [_]

Indicate by check mark which financial statement item the registrant has elected to follow.

|            |  |            
|----------- |  | -----------
|Item 17 [_] |  | Item 18 [X]





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Table of Contents PART IItem 1. Identity of Directors, Senior Management and Advisors
    
    
    1Item 2. Offer Statistics and Expected Timetable
    
    
    1Item 3. Key Information
    
    
    1A. Selected financial data
    
    
    1B. Capitalization and indebtedness
    
    
    3C. Reason for the offer and use of proceeds
    
    
    3D. Risk factors
    
    
    3Item 4. Information on the Company
    
    
    6A. History and development of the Company
    
    
    6B. Business overview
    
    
    7C. Organizational structure
    
    
    12D. Property, plant and equipment
    
    
    13Item 5. Operating and Financial Review and Prospects
    
    
    14A. Operating results
    
    
    14B. Liquidity and capital resources
    
    
    24C. Research and development, patents and licenses
    
    
    28D. Trend information
    
    
    28E. Off-balance sheet arrangements
    
    
    28F.
Tabular disclosure of contractual obligations
    
    
    29Item 6. Directors, Senior Management and Employees
    
    
    30A. Directors and senior management
    
    
    30B. Compensation
    
    
    32C. Board practices
    
    
    33D. Employees
    
    
    35E. Share ownership
    
    
    35Item 7. Major Shareholders and Related Party Transactions
    
    
    36A. Major shareholders
    
    
    36B. Related party transactions
    
    
    37C. Interest of experts and counsel
    
    
    37Item 8. Financial Information
    
    
    38A. Consolidated statements and other financial information
    
    
    38B. Significant Changes
    
    
    39Item 9. The Offer and Listing
    
    
    39A. Offer and listing details
    
    
    39B. Plant of distribution
    
    
    40C. Markets
    
    
    40D. Selling shareholders
    
    
    40E. Dilution
    
    
    40F. Expenses of the issue
    
    
    41Item 10. Additional Information
    
    
    41A. Share capital
    
    
    41B. Memorandum and articles of association
    
    
    41C. Material contracts
    
    
    48D. Exchange controls
    
    
    49E. Taxation
    
    
    50F. Dividends and paying agents
    
    
    56G. Statement by experts
    
    
    56H. Documents on display
    
    
    56I. Subsidiary information
    
    
    56Item 11. Quantitative and Qualitative Disclosures about Market Risk
    
    
    56Item 12. Description of Securities Other than Equity Securities
    
    
    60PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    60Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    60Item 15. Controls and Procedures
    
    
    60Item 16A. Audit Committee Financial Expert
    
    
    60Item 16B. Code of ethics
    
    
    61Item 16C. Principal Accountant Fees and Services
    
    
    61PART IIIItem 17. Financial Statements
    
    
    63Item 18. Financial Statements
    
    
    63Item 19. Exhibits
    
    
    63EX-1.1 ARTICLES OF INCORPORATIONEX-11.1 CODE OF ETHICSEX-12.1 302 CERTIFICATIONEX-13.1 906 CERTIFICATION




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As used in this annual report, the term fiscal preceding a year means the
twelve-month period ended March 31 of the year referred to. For example,
fiscal 2004 refer to the twelve-month period ended March 31, 2004. All other
references to years refer to the applicable calendar year. All information contained in this annual report is as of March 31, 2004 unless
otherwise specified. In parts of this annual report, amounts reported in Japanese yen have been
translated into U.S. dollars for the convenience of readers. Unless otherwise
noted, the rate used for this translation was
¥104 = U.S.$1.00, the approximate exchange rate on the noon buying rate for yen
in New York City as certified for customs purposes by the Federal Reserve Bank
of New York on March 31, 2004. On July 15, 2004 the noon buying rate for yen
cable transfer in New York City as reported by the Federal Reserve Bank of New
York was ¥109.52 = $1.00. As used herein, the Company refers to Makita Corporation, and Makita refers
to Makita Corporation and its consolidated subsidiaries unless the context
otherwise indicates. Cautionary Statement with Respect to Forward-Looking Statements This annual report contains forward-looking statements that are based on
current expectations, estimates, strategies and projections of the Companys
management in light of the information currently available to it. The Company
and its representatives may, from time to time, make written or verbal
forward-looking statements, including statements contained in the Companys
filings with the Securities and Exchange Commission and in its reports to
shareholders, with respect to Makitas current plans, estimates,
strategies and beliefs and other statements that are not historical. Generally,
the inclusion of the words plan, strategy, believe, expect, intend,
estimate, anticipate, will, may, might and similar expressions
identify statements that constitute forward-looking statements within the
meaning of Section 27A of the United States Securities Act of 1933 and Section
21E of the United States Securities Exchange Act of 1934 and that are intended
to come within the safe harbor protection provided by those sections. All
statements addressing operating performance, events, or developments that Makita expects or anticipates to occur in the future, including statements
relating to sales growth, earnings or earnings per share growth, and market
share, as well as statements expressing optimism or pessimism about future
operating results, are forward-looking statements. Makita undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise. By their nature, all forward-looking statements involve risks and
uncertainties. Actual results may differ materially from those contemplated by
the forward-looking statements for a number of reasons, including but not
limited to:  
    
    changes in economic conditions affecting the retail, housing and construction markets in
different countries, particularly in Japan, the United States and Europe and,
to a lesser extent, in Canada, Asia, Australia and the Middle East;
    
    Makitas ability to maintain mutually beneficial relationships with
key distributors and to penetrate new channels of distribution;
    
    circumstances relating to inventory adjustments or changes in purchasing patterns by
major customers and their impact on Makitas manufacturing volumes and
inventory levels;




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
    
    uncertainties surrounding market acceptance of the new products introduced in fiscal 2004 and
scheduled for introduction in fiscal 2005, as well as the level of sales
generated from these new products, in connection with Makitas
existing investments in productive capacity and commitments
to fund its advertising and product promotions to introduce these new products;
    
    Makitas ability to develop and introduce new products at favorable
margins;
    
    adverse changes in currency exchange rates or raw material commodity
prices, both in absolute terms and relative to competitors risk
profiles;
    
    increased competition in both Japanese market and worldwide;
    
    changes in consumer preference or loyalties;
    
    price reductions taken by Makita in response to customer and
competitive pressures, as well as price reductions or promotional actions
taken in order to drive demand, which may not result in anticipated sales
levels;
    
    Makitas ability to achieve projected levels of efficiencies and
cost reduction measures and to avoid delays in or inefficiencies resulting from manufacturing and administrative
reorganization actions in progress or contemplated;
    
    the impact of various factors on Makitas foreign operations such as
tariffs, nationalization, exchange controls, interest rate fluctuations,
civil unrest, governmental changes, restrictions on Makitas foreign investment in
local business and risks related to other political, economic, and regulatory instabilities;
    
    the effects of litigation, environmental remediation matters, and
product liability exposures;
    
    Makitas ability to generate sufficient cash flows to support
capital expansion, business acquisition plans and general operating
activities, and Makitas ability to obtain necessary financing at
favorable interest rates;
    
    changes in laws and regulations, including changes in accounting
standards, taxation requirements, including tax rate changes, new tax laws
and revised tax law interpretations, and environmental laws, both in
Japan and in foreign jurisdictions in which Makita operates;
    
    the impact of unforeseen events, including war or terrorist activities,
on economic conditions and corporate and consumer confidence; and
    
    interest rate fluctuations and other capital market conditions. The foregoing list is not exhaustive. There can be no assurance that Makita has correctly identified and appropriately assessed all factors
affecting its business or that the publicly available and other information
with respect to these matters is complete and correct. Additional risks and
uncertainties not presently known to Makita or that it currently believes
to be immaterial also may adversely impact Makita. Should any risks and
uncertainties develop into actual events, these developments could have
material adverse effects on Makitas business, financial condition, and
results of operations.




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PART I 
  Item 1.
    
    Identity of Directors, Senior Management and Advisers  Not applicable 
  Item 2.
    
    Offer Statistics and Expected Timetable  Not applicable 
  Item 3.
    
    Key Information 
 A.  Selected Financial Data The following data for each of the five fiscal years ended March 31, 2004 has
been derived from Makitas audited consolidated financial statements. It should
be read in conjunction with Makitas audited consolidated balance sheets as of
March 31, 2003 and 2004, the related consolidated statements of income,
shareholders equity and cash flows for each of the three years ended March 31,
2004 and the notes thereto that appear elsewhere in this annual report.
Makitas consolidated financial statements were prepared in conformity with
accounting principles generally accepted in the United States, or U.S. GAAP and
were included in its Japanese Securities Reports filed with the Director of the
Kanto Local Finance Bureau. U.S. Dollars(Millions of yen, except per share amounts)
    
    (thousands)Year ended March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2004Net sales
    
    ¥
    170,227
    
    
    ¥
    156,314
    
    
    ¥
    166,169
    
    
    ¥
    175,603
    
    
    ¥
    184,117
    
    
    $
    1,770,356Operating income
    
    
    9,924
    
    
    
    7,093
    
    
    
    5,873
    
    
    
    12,468
    
    
    
    14,696
    
    
    
    141,308Net income
    
    
    4,187
    
    
    
    2,133
    
    
    
    133
    
    
    
    6,723
    
    
    
    7,691
    
    
    
    73,952Net income per share of
Common stock and per
ADS:Basic
    
    
    26.2
    
    
    
    13.6
    
    
    
    0.9
    
    
    
    45.3
    
    
    
    53.2
    
    
    
    0.51Diluted
    
    
    25.9
    
    
    
    13.6
    
    
    
    0.9
    
    
    
    44.2
    
    
    
    51.9
    
    
    
    0.50
 1




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U.S. Dollars(Millions of yen, except per share amounts)
    
    (thousands)Year ended March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2004Cash and cash
equivalents, time
deposits and
marketable
securities
    
    ¥
    79,104
    
    
    ¥
    71,340
    
    
    ¥
    63,393
    
    
    ¥
    64,083
    
    
    ¥
    92,616
    
    
    $
    890,538Net working capital
    
    
    143,049
    
    
    
    142,700
    
    
    
    144,929
    
    
    
    141,759
    
    
    
    147,822
    
    
    
    1,421,365Total assets
    
    
    288,847
    
    
    
    293,995
    
    
    
    285,138
    
    
    
    278,600
    
    
    
    278,116
    
    
    
    2,674,192Short-term borrowings
    
    
    10,786
    
    
    
    17,743
    
    
    
    8,984
    
    
    
    2,892
    
    
    
    14,128
    
    
    
    135,846Long-term
indebtedness
    
    
    24,479
    
    
    
    21,135
    
    
    
    20,102
    
    
    
    19,843
    
    
    
    7,364
    
    
    
    70,808Shareholders equity
    
    
    197,834
    
    
    
    192,547
    
    
    
    189,939
    
    
    
    182,400
    
    
    
    193,348
    
    
    
    1,859,115
 Note: Net working capital equals current assets less current
liabilities. Exchange rates (Japanese yen amounts per U.S. dollars)
The following table sets forth information concerning the exchange rates for
Japanese yen and U.S. dollars based on the noon buying rates for cable
transfers in Japanese yen in New York City as certified for customs purposes
by the Federal Reserve Bank of New York: (Japanese Yen per U.S. $ 1.00)Year ended March 31
    
    High
    
    Low
    
    Average
    
    Year-end2000
    
    
    101.53
    
    
    
    124.45
    
    
    
    110.02
    
    
    
    102.732001
    
    
    104.19
    
    
    
    125.54
    
    
    
    111.65
    
    
    
    125.542002
    
    
    115.89
    
    
    
    134.77
    
    
    
    125.64
    
    
    
    132.702003
    
    
    115.71
    
    
    
    133.40
    
    
    
    121.94
    
    
    
    118.072004
    
    
    104.18
    
    
    
    120.55
    
    
    
    113.07
    
    
    
    104.18
 (Japanese Yen per U.S. $ 1.00)July2004
    
    January
    
    February
    
    March
    
    April
    
    May
    
    June
    
    (through July 15)High
    
    
    105.52
    
    
    
    105.36
    
    
    
    104.18
    
    
    
    103.70
    
    
    
    108.50
    
    
    
    107.10
    
    
    
    109.52Low
    
    
    107.17
    
    
    
    109.59
    
    
    
    112.12
    
    
    
    110.37
    
    
    
    114.30
    
    
    
    111.27
    
    
    
    108.21
 On July 15, 2004 the noon buying rate for yen cable transfer in New York City
as reported by the Federal Reserve Bank of New York was ¥109.52 = U.S. $ 1.00 Cash dividends declared per share of common stock and per ADS: In Yen
    
    In U.S. DollarsYear ended March 31
    
    Interim
    
    Year-end
    
    Interim
    
    Year-end2000
    
    
    9.0
    
    
    
    10.0
    
    
    
    0.08
    
    
    
    0.102001
    
    
    9.0
    
    
    
    9.0
    
    
    
    0.07
    
    
    
    0.072002
    
    
    9.0
    
    
    
    9.0
    
    
    
    0.07
    
    
    
    0.072003
    
    
    9.0
    
    
    
    9.0
    
    
    
    0.07
    
    
    
    0.072004
    
    
    9.0
    
    
    
    13.0
    
    
    
    0.09
    
    
    
    0.11
 2




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Note: Cash dividends in U.S. dollars are based on the exchange rates at the
respective payment date, using the noon buying rates for cable transfers in
yen in New York City as certified for customs purposes by the Federal Reserve
Bank of New York. 
 B. Capitalization and indebtedness  Not applicable 
 C. Reasons for the offer and use of proceeds  Not applicable 
 D. Risk factors The following is a summary of some of the significant risks that could affect
Makita. Other risks that could affect Makita are also discussed elsewhere in
this annual report. Additionally, some risks that may be currently unknown to
Makita and other risks, currently believed to be immaterial, could turn out to
be material. Some of these statements are forward-looking statements that are
subject to the Cautionary Statement with Respect to Forward-Looking
Statements appearing elsewhere in this annual report. Makitas sales are affected by the levels of construction activities and
capital investments in its markets.
The demand for power tools, Makitas main products, is affected to a large
extent by the levels of construction activities and capital investments in the
relevant regions. Generally speaking, the levels of construction activities and
capital investment depend largely on the economic conditions in the market. As
a result, when economic conditions weaken in the principal markets for Makitas
activities, including Japan, North America, Europe, and Asia, this may have an
adverse impact on Makitas consolidated financial condition and results of
operations. Geographic concentration of Makitas main facilities may have adverse effects
on Makitas business activities.
Makitas principal management functions, including its headquarters and
information system centers, and the companies it relies on for supplying major
parts are located in Aichi Prefecture (Aichi), Japan. Makitas manufacturing
facilities in Aichi and Kunshan, Jiangsu Province, China, collectively account
for approximately 72% of Makitas total production volume on a consolidated
basis in fiscal 2004. Moreover, to reduce its cost, Makita is in the process of
shifting its motor manufacturing operations in the United States and the
United Kingdom, as well as its processing lines for aluminum housings and
certain other parts, to its plant in China, where wage costs are lower. Due to
this geographic concentration of Makitas major functions, including plants and
other operations in Japan and China, Makitas performance may be significantly
affected by major natural disasters and other catastrophic events, including
earthquakes, floods, fires, power outages, and suspension of water supplies. In
addition, Makitas facilities in China may also be affected by changes in
political and legal environments, changes in economic conditions, revisions in
tariff rates, currency appreciation, labor disputes, power outages resulting
from inadequacies in infrastructure, and other factors. Also, in the event that
such developments cannot be foreseen and measures taken to alleviate their
damaging impact are inadequate, Makitas consolidated financial condition and
results of operations may be adversely affected. 3




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Makitas overseas activities and entry into overseas markets entail risks which
may have a material adverse effect on Makitas business activities.
Makita derives a majority of its sales in markets located outside of Japan,
including North America, Europe, Asia, Oceania, the Middle East, and newly
emerging markets, such as Russia and Eastern Europe. In fiscal 2004,
approximately 78.7% of Makitas consolidated net sales were derived from
products sold overseas. On a volume basis, Makita depended on overseas markets
for 85.9% of units sold. The high percentage of overseas sales gives rise to a
number of risks. If such risks occur, they may have a material adverse impact
on Makitas consolidated financial condition and results of operations. Such
risks include the following:  (1)
    
    Unexpected changes in laws and regulations;(2)
    
    Disadvantageous political and economic factors;(3)
    
    The outflow of technical know-how and knowledge due to personnel turnover
that enables Makitas competitors to strengthen their position;(4)
    
    Potentially unfavorable tax systems; and(5)
    
    Terrorism, wars, and other factors that lead to social turbulence. Environmental or other government regulations may have a material adverse
impact on Makitas business activities.
In all the countries where Makita conducts its operations, it maintains strict
compliance with environmental, commercial, export and import, tax, safety and
other regulations that are applicable to its activities. If Makita is unable to
continue its compliance with existing regulations or to comply with any new or
amended regulations, it may be subject to fines and other penalties and its
activities may be significantly restricted. The costs related to compliance
with any news or amended regulations may also result in significant increases
in overall costs. In any such case, Makitas consolidated financial condition
and results of operations may be adversely affected. Makita is currently working to achieve compliance with two EU directives
announced on February 13, 2003. One of them, entitled Waste Electrical and
Electronic Equipment (WEEE), requires recycling and reproduction of materials
of almost all electrical products. The other is Restriction of the Use of
Certain Hazardous Substances (RoHS), which forbids the sale in EU member
countries of products containing some toxic substances, such as lead, mercury,
cadmium, hexavalent chrome, polybrominated biphenyls, and polysbrominated
diphenyl ethers, beginning on July 1, 2006. Especially in the case of RoHS, the
cooperation of parts suppliers is essential, and Makita is preparing measures
to respond to the implementation of these directive including making requests
to suppliers for eliminating the use of such toxic substances and providing
guidance to assist them. Along with these measures, Makita is also
strengthening its systems for inspecting parts as they are delivered. However,
the shift to alternative materials by Makitas suppliers is still not fully
completed. It is not possible for Makita to detect whether the delivered parts
that it accepts contains the prohibited substances. If Makita unknowingly or
inadvertently manufactures its products using parts containing such prohibited
substances and sells such products in the EU, it may be required to recall its
products to replace the defective parts, may sustain damage to its reputation
and may be subject to fines and penalties. In such cases, Makitas consolidated
financial condition and results of operations may be adversely affected. Currency exchange rate fluctuations may harm Makitas financial statements.
The functional currency for all of Makitas significant foreign operations is
the local currency. The results of transactions denominated in local currencies
of Makitas subsidiaries around the world are translated into yen using the
average market conversion rate during each financial period. Assets and
liabilities denominated in local currencies are converted into yen at the rate
prevailing at the end of each financial period. As a result, Makitas 4




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operating results, assets, liabilities and shareholders equity are affected by
fluctuation in values of the Japanese yen against these local currencies. In particular, sales denominated in foreign currencies account for more than
70% of Makitas consolidated net sales in fiscal 2004, and, accordingly,
Makitas operating income is significantly affected by foreign exchange
fluctuations. To minimize the impact of short-term exchange rate fluctuations in major
currencies, namely the U.S. dollar, the euro, and the yen, Makita engages in
hedging transactions. In addition, Makita is also increasing the percentage of
products that it manufactures in China, which has resulted in an increase in
foreign-currency denominated production costs. While Makita believes that such
measures help to lessen the impact of some exchange rate fluctuations, it
cannot assure you that it will be able to successfully hedge its exchange rate
risks. In addition, medium-to-long-term fluctuations of exchange rates may make
it difficult for Makita to execute planned procurement, production, logistics,
and sales activities and may have an adverse impact on Makitas consolidated
financial condition and results of operations. Fluctuations in stock market prices may adversely affect Makitas financial
statements.

Makita holds certain Japanese equities and equity-linked financial
products and records these securities as marketable securities on its
consolidated financial statements. As of March 31, 2004, the aggregate carrying
value of these securities was ¥86,129, which represents approximately 44.6% of
Makitas net assets. The value of these investments is influenced by
fluctuations in the quoted market prices, which may fluctuate as a result of
unforeseen circumstances. Any significant decline in the value of these
securities will have an adverse impact on Makitas consolidated financial
condition and results of operations. If Makita cannot respond to changes in construction method and demand trend,
Makitas sales may be materially and adversely affected.

In recent years, market trends in demand for various power tools are changing
significantly due to the adoption of new construction methods, especially in
Japan. For example, as prefabricated housing construction becomes more common,
the use of power tools at construction sites has been decreasing substantially,
while demand for fastening tools has increased. If Makita does not or unable to
adequately address these to rapid shifts in demand for various power tools,
Makitas sales may decline and this may have an adverse effect on Makitas
consolidated financial condition and results of operations. The rapidly expanding presence of China-based power tool manufacturers may harm
Makitas sales results.

In recent years, power tool companies in China have expanded their presence in
the world market. In particular, in certain markets in Asia where purchasing
power is relatively low, competition with power tools made in China is
intensifying. The technological level of Chinese power tool manufacturers is
improving, and competition in the markets for high-end products for
professional use may also intensify. As a result, Makitas market share,
consolidated financial condition and results of operations may be adversely
affected. If Makita is not able to develop attractive products, Makitas sales activities
may be adversely affected.

Makitas principal competitive strengths are its diverse range of high-quality,
high-performance power tools for professional use, and the good reputation of
the MAKITA brand, both of which depend in part on Makitas ability to continue
to develop attractive and innovative products that are well received by the
market. There is no assurance that Makita will be able to continue to develop
such products. However, in the event that Makita cannot maintain its
capabilities for quickly developing new products that meet the changing needs
of the market for high-end, professional users, this may have an adverse impact
on Makitas consolidated financial condition and results of operations. 5




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If Makita fails to maintain cooperative relationships with significant
customers, Makitas sales may be seriously affected.

Makita has a number of major customers. If Makita should lose these customers
and be unable to develop new sales channels to take their place, sales may
decline, and this would have an adverse impact on Makitas management
performance and financial position. Moreover, in fiscal 2004, major home center
retailers in the United States began to sell power tools with their
own brand name, which are supplied
by Chinese manufacturers. Going forward, if major customers of Makita select
power tools and other items made in China and sell them under their own brand,
this may have an adverse impact on Makitas consolidated financial condition
and results of operations. If any of Makitas suppliers fail to deliver materials or parts required for
production as scheduled, Makitas production activities may be adversely
affected.

Makitas production activities are greatly dependent on the on-schedule
delivery of materials and parts from its suppliers. In addition, Makita
purchases most of its component parts from sole suppliers. The largest single
source supplier of the Company accounted for approximately 6% of its aggregate
purchases of raw materials and parts in fiscal 2004. There is no assurance that
Makita will be able to find alternate suppliers that can provide materials and
parts of similar quality and price in a sufficient quantity and in a timely
manner. In the event that any of these suppliers cannot deliver the required
quality and quantity of parts on schedule, this will have an adverse effect on
Makitas production schedules and cause a delay in Makitas own product
deliveries. This may cause Makita to lose some customers or require Makita to
purchase replacement materials or parts from alternate sources at a higher
price. Any of these occurrences may have a detrimental influence on Makitas
consolidated financial condition and results of operations. Product liability litigation or recalls may harm Makitas financial statements.

Makita manufactures a wide range of power tools at factories worldwide
according to ISO internationally accepted quality control standards. However,
Makita cannot be certain that all its products will be free of defects or will
not be subject to product recalls in the future. A large-scale recall or a
substantial product liability suit brought against Makita may result in severe
damage to Makitas brand image and reputation. In addition, a major product
recall or product liability lawsuit is likely to be very costly and would
require a significant amount of management time and attention. Any of these
occurrences may have a major adverse impact on Makitas consolidated financial
condition and results of operations. 
  Item 4.
    
    Information on the Company 
 A. History and development of the Company The Company traces its origin to an electrical repair workshop founded in
Nagoya in 1915, and was incorporated under the laws of Japan on March 21, 1938
under the name of Makita Electric Works, Ltd. as a joint stock corporation
under the Commercial Code of Japan. Under the presidency of the late Mr.
Jujiro Goto, in 1958, Makita commenced the manufacture of electric power tools
and, by 1969, had reached its present leading position in the Japanese market.
In 1970, the Company decided to take advantage of the large potential for
growth in overseas market for its products and established its first
subsidiary in the United States. Since then, Makita has expanded its export
activity and has established other overseas subsidiaries. In April 1991, the
Company changed its name from Makita Electric Works, Ltd. to Makita
Corporation. In April 1995, Makita established a holding company in the United
Kingdom to better coordinate the overall activities of its European
subsidiaries. At present, Makita sells its products in over 100 countries
around the world. As part of its efforts to minimize trade friction, Makita started
manufacturing operations in Canada, Brazil and the United States in 1980, 1981
and 1985 respectively. Makita established a manufacturing subsidiary in the
United 6




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##### Table of Contents



Kingdom in 1989. In January 1991, Makita acquired all of the shares of
Sachs-Dolmar GmbH, a German company, subsequently renamed to Dolmar GmbH
(Dolmar), which is primarily engaged in manufacturing engine driven chain
saws. Makita established two manufacturing subsidiaries in China, Makita
(China) Co., Ltd. and Makita (Kunshan) Co., Ltd. in December 1993 and in
November 2000 respectively. Makita presently manufactures power tools in seven countries globally: the
United States, Canada, Brazil, the United Kingdom, Germany, China and Japan. To strengthen its marketing and service systems in Europe, the Company
established several new companies in fiscal 2004, including Makita Farramentas,
Sociedad Unipersonal, Lda. (Portugal) on June 30, 2003; Makita LLC (Russia) on
October 3, 2003; and Makita Servis Centrum. S.R.O. (Slovakia) on March 24,
2004. Makita Corporations registered office is located at 3-11-8, Sumiyoshi-cho,
Anjo, Aichi 446-8502, Japan, and its telephone number is +81-566-98-1711. 
 B. Business overview Makitas power tools consist of portable woodworking tools, primarily saws and
planers, and portable general purpose tools, primarily drills, grinders and
sanders. In addition, Makita produces a line of stationary woodworking
machines. For the fiscal year ended March 31, 2004, approximately 21.3% of
Makitas sales were made in Japan. Makita estimates that the majority of its
sales in Japan were made to commercial and professional users such as those
engaged in timber and metal processing, carpentry, and concrete and masonry
works. In its product development,
Makita focuses on creating user- and environment-friendly products
that enhance the work environment, and have features such us low vibration, low noise and dust
concentration. Products

The following table sets forth Makitas consolidated net sales of Makita by
product categories for the periods presented: (Millions of yen, except for percentage amounts)
    
    U.S. DollarsConsolidated Net Sales by Product Categories
    
    (thousands)Year ended March 31,2002
    
    2003
    
    2004
    
    2004Portable
Woodworking Tools
    
    ¥
    32,571
    
    
    
    19.6
    %
    
    ¥
    33,637
    
    
    
    19.1
    %
    
    ¥
    34,452
    
    
    
    18.7
    %
    
    $
    331,269Portable General
Purpose Tools
    
    
    85,215
    
    
    
    51.3
    %
    
    
    92,144
    
    
    
    52.5
    %
    
    
    98,176
    
    
    
    53.3
    %
    
    
    944,000Stationary
Woodworking
Machines
    
    
    2,244
    
    
    
    1.3
    %
    
    
    1,924
    
    
    
    1.1
    %
    
    
    1,711
    
    
    
    1.0
    %
    
    
    16,452Other Products
    
    
    17,916
    
    
    
    10.8
    %
    
    
    19,142
    
    
    
    10.9
    %
    
    
    19,548
    
    
    
    10.6
    %
    
    
    187,962Parts, Repairs and
Accessories
    
    
    28,223
    
    
    
    17.0
    %
    
    
    28,756
    
    
    
    16.4
    %
    
    
    30,230
    
    
    
    16.4
    %
    
    
    290,673Total
    
    
    166,169
    
    
    
    100.0
    %
    
    
    175,603
    
    
    
    100.0
    %
    
    
    184,117
    
    
    
    100.0
    %
    
    
    1,770,356
 7




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##### Table of Contents



Portable Woodworking Tools Portable woodworking tools consist mainly of saws, planers, mortisers, groove
cutters, routers, trimmers, nailers and tackers. Circular saws, which are
primarily sold to carpenters in the homebuilding industry, account for a
substantial portion of Makitas sales of saws. The balance of saw sales is
made up of jigsaws, sold primarily to carpenters and other woodworkers for
delicate work, and recipro saws used for working in confined spaces unsuited
to conventional saws. Planers, which are used exclusively for woodworking, are
sold principally to carpenters. Apart from flat-surfaced planers, which are
manufactured in varying widths, Makita also produces curved planers for use on
concave surfaces. Mortisers are used for chiseling holes in wood and groove
cutters are used to install sliding windows. Routers and trimmers are used
principally by carpenters in the homebuilding industry for door and window
cutting, pattern cutting and other interior decorative work. Nailers are used
primarily for light woodwork in homebuilding. Tackers are used to make
temporary attachments in house-finishing and for furniture-making. Almost all
of the mortisers, groove cutters, routers and trimmers, nailers and tackers
manufactured by Makita are sold within Japan. Among Makitas newly
developed products during fiscal 2004 are a slide
compound saw with a double sliding mechanism for lightweight design,
blade-on-left type dustless circular saw and hand planer and router of the
Maktec brand providing improved performance and durability at less expense. Portable General Purpose Tools Portable general purpose tools include drills, hammer drills, rotary hammers,
electric breakers (jackhammers), grinders, sanders, cutters, cutting machines,
nibblers and shears, screwdrivers and impact wrenches. Most of these tools are
used for working on metal and materials other than wood, although many may be
used in woodworking as well. Drills are typical power tools used for drilling in metals, woods and
plastics. They are classified into pistol-grip drills, D-handle drills,
spade-handle drills and angle drills, according to their configuration. Makita
also manufactures various kinds of cordless drills. Some of them are equipped
with a screwdriving mechanism and are called cordless driver drills. Hammer
drills are equipped with a hammering function, but can also be used as
conventional drills; these drills are used principally on metal and masonry in
the civil engineering and electrical contracting industries. Rotary hammers,
which are used exclusively on concrete by the construction industry, are
equipped with a rotary function, but can also be used as ordinary hammers.
Breakers are used for shattering hard surfaces, principally concrete. Grinders and sanders are used for smoothing and finishing. Sanders may also be
used for polishing. Grinders are used on metal and sanders are used on metal,
wood, stone and concrete. Grinders are divided into portable disc grinders and
bench grinders and sanders are classified into portable disc sanders and belt
sanders. Cutters and cutting machines have similar functions, although cutters are
designed to be hand-held and cutting machines are stationary. Cutters have a
diamond cutting surface and are used on tile, brick, concrete and stone.
Cutting machines have a carborundum cutting surface and are used principally
on metal. 8




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##### Table of Contents



Impact wrenches are used mainly in the construction industry and screwdrivers
are used in construction work and by electricians. Among Makitas newly
developed products during fiscal 2004 are a 12V
cordless impact driver, which is compact and lightweight yet has big torque, high
specification 2-speed hammer drill, a 24mm(15/16) rotary hammer featuring quick
chuck change for swapping keyless and SDS-plus chucks, a 125mm (4) electronic
wet stone polisher and a high specification 2-speed hammer drill with 1010W
motor. Stationary Woodworking Machines Makitas stationary woodworking machines consist mainly of planer-jointers,
wood surfacers, band saws and table saws, all of which are installed in
workshops and used for surfacing and cutting wood. Other Products Makitas other products include chain saws, hand-held vacuum cleaners for home
use, industrial vacuum cleaners, submersible pumps and garden tools, such as
hedge trimmers. Among the Companys newly developed products during fiscal 2004 is lightweight
high water pressure washer powered by AC motor. Parts, repairs and accessories Makita manufactures and markets a variety of parts and accessories for its
products and performs repair work as part of its after-sale services. Principal Markets, Distribution and After-Sale Services

The following table sets forth Makitas consolidated net sales by geographic
area based on customers locations for the periods presented: (Millions of yen, except percentage amount)
    
    U.S. DollarsConsolidated Net Sales by Geographic Area
    
    (thousands)Year ended March 31,2002
    
    2003
    
    2004
    
    2004Japan
    
    ¥
    39,510
    
    
    
    23.8
    
    
    ¥
    38,781
    
    
    
    22.1
    
    
    ¥
    39,142
    
    
    
    21.3
    
    
    $
    376,365North America
    
    
    48,337
    
    
    
    29.1
    
    
    
    45,573
    
    
    
    26.0
    
    
    
    41,853
    
    
    
    22.7
    
    
    
    402,433Europe
    
    
    48,486
    
    
    
    29.2
    
    
    
    57,648
    
    
    
    32.8
    
    
    
    66,369
    
    
    
    36.0
    
    
    
    638,163Asia
    
    
    12,373
    
    
    
    7.4
    
    
    
    13,774
    
    
    
    7.8
    
    
    
    14,245
    
    
    
    7.7
    
    
    
    136,971Other
    
    
    17,463
    
    
    
    10.5
    
    
    
    19,827
    
    
    
    11.3
    
    
    
    22,508
    
    
    
    12.3
    
    
    
    216,423Total
    
    ¥
    166,169
    
    
    
    100.0
    %
    
    ¥
    175,603
    
    
    
    100.0
    %
    
    ¥
    184,117
    
    
    
    100.0
    %
    
    $
    1,770,356
 9




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##### Table of Contents



Japan Makita believes that most of its domestic sales are made to commercial users.
The Japanese Do-It-Yourself, or DIY, market for power tools is growing but the
pace of growth is slow.

Makita attributes its leading position in the Japanese market to the close and
frequent contact that it maintains with retailers and users of Makita
products. While Makitas major competitors rely primarily on wholesalers for
all aspects of distribution and servicing, Makita has approximately 700
employees directly responsible for the promotion, sale and delivery and
after-sale servicing of its products. These employees, operating from 113
sales offices throughout Japan, are assigned sales territories and visit
retail outlets in their area on an average of once a week.

In addition, Makita has two distribution centers in Osaka and Saitama
prefecture. These distribution centers strengthen Makitas distribution and
after-sale service functions.

Although technically most of Makitas products are sold through its 15
wholesalers, Makita generally limits the function of these wholesalers to the
collection of payments from retailers. Each wholesaler bears the risk of any
bad debts of the retailers for which it has responsibility. The payments by
the wholesalers to Makita are in most cases made within 30 to 60 days after
sale. The effect of this arrangement is that, while Makita has direct access
to its customers for sales, deliveries and after-sale services, payments are
collected from a small number of wholesalers. Makita believes that this unique
sales and distribution system has been successful. During the fiscal year ended March 31, 2004, Makita sold its products,
directly or through wholesalers, to approximately 30,000 retail outlets, and
no single retailer accounted for more than 2% of Makitas domestic sales.
During the year, Makitas three largest wholesalers accounted, in the
aggregate, for approximately 37 % of Makitas domestic net sales. Repairs, including free repair
service and after-sale services are carried out by Makitas sales offices. Overseas In the fiscal year ended March 31, 2004, 78.7% of Makitas net sales were
made outside of Japan.

Overseas sales, distribution, and servicing are carried out through a
network of 35 sales subsidiaries and 96 branch office or service centers
located in the United States, Canada, Brazil, Mexico, Argentina, Chile,
Australia, New Zealand, Singapore, Taiwan, China, Korea, the United Kingdom,
France, The Netherlands, Belgium, Italy, Greece, Germany, Denmark, Austria,
Poland, the Czech Republic, Hungary, Spain, the United Arab Emirates, Romania,
Switzerland, Finland, Russia, Ukrainian and Slovak. In addition, the Company
exports directly, as well as through trading companies, to various countries
throughout the world. Makita products are sold principally under the Makita
brand name, with the remaining portion being sold under the Dolmar and
Maktec brand names. Makita offers warranties to overseas customers. After-sales services and
repairs overseas are provided by local sales subsidiaries, service depots
designated by Makita, or by service stores designated by the applicable local
importers. As of March 31, 2004, Makita has over 100 service depots outside of
Japan. As of the fiscal year ended March 31, 2004, 26 of these service depots
were located in the United States. The labor costs of service and repairs to
products under warranty for overseas customers are borne by Makita and the
local service agents, with any spare parts provided by Makita. Seasonality

Makitas business has no significant seasonality in terms of sales or profits. 10




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##### Table of Contents



Competition

Both in Japan and overseas, the markets in which Makita sells its products are
highly competitive. Makita believes that competition in the portable electric
power tool market is based on price,
product reliability, design and after-sale services, and that its products are
generally competitive as to price and enjoy competitive advantage due to their
reputation for quality, product reliability and after-sale services.
Makita is the largest manufacturer of portable electric power tools in Japan
and, together with one other Japanese competitor, accounts for a substantial
majority of the total sales of such products in Japan.
In overseas markets, Makita competes with a number of manufacturers, some of
which are well established in their respective local markets as well as internationally.
In recent years, Makita has also experienced increasing competition,
particularly in countries with lower purchasing powers, from China-based power
tools manufacturers who often offer lower-priced products. Makita expects
such competition to intensify in the future. Raw Materials and Sources of Supply

Makita purchases raw materials and parts to manufacture its products. The
principal raw materials and parts purchased by Makita include plastics,
pressed steel plates, aluminum castings, copper wires, switches, gears,
blades, batteries, and bearings. The Company procures most of its raw
materials from multiple sources, although most components are obtained from
single suppliers. The procurement cost of aluminum, copper, and certain other
raw materials is affected by fluctuations in commodity markets, although such
fluctuations were not substantial during fiscal 2004.

Purchases of raw materials and parts in the fiscal year ended March 31, 2004
amounted to ¥ 74,262 million. Raw materials and parts are purchased from
approximately 250 suppliers in Japan and a number of local suppliers in each
country in which Makita performs manufacturing operations, with the largest
single source accounting for approximately 6% of Makitas total purchases of
raw materials and parts.

Makita also purchases from outside sources finished products such as
vacuum cleaners, electric generators, brushcutters, cordless laser plumb and
level, and wood surfacers.

Makita has not experienced any difficulty in obtaining raw materials, parts or
finished products. Government Regulations

Makita is subject to different government regulations in the countries in which
it does business, such as required business and investment regulations
approvals, export regulations based on national-security or other reasons,
and other export and import regulations such as tariffs, as well as commercial,
antitrust, patent, consumer and business taxation, exchange control, and
environment and recycling laws and regulations.

If Makita is unable to comply with these regulations, it may be subject to
significant fines or other penalties and its activities in such countries may
be limited. Intellectual Property Rights

As of March 31, 2004, Makita owned 258 patents and 62 utility model
registrations in Japan and 269 patents outside Japan. A utility model
registration is a right granted under Japanese law to inventions having a
practical utility in terms of form, composition or assembly, but embodying
less originality than that required for patents. As of March 31, 2004, Makita
had made applications for 629 additional patents and utility model
registrations in Japan as well as for 206 patents outside Japan. While Makita
considers all of its intellectual property to be important, it does not
consider any one or group of patents, trademarks or utility model
registrations to be so important that their expiration or termination would
materially affect Makitas business.

Makita is not a party to any material licensing agreement. 11




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##### Table of Contents



C. Organizational structure As of July 29, 2004, the Makita Group is consisted of 42 consolidated
subsidiaries.

Makita Corporation (the Company) is the parent company of the Makita Group.
The Company heads the development of products. Domestic sales are made by the
Company and overseas sales are made almost entirely through sales subsidiaries
and wholesalers. The following is a listing of the significant subsidiaries
within the Makita Group. Proportion of OwnershipCompany Name
    
    Country of Incorporation
    
    and Voting InterestMakita U.S.A., Inc.
    
    U.S.A
    
    
    100.0
    %Makita Corporation of America
    
    U.S.A
    
    
    100.0Makita Canada Inc.
    
    Canada
    
    
    100.0Makita Mexico, S.A. de C.V.
    
    Mexico
    
    
    100.0Makita do Brasil
Ferramentas Eletricas Ltda.
    
    Brazil
    
    
    99.9Makita Herramientas
Electricas de Argentina S.A.
    
    Argentine
    
    
    100.0Makita Chile Ltda.
    
    Chile
    
    
    100.0Makita (Australia) Pty. Ltd.
    
    Australia
    
    
    100.0Makita (New Zealand) Ltd.
    
    New Zealand
    
    
    100.0Makita International Europe Ltd.
    
    U.K.
    
    
    100.0Makita (U.K.) Ltd.
    
    U.K.
    
    
    100.0Makita Manufacturing Europe Ltd.
    
    U.K.
    
    
    100.0Makita France S.A.
    
    France
    
    
    55.0Makita Benelux B.V.
    
    The Netherlands
    
    
    100.0Euro Makita Corporation B.V.
    
    The Netherlands
    
    
    100.0S.A. Makita N.V.
    
    Belgium
    
    
    100.0Makita S.p.A.
    
    Italy
    
    
    100.0Makita Werkzeug GmbH
    
    Germany
    
    
    100.0Dolmar GmbH
    
    Germany
    
    
    100.0Makita Werkzeug Gesellschaft m.b.H.
    
    Austria
    
    
    100.0Makita Sp.Z O.O.
    
    Poland
    
    
    100.0Makita SA
    
    Switzerland
    
    
    100.0Makita, S.A.
    
    Spain
    
    
    100.0Makita Gulf FZE
    
    U.A.E.
    
    
    100.0Makita Oy
    
    Finland
    
    
    100.0Makita Singapore Pte. Ltd.
    
    Singapore
    
    
    100.0Makita (Taiwan) Ltd.
    
    Taiwan
    
    
    100.0Makita Power Tools (HK) Ltd.
    
    China
    
    
    100.0Makita (China) Co., Ltd.
    
    China
    
    
    100.0Makita (Kunshan) Co., Ltd.
    
    China
    
    
    100.0Makita Korea Co., Ltd.
    
    Korea
    
    
    100.0Joyama Kaihatsu Ltd.
    
    Japan
    
    
    100.0Makita Ichinomiya Corporation
and 9 other subsidiaries
    
    Japan
    
    
    100.0
 Note: Proportion of ownership and voting interest includes indirect ownership
and voting. 12




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##### Table of Contents



D. Property, plants and equipment The following table sets forth information relating to Makitas principal
production facilities as of March 31, 2004. Floor spaceLocation
    
    (Square meters)
    
    Principal products manufacturedIn Japan;Makita CorporationOkazaki Plants
    
    
    82,782
    
    
    Portable woodworking tools
And portable general purpose toolsMakita Ichinomiya Corporation
    
    
    5,325
    
    
    Stationary woodworking machineOverseas;Makita Corporation of America
    
    
    25,298
    
    
    Portable woodworking tools
And portable general purpose toolsMakita (China) Co., Ltd.
    
    
    32,770
    
    
    Portable woodworking tools
And portable general purpose toolsMakita (Kunshan) Co., Ltd.
    
    
    6,401
    
    
    Portable woodworking tools
And portable general purpose toolsMakita Manufacturing Europe Ltd.
    
    
    11,520
    
    
    Portable woodworking tools
And portable general purpose toolsDolmar GmbH
    
    
    17,747
    
    
    Engine powered equipment
 In addition, the Company owns an aggregate of 170,776 square meters of floor
space occupied by the head office, warehouse facilities, a R&D laboratory, a
training center, dormitories and sales offices. Makitas overseas manufacturing operations are conducted in the United States,
Canada, Brazil, United Kingdom, Germany and China. All buildings and land in
these countries, except for the properties in China, are owned by Makita. None of the buildings or land that Makita owns in Japan is subject to any
mortgage or lien. Makita leases 88 sales offices in Japan and all of its
overseas sales offices and premises, except for the following locations, all
of which are owned by the respective subsidiary companies;  
    
    Head office and certain branch offices of Makita U.S.A., Makita Canada,
and Makita Australia ;
    
    Head office of Makita Germany, Makita France, Makita Benelux (The
Netherlands), Makita Belgium, Makita Italy, Makita Brazil, Makita
Taiwan, and Makita Singapore. Makita considers all of its principal manufacturing facilities and other
significant properties to be in good condition and adequate to meet the needs
of its operations. Makita does not maintain internal records of the exact
production capacity and utilization rates of its manufacturing facilities as
such data can not be obtained without unreasonable effort and expense. Makita
adjusts the volume, quantity and nature of the products it manufactures based on its assessment
of market needs and prospects. Makita believes that its manufacturing
facilities are currently operating at utilization rates that are substantially
in line with current market demand for its products. Makita believes that there are no material environmental issues that may affect
Makitas current use of its assets. 13




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##### Table of Contents



Item 5.
    
    Operating and Financial Review and Prospects 
 A. Operating results The following table sets forth a summary of our results of operations for each
of the years ended March 31, 2002, 2003 and 2004. (Millions of yen, except for percentage amounts)
    
    U.S. Dollars (thousands)2002
    
    2003
    
    2004
    
    2004Change%
    
    
    
    
    
    %
    
    
    
    
    
    %
    
    
    
    
    
    %Net sales
    
    ¥
    166,169
    
    
    
    100.0
    
    
    ¥
    175,603
    
    
    
    100.0
    
    
    ¥
    184,117
    
    
    
    100.0
    
    
    $
    1,770,356
    
    
    
    4.8Cost of sales
    
    
    109,182
    
    
    
    65.7
    
    
    
    110,226
    
    
    
    62.8
    
    
    
    110,322
    
    
    
    59.9
    
    
    
    1,060,789
    
    
    
    0.1Gross profit
    
    
    56,987
    
    
    
    34.3
    
    
    
    65,377
    
    
    
    37.2
    
    
    
    73,795
    
    
    
    40.1
    
    
    
    709,567
    
    
    
    12.9Selling, general and
administrative expenses
    
    
    50,775
    
    
    
    30.6
    
    
    
    51,579
    
    
    
    29.4
    
    
    
    53,698
    
    
    
    29.2
    
    
    
    516,327
    
    
    
    4.1Loss (Gain) on
disposals or sales of
property, plant and
equipment
    
    
    339
    
    
    
    0.2
    
    
    
    1,330
    
    
    
    0.7
    
    
    
    (2,379
    )
    
    
    (1.3
    )
    
    
    (22,875
    )
    
    
    Impairment of
long-lived assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,780
    
    
    
    4.2
    
    
    
    74,807
    
    
    
    Operating income
    
    
    5,873
    
    
    
    3.5
    
    
    
    12,468
    
    
    
    7.1
    
    
    
    14,696
    
    
    
    8.0
    
    
    
    141,308
    
    
    
    17.9Other income (expenses)
Interest and dividend
income
    
    
    848
    
    
    
    0.5
    
    
    
    786
    
    
    
    0.4
    
    
    
    869
    
    
    
    0.5
    
    
    
    8,356
    
    
    
    10.6Interest expense
    
    
    (968
    )
    
    
    (0.6
    )
    
    
    (665
    )
    
    
    (0.4
    )
    
    
    (605
    )
    
    
    (0.3
    )
    
    
    (5,817
    )
    
    
    9.0Exchange gains (losses)
on foreign currency
transactions, net
    
    
    273
    
    
    
    0.2
    
    
    
    (1,460
    )
    
    
    (0.8
    )
    
    
    (202
    )
    
    
    (0.1
    )
    
    
    (1,942
    )
    
    
    86.2Realized gains
(losses) on
securities, net
    
    
    (2,740
    )
    
    
    (1.6
    )
    
    
    (2,590
    )
    
    
    (1.5
    )
    
    
    555
    
    
    
    0.3
    
    
    
    5,336
    
    
    
    Other, net
    
    
    117
    
    
    
    0.0
    
    
    
    753
    
    
    
    0.5
    
    
    
    857
    
    
    
    0.4
    
    
    
    8,240
    
    
    
    13.8Total
    
    
    (2,470
    )
    
    
    (1.5
    )
    
    
    (3,176
    )
    
    
    (1.8
    )
    
    
    1,474
    
    
    
    0.8
    
    
    
    14,173
    
    
    
    Income before income
taxes
    
    
    3,403
    
    
    
    2.0
    
    
    
    9,292
    
    
    
    5.3
    
    
    
    16,170
    
    
    
    8.8
    
    
    
    155,481
    
    
    
    74.0Provision for income
taxes
    
    
    3,270
    
    
    
    
    
    
    
    2,569
    
    
    
    
    
    
    
    8,479
    
    
    
    
    
    
    
    81,529
    
    
    
    Net income
    
    
    133
    
    
    
    0.1
    
    
    
    6,723
    
    
    
    3.8
    
    
    
    7,691
    
    
    
    4.2
    
    
    
    73,952
    
    
    
    14.4
 General Overviews Japans economy has sustained a moderate recovery, owing to such factors as
improvement in corporate performance due to strong exports and capital
investment. U. S economic conditions remained robust during the current
period, as personal consumption remained firm owing to such factor as tax
reductions. In Europe, the U.K. economy remained strong and there were signs
of an economic recovery in Germany, France, and other countries during the
latter half of fiscal 2004. In Asia, Chinas economic growth was supported by
exports, and a general trend of full-scale economic recovery was seen. The principal business of the Company is the manufacture and sale of power
tools and woodworking machines. Principal products include drills, circular
saws, jigsaws, planers, pneumatic nailers, grinders and sanders. Makita has
nine manufacturing centers, two located in Japan, two in China and one each in
the United States, Canada, Brazil, the United Kingdom, and Germany. During
2004, as part of its global business strategy, Makita worked to further cut
costs by moving more of its manufacturing operations to China, as well as by
establishing sales and service subsidiaries in Russia and Eastern European
countries characterized by rapid economic growth. As a result of this
relocation, the Companys processing operations for motors used in its
products will be concentrated in 14




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China, where labor and parts procurement costs are lower. Following on from
this relocation, the Company will convert its manufacturing operations in
other locations to assembly plants to enhance the efficiency of its global
operations. Asset rationalization and management measures taken in fiscal 2004
included a decline in inventories of ¥ 8,280 million and a reduction in
tangible fixed assets of ¥14,833 million, as a result of the revaluation and
sales of certain long-lived assets. On a consolidated basis, our net sales in fiscal 2004 amounted to ¥184,117
million, up 4.8% from the previous fiscal year. Income before income taxes
amounted to ¥16,170 million, 74.0% higher than the previous fiscal year.
Factors accounting for this included a proportionate decrease in the cost of goods
sold compared to our net sales due to the increase in the percentage of
products manufactured in China and the appreciation of the euro. In addition,
the Company reported an improvement in non-operating income items, including
its securities and foreign exchange accounts as well as a gain of ¥2,379
million from the sale of property, plant and equipment, including a portion of
land and structures adjacent to the Companys head office and a portion of the
branch office and warehouse of the Companys U.S. sales subsidiary. These
positive factors more than offset an impairment charge of ¥7,780 million
relating to a golf course and a certain R&D-facility in Japan and a production
facility in the United Kingdom. Fiscal Year (FY) 2004 compared to FY2003 Net sales

FY2004 consolidated net sales amounted to ¥184,117 million, up 4.8%, or ¥8,514
million, from FY 2003 consolidated net sales levels. FY 2004 average yen-dollar
exchange rate was ¥113.2=U.S.$1.00, representing a 7.2% appreciation of the yen
compared with the average level of the yen-dollar exchange rate in the previous
fiscal year. The average level of the yen-euro exchange rate was ¥132.7=1.00
euro, representing a 9.7% depreciation of the yen. Excluding the effect of
appreciation of the euro and the depreciation of the U.S. dollar, net sales
would have increased by 3.8%. Sales by region

Sales in Japan are handled by the Company and overseas sales are handled
primarily through its marketing subsidiaries.

Net sales in Japan edged up 0.9%, or ¥361 million, to ¥39,142 million,
accounting for 21.3% of fiscal 2004 consolidated net sales. This was
attributable to the strength in sales of the Companys mainstay impact driver
products and some new products, particularly renovation-related products, which
was only partly offset by the continuing low level of housing construction
starts.

Net sales in North America fell 8.2%, or ¥3,720 million, to ¥41,853 million
which accounted for 22.7% of fiscal 2004 consolidated net sales. This decrease
was primarily due to the depreciation of the dollar against the yen and overall
weaker demand. In the United States, the Company strengthened its marketing
programs aimed at the professional user market and also reorganized its network
of distribution bases. However, the dollar-denominated value of sales in the
United States declined 3.2%, which resulted from declines in sales volume and
increase of offered sales incentives caused by competitive pressures in the
market.

Sales in Europe surged 15.1%, or ¥8,721 million, to ¥66,369 million, accounting
for 36.0% of fiscal 2004 consolidated net sales. This rise partially reflected
the earlier noted appreciation of the euro against the yen. In addition, strong
sales in Russia, Eastern European countries, the United Kingdom, Germany, and
France enabled the Company to boost its sales in terms of local currencies
(primarily Euro) by 7.2%.

Sales in Asia, excluding Japan, increased 3.4%, or ¥471 million, to ¥14,245
million, accounting for 7.7% of fiscal 2004 consolidated net sales. The
Companys sales in terms of local currencies grew 6.6%. 15




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Sales in other regions including
Australia, Latin America and Middle East surged 13.5% or ¥2,681 million, to
¥22,508 million, accounting for 12.3% of fiscal 2004 consolidated net sales.
The Companys sales in terms of local currencies rose 11.5%. Review of Performance by Product Group Portable General Purpose Tools
The portable general purpose tools group offers a wide range of dependable
cordless drills, hammer drills, rotary hammers, demolition hammers, grinders,
drills, sanders, screwdrivers, impact wrenches, shears, nibblers, and cutters.
This group generates the largest portion of Makitas consolidated net sales. In
FY 2004, sales of portable general purpose tools grew 6.5%, to ¥98,176 million,
accounting for 53.3% of consolidated net sales. In Japan, sales of portable
general purpose tools increased 3.5%, to ¥13,922 million, accounting for 35.6%
of total domestic sales. Overseas sales of portable general purpose tools
increased 7.1%, to ¥84,254 million, or 58.1% of total overseas sales. Portable Woodworking Tools
Principal products in Makitas portable woodworking tools group include
circular saws, jigsaws, recipro saws, planers, routers, trimmers, and pneumatic
nailers. In FY 2004, Makita recorded a 2.4% increase in sales of portable
woodworking tools, to ¥34,452 million, or 18.7% of consolidated net sales.
Domestic sales of portable woodworking tools increased 4.4%, to ¥7,086 million,
accounting for 18.1% of total domestic sales. Makita posted a 1.9% increase in
overseas sales of portable woodworking tools, to ¥27,366 million, which
accounting for
18.9% of total overseas sales in FY 2004. Stationary Woodworking Machines
Makitas extensive lineup of stationary woodworking machines encompasses table
saws, planer-jointers, and band saws. Sales of stationary woodworking machines
in FY 2004 fell 11.1%, to ¥1,711 million, accounting for 1.0% of consolidated
net sales. Domestic sales of stationary woodworking machines dropped 8.6%, to
¥941 million, accounting for 2.4% of total domestic sales. Overseas sales of
stationary woodworking machines were ¥770 million, a 13.9% decrease from the
previous fiscal year, accounting for 0.5% of Makitas total overseas sales. Other Products
Makitas other products category includes industrial-use dust collectors and
generators as well as various products for garden and home use, including chain
saws, brush cutters, grass cutters, hedge trimmers, blowers, and cordless
cleaners. In FY 2004, sales of other products grew 2.1%, to ¥19,548 million,
accounting for 10.6% of net sales. In Japan, Makita recorded a 0.2% rise in
sales of other products, to ¥8,160 million, accounting for 20.8% of total
domestic sales. Overseas sales of other products increased 3.5%, to ¥11,388
million, accounting for 7.9% of total overseas sales. Parts, Repairs and Accessories
Makitas after-sales services include the sale of parts and accessories and
repairs. In FY 2004, parts, repairs, and accessories sales edged up 5.1%, to
¥30,230 million, accounting for 16.4% of consolidated net sales. Domestic sales
of parts, repairs, and accessories declined 3.6% to ¥9,033 million and
contributed 23.1% of total domestic sales. Overseas sales of parts, repairs,
and accessories advanced 9.4%, to ¥21,197 million, accounting for 14.6% of
total overseas sales. Cost of sales
Cost of sales increased 0.1%, or ¥96 million, to ¥110,322 million. Previously,
processes from processing stages through assembly stages were handled at each
factory, but Makita has worked to reduce costs by shifting some 16




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processing work, such as that related to a portion of motors, to subsidiaries
in China, which have lower labor costs than their factories in Japan;
increasing efficiency; and reducing costs by positioning other overseas
subsidiaries as specializing in assembly processes. In addition, Makita has
concentrated its capabilities and developed the Maktec line of products that
include a higher share of relatively inexpensive materials from China. Sales of
Maktec products have been initiated in Asia, Oceania, and Europe. Consequently,
the ratio of cost of sales to net sales improved by 2.9 percentage points,
falling from 62.8% to 59.9%. Gross profit
In addition to cost reductions, the appreciation of the euro against the yen
and the dollar increased the profitability of products manufactured in Japan
and China and marketed in Europe. As a result, gross profit in FY 2004
increased 12.9%, to ¥73,795 million. The ratio of gross profit to net sales
improved 2.9 percentage points, from 37.2% to 40.1%. Selling, general and administrative expenses
Selling, general and administrative (SG&A) expenses grew 4.1%, or ¥2,119
million, to ¥53,698 million, in FY 2004, principally as a result of an increase
in personnel, product shipping, advertising and promotion, and R&D expenses.
However, the ratio of SG&A expenses to net sales edged down 0.2 percentage
point, from 29.4% to 29.2%, principally as a result of drops in the ratios of
personnel and shipping costs and depreciation expenses to net sales. Loss/Gain on disposal or sales of property, plant and equipment
Makita added a new line item, Gain on Sales of Property, Plant and Equipment,
to its consolidated statements of income in FY2004 due to the increased
significance of such gains in FY2004. Gains amounted to ¥2,379 million in
FY2004, versus loss of ¥1,330 million in FY2003. In FY2004, the Company sold a portion of land and structures of its head office
premises in Anjo, Aichi Prefecture in Japan. The gain of ¥1,850 million is
recorded in the Japan segment. In addition, a U.S.-based subsidiary sold its
branches and warehouses due to the reorganization of its distribution network
which resulted in a recorded gain of ¥551 million in the North America segment. Impairment of long-lived assets
FASB Statement No. 144 Accounting for the Impairment or Disposal of Long-Lived
Assets requires an asset impairment adjustment if the sum of the estimated
asset related undiscounted future cash flows is less than the current carrying
value of the asset. If an asset is deemed to be impaired, the value of the
asset is written down to its estimated fair value. In accordance with FASB
Statement No. 144, Makita wrote down ¥7,780 million in property, plant and
equipment in Japan and the United Kingdom in FY 2004, including a golf course
and a certain R&D-facility in Japan and a production facility in the United
Kingdom.
In December 2003, in connection with ongoing strategic revenue growth
and cost cutting initiatives, specifically including an evaluation of
its corporate wide marketing and promotional activities and the cost
benefit relationship therefrom, and the continued rationalization of
certain personnel related costs, Makita made a decision to no longer
consider a golf course owned by a consolidated subsidiary as a
corporate asset and curtailed utilizing such for promotional,
entertainment and employee welfare purposes. As a result of this
decision, Makita performed impairment analysis by considering cash
flows expected to be generated from the golf course on a stand alone
basis and recorded an impairment charge of ¥5,996 million
to reduce the carrying value to its estimated fair value, as
determined on a discounted cash flow basis. Following a decision to discontinue the use of a certain research and
development facility and a related administrative facility during fiscal 2004,
the Company recorded a ¥1,541 million impairment loss on the subject long-lived
asset in the Japan segment. In addition, the Company revalued a production
facility owned by a subsidiary in the United Kingdom that it planned to sell,
based on the estimated prospective selling price of a portion of the factory,
less estimated cost to sell, which resulted in a ¥243 million impairment loss
in the Europe segment. Such production facility was sold in April 2004. 17




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##### Table of Contents



Operating income
As a result of the factors indicated above, operating income grew 17.9%, to
¥14,696 million, in FY 2004, and the ratio of operating income to net sales
rose 0.9 percentage points, from 7.1% to 8.0%. Other income (expenses)
The balance of other income and expenses improved ¥4,650 million (income of
¥1,474 million in FY 2004 versus expense of ¥3,176 million in the previous
year). This mainly resulted from ¥555 million of gains on the sale of
securities, which was made possible by a recovery in stock prices, as compared
to realized losses of securities of ¥2,590 million in the previous year. In
addition, foreign exchange losses declined ¥1,258 million (FY 2004 ¥202 million
loss versus FY 2003 ¥1,460 million loss). This reflected the earlier noted
exchange movements (appreciating Euro and declining Dollar versus Yen) and the
Companys increased use of risk hedging in FY2004. Income before income taxes
Income before income taxes in FY 2004 surged 74.0%, or ¥6,878 million, to
¥16,170 million, and the ratio of operating income to net sales rose 3.5
percentage points, from 5.3% in FY 2003 to 8.8% in FY 2004. Provision for income taxes
Total provision for income taxes increased 230.1%, to ¥8,479 million in FY
2004, mainly because of a rise in the taxable income of the Company and its
subsidiaries. This higher percentage increase in provisions for income taxes
as compared to the percentage increase in income before income taxes was
primarily due to an increase in the effective tax rate.
The effective income tax rate was 52.4%, compared with statutory income tax
rate of 41.4%. The difference between those rates was mainly attributed to the
increase in valuation allowance as a percentage of income before income taxes,
which was caused by 100% valuation allowance granted to deferred income tax
assets on impairment loss on long-lived assets of a subsidiary that operates a
golf course in Japan. Net income
As a result of the foregoing, net income for fiscal 2004 increased 14.4% or ¥
968 million, to ¥7,691 million. Earnings per share
Basic net income per share of common stock amounted to ¥53.2, compared with
¥45.3 in FY 2003. Diluted net income per share amounted to ¥51.9, compared with
¥44.2 in FY 2003. Regional Segments Japan Segment
In FY 2004, sales in the Japan segment grew 2.5%, to ¥89,046 million. Sales to
outside customers advanced 3.2% to ¥48,413 million, which accounted for 26.3%
of consolidated net sales. The increase reflects a 0.9% rise in sales in the
domestic market as well as a 14.2% surge in export sales mainly to Asia.
Segment operating income dropped 63.0%, to ¥1,452 million, due to the earlier
noted ¥ 7,537 million impairment losses with respect to research and
development facility and a golf course that increased operating expenses by
5.6%, to ¥87,594 million. There were no similar impairment related charges in
FY 2003. North America Segment
In FY 2004, sales in the North America segment dropped 8.1%, to ¥45,677
million. Sales to outside customers fell 9.0% to ¥41,699 million, which
accounted for 22.6% of consolidated net sales. This decline in sales to outside
customers was attributed to competitive pressure that caused declines in sales
volume and increase of offered sales incentives, though the economic conditions
remained robust. Segment operating income surged 167.3% to ¥719 18




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##### Table of Contents



million, principally owing to a 9.1% fall in operating expenses to ¥44,958
million. The decrease in operating expenses reflected the improved
profitability of products manufactured in Chinese factories as well as a ¥555
million gain mainly on the sale of marketing branches and warehouses due to the
reorganization of the distribution network of the Companys U.S.-based
marketing subsidiary. It also reflected lower expenses due to restructuring
measures that reduced personnel expenses. Europe Segment
In FY 2004, sales in the Europe segment grew 13.6% to ¥71,836 million. Sales to
outside customers advanced 15.7%, to ¥67,110 million, which accounted for 36.4%
of consolidated net sales. Segment operating income surged 92.8%, to ¥7,478
million, principally owing to a rise in net sales on a local currency basis as
well as to a rise in operating profit rates resulting from the strength of the
euro and the improved cost efficiency following the shift of a portion of our
manufacturing processes to factories in China. Asia Segment
In FY 2004, sales in the Asia segment increased 12.4% to ¥28,976 million. Sales
to outside customers fell 5.7%, to ¥6,612 million, which accounted for 3.6% of
consolidated net sales. Segment operating income grew 22.0%, to ¥2,928 million
in FY 2004. Fiscal Year (FY)2003 compared to FY 2002Net sales
In FY 2003, Makitas consolidated net sales amounted to ¥175,603 million, up
5.7% or ¥9,434 million from fiscal 2002 consolidated net sales levels. In FY 2003, the average level of the yen-dollar exchange rate was
¥122.0=U.S.$1.00, representing a 2.4% appreciation of the yen compared with
the average level of the yen-dollar exchange rate in the previous fiscal year.
The average level of the yen-euro exchange rate was ¥120.9=1,00 euro,
representing a 9.5% depreciation of the yen. Excluding the appreciation of the
Euro and the depreciation of the U.S. dollar, net sales would have increased
by 3.9%. Sales by region
Net sales in Japan declined 1.8%, to ¥38,781 million and accounted for 22.1% of
fiscal 2003 consolidated net sales, reflecting such factors as a decrease in
housing construction starts that reduced demand for power tools and the desire
of marketing outlets to maintain low inventory levels amid deflationary
conditions that showed no signs of recovery. In contrast, net sales overseas
increased 8.0% from ¥126,659 million in FY 2002, to ¥136,822 million in FY
2003, owing to such factors as increased sales in each region other than North
America, as well as the earlier noted Euro appreciation and an overall tendency
in currency exchange rates toward yen depreciation.
Looking at sales in individual overseas regions, sales in North America fell
5.7%, to ¥45,573 million, accounting for 26.0% of fiscal 2003 consolidated net
sales. The drop in sales reflected the perceived economic slowdown during the
latter half of the fiscal year against the backdrop of the Iraq crisis as well
as the increasing market share of Chinese-made products and a 2.4% appreciation
of the yen against the U.S. dollar. Sales in Europe surged 18.9%, to ¥57,648
million, accounting for 32.8% of fiscal 2003 consolidated net sales. Despite
continued overall sluggishness in European markets which reflected a lack of
growth in domestic demand in principal European countries due to the weakness
of personal consumption and other factors, Makita considerably boosted its
sales in the region owing to its launch of popular new products, its expansion
of marketing activities in Eastern Europe and Russia, and the 9.5% depreciation
of the yen against the euro. Sales in Southeast Asia increased 11.3%, to
¥13,774 million accounting for 7.8% of fiscal 2003 consolidated net sales.
Despite the perception of a temporary slackening of demand in the region,
Makita recorded strong sales due to the launch of a new product series. Sales
in Oceania grew 19.7%, to ¥8,517 million, accounting for 4.9% of fiscal 2003
consolidated net sales. Reflecting a rise in the number 19




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##### Table of Contents



of African countries and other countries where the marketing of Makita products
was newly initiated, sales in other regions increased 9.3%, to ¥11,310 million,
accounting for 6.4% of fiscal 2003 consolidated net sales. Review of Performance by Product GroupPortable Woodworking Tools
Principal products in Makitas portable woodworking tools group include
circular saws, jig saws, recipro saws, planers, routers, trimmers, and
pneumatic nailers. In FY 2003, Makita recorded a 3.3% increase in sales of
portable woodworking tools, to ¥33,637 million, or 19.1% of consolidated net
sales. Domestic sales of portable woodworking tools increased 2.2%, to ¥6,786
million, accounting for 17.5% of total domestic sales. Makita posted a 3.5%
increase in overseas sales of portable woodworking tools, to ¥26,851 million,
which accounted for 19.6% of total overseas sales in FY 2003. Portable General Purpose Tools
The portable general purpose tools group offers a wide range of dependable
cordless drills, hammer drills, rotary hammers, demolition hammers, grinders,
drills, sanders, screwdrivers, impact wrenches, shears, nibblers, and cutters.
This group generates the largest portion of Makitas consolidated net sales. In
FY 2003, sales of portable general purpose tools grew 8.1%, to ¥92,144 million,
accounting for 52.5% of consolidated net sales. In Japan, sales of portable
general purpose tools decreased 3.9%, to ¥13,452 million, accounting for 34.7%
of total domestic sales. Overseas sales of portable general purpose tools
increased 10.5%, to ¥78,692 million, or 57.5% of total overseas sales. Stationary Woodworking Machines
Makitas extensive lineup of stationary woodworking machines encompasses table
saws, planer-jointers and band saws. Sales of stationary woodworking machines
in FY 2003 declined 14.3%, to ¥1,924 million, or 1.1% of consolidated net
sales. Domestic sales of stationary woodworking machines dropped 8.6%, to
¥1,030 million, or 2.7% of total domestic sales. Overseas sales of stationary
woodworking machines were ¥894 million, a 20.0% decrease from the previous
fiscal year, and accounted for 0.7% of Makitas total overseas sales. Other Products
Makitas other products category includes industrial-use dust collectors and
generators as well as various products for garden and home use, including chain
saws, brush cutters, grass cutters, hedge trimmers, blowers, and cordless
cleaners. In FY 2003, sales of other products grew 6.8%, to ¥19,142 million,
accounting for 10.9% of net sales. In Japan, Makita recorded a 4.6% decrease in
sales of other products, to ¥8,140 million, or 21.0% of total domestic sales.
Overseas sales of other products increased 17.3%, to ¥11,002 million, or 8.0%
of total overseas sales. Parts, Repairs and Accessories
Makitas after-sales services include the sale of parts and accessories and
repairs. In FY 2003, parts, repairs, and accessories sales rose 1.9%, to
¥28,756 million, or 16.4% of consolidated net sales. Domestic sales of parts,
repairs, and accessories rose 1.7%, to ¥9,373 million, and contributed to 24.1%
of total domestic sales. Overseas sales of parts, repairs, and accessories
increased 2.0%, to ¥19,383 million, or 14.2% of total overseas sales. Cost of sales
Cost of sales increased 1.0%, to ¥110,226 million. The ratio of cost of sales
to net sales improved to 62.8%, from 65.7%, primarily owing to a shift of
manufacturing operations to subsidiaries in China, which has a lower labor cost
than Company factories in Japan and other countries, improvement of
productivity of overseas factories, and the reduction of inventory reserve due
to decreased inventory levels. 20




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Gross profit
As a result, gross profit in FY 2003 increased 14.7%, to ¥65,377 million. The
ratio of gross profit to net sales improved to 37.2%, from 34.3%. Selling, general and administrative expenses
Selling, general and administrative (SG&A) expenses grew 3.5%, or ¥1,795
million, to ¥52,909 million in FY 2003, principally as a result of an increase
in labor expenses and an increase in losses in connection with disposal of
certain assets of Joyama Kaihatsu Ltd., a golf course owned by Makita. The
ratio of SG&A expenses to net sales edged down to 30.1%, from 30.8%,
principally as a result of drops in the ratios of shipping expenses and
advertising and promotional expenses to net sales. Operating income
As a result of the factors indicated above, operating income grew 112.3%, to
¥12,468 million in FY 2003, and the ratio of operating income to net sales rose
from 3.5% to 7.1%. Other income (expenses) The balance of other income and expenses worsened to a net expense of ¥3,176
million in FY 2003, from a net expense of ¥2,470 million in the previous year.
This increase in net resulted mainly from a foreign exchange loss associated
with the appreciation of the yen against the U.S. dollar and the depreciation
of Latin American currencies against the U.S. dollar. Income before income taxes
Income before income taxes in FY 2003 surged 173.1%, to ¥9,292 million, and the
ratio of operating income to net sales rose from 2.0% in FY 2002 to 5.3% in FY
2003. Provision for income taxes
Total provision for income taxes decreased 21.4%, to ¥2,569 million in FY 2003.
The effective tax rate dropped to 27.6%, from 96.1% in the previous fiscal
year, owing to a decrease in the net losses of subsidiaries for which tax
benefits were previously not recognized due to concern overreliability, as well
as the recording of Japan-US advance pricing agreement repayments. In 1997,
Makita USA and the Company entered into a bilateral advance pricing agreement
(APA) negotiation with the Internal Revenue Service (IRS) and National Tax
Authority of Japan (NTA) to avoid double taxation resulting from transfer price
adjustments. The APA covers fiscal years 1995 through 2001. In July 2002, the
IRS and the NTA reached an agreement, which resulted in additional taxable
income and reduced operating loss carryforwards in the U.S., and a reduction of
taxable income and tax liability in Japan. Consequently the finalized APA
resulted in an overall decrease to income taxes in FY 2003. According to the
tax sparing provisions of tax treaties which have been concluded between
Japan and 19 countries, Japanese corporations can claim a tax credit against
Japanese income taxes on income earned in any one of those 19 countries, even
though that income is exempted from income taxes or is reduced by special tax
incentive measures in those countries, as if no special exemption or reduction
was provided. Makita applied tax sparing mainly to China. Such tax sparing also
reduced the effective tax rate in FY 2003. As a result of the enactment of an amendment to the Japanese local tax law on
March 31, 2003, the effective tax rate used for the calculation of deferred tax
assets and liabilities has been changed form 41.4% to 40.2% for years beginning
after March 31, 2004. The effect of this tax rate change of ¥312 million was
charged to income taxes. Net income
As a result, net income for fiscal 2003 increased 4954.9%, to ¥6,723 million. 21




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Earnings per share
Basic net income per share of common stock amounted to ¥45.3, compared with
¥0.9 in FY 2002. Diluted net income per share amounted to ¥44.2, compared with
¥0.9 in FY 2002. Regional Segments Japan Segment
In FY 2003, sales in the Japan segment dropped 3.6%, to ¥86,839 million. Sales
to outside customers advanced 1.9% to ¥46,896 million, which accounts for 26.7%
of consolidated net sales. The increase reflects a 1.8% reduction in sales in
the domestic market as well as a 24.5% surge in export sales to domestic
trading companies and other companies that recorded robust exports to Asia.
Segment operating income dropped 40.8%, to ¥3,926 million, mainly due to
increase in losses in connection with disposal of certain assets of Joyama
Kaihatsu Ltd., a golf course owned by Makita. North America Segment
In FY 2003, sales in the North America segment dropped 1.4%, to ¥49,705
million. Sales to outside customers fell 6.2% to ¥45,807 million. This accounts
for 26.1% of consolidated net sales.
The North America segment reported an improvement in operating profitability,
as operating income rose to ¥269 million, compared with an operating loss of
¥3,740 million in the previous fiscal year. This increase in profitability was
primarily due to reduction in manufacturing costs. Europe Segment
In FY 2003, sales in the Europe segment grew 19.7%, to ¥63,222 million. Sales
to outside customers advanced 19.0%, to ¥57,995 million, which accounts for
33.0% of consolidated net sales. Segment operating income surged 82.4%, to
¥3,879 million, as the Companys price-competitiveness improved in comparison
with competitors based in Europe, along with the appreciation of the euro. Asia Segment
In FY 2003, sales in the Asia segment increased 11.2%, to ¥25,788 million.
Sales to outside customers rose 5.3%, to ¥7,013 million, which accounts for
4.0% of consolidated net sales. Segment operating income grew 12.1%, to ¥2,400
million. CRITICAL ACCOUNTING POLICIES
As disclosed in Note 2 of the Notes to the accompanying consolidated financial
statements, the preparation of Makitas consolidated financial statements in
accordance with accounting principles generally accepted in the United States
of America requires management to make certain estimates and assumptions. These
estimates and assumptions were determined by managements judgment based on
currently known facts, situations and plans for future activities, which may
change in the future. Certain accounting estimates are particularly sensitive
because of their significance to the consolidated financial statements and
accompanying notes and due to the possibility that future events affecting the
estimates may differ significantly from managements current judgments.
Accordingly, any change in the facts, situations, future plans or other factors
on which management bases its estimates may result in a significant difference
between earlier estimates and the actual results achieved. Makita believes that
the following are the critical accounting policies and related judgments and
estimates used in the preparation of its consolidated financial statements and
accompanying notes. 22




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##### Table of Contents



Allowance for Doubtful Receivables
Makita performs ongoing credit evaluations of its customers and adjusts credit
limits based upon payment history and the customers current creditworthiness,
as determined by Makitas review of their current credit information. Makita
continuously monitors collections and payments from its customers and maintains
a provision for probable estimated credit losses based upon its historical
experience and any specific customer collection issues that Makita has
identified. Such credit losses have historically been within Makitas
expectations and the provisions established. However, Makita cannot guarantee
that it will continue to experience the same credit loss rates that it has in
the past. Changes in the underlying financial condition of its customers could
result in a material impact to Makitas consolidated results of operations and
financial conditions. Impairment of Long-Lived Assets
Makita believes that impairment of long-lived assets is critical for its
financial statements because Makita has significant amounts of property, plant
and equipment, the recoverability of which significantly affects its results
of operations.
Makita periodically performs an impairment review for long-lived assets held
and used whenever events or changes in circumstances indicate that the carrying
value of the assets may not be recoverable. This review is based upon Makitas
projections of expected undiscounted future cash flows. Estimates of the future
cash flows are based on the historical trends adjusted to reflect the best
estimate of future operating conditions. Makita believes that its estimates are
reasonable. However, different assumptions regarding such cash flows could
materially affect Makitas evaluations. Recoverability of assets to be held and
used is assessed by comparing the carrying amount of an asset or asset group to
the expected future undiscounted cash flows of the asset or group of assets. If
an asset or group of assets is considered to be impaired due to factors such as
significant decline in market value of an asset, current period operating cash
flow loss and significant changes in the manner of the use of an asset, the
impairment charge to be recognized is measured as the amount by which the
carrying amount of the asset or group of assets exceeds fair value. Long-lived
assets meeting the criteria to be considered as held for sale are reported at
the lower of their carrying amount or fair value less costs to
sell.
Fair value is determined based on recent transactions involving sales of
similar assets or on appraisals prepared internally or externally, or by using
other valuation techniques. If actual market and operating conditions under
which assets are operated are less favorable than those projected by
management, resulting in lower expected future cash flows or shorter expected
future period to generate such cash flows, additional impairment charges may be
required. In addition, changes in estimates resulting in lower fair values due
to unanticipated changes in business or operating assumptions could adversely
affect the valuations of long-lived assets. Accrued Retirement and Termination Benefits
Makita believes that pension accounting is critical for its financial
statements because assumptions used to estimate pension benefit obligations
and pension expenses can have a significant effect on its operating results
and financial condition. Accrued retirement and termination benefits are
determined based on consideration of the levels of retirement and termination
liabilities and plan assets at the end of a given fiscal year. The levels of
projected benefit obligations and net periodic benefit cost are calculated
based on various annuity actuarial calculation assumptions. Principal
assumptions include discount rates, assumed rates of increase in future
compensation levels, mortality rates and some other assumed rates. Discount
rates employed by Makita must be reflective of rates available on long-term,
high quality fixed-income debt instruments. Discount rates are determined
annually on the measurement date. The expected long-term rate of return on plan assets is determined annually
based on the composition of the pension asset portfolios and the expected
long-term rate of return on these portfolios. The expected long-term rate of
return on plan assets is designed to approximate the long-term rate of return
actually earned on the plan assets over time to ensure that funds are available
to meet the pension obligations that result from the services
provided by employees. 23




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##### Table of Contents



A number of factors are used to determine the reasonableness of the
expected long-term rate of return, including actual historical returns on the
asset classes of the plans portfolios and independent projections of returns
of the various asset classes. Accordingly, these assumptions are evaluated annually and retirement and
termination liabilities are recalculated at the end of each fiscal year based
on the latest assumptions. In accordance with accounting principles generally
accepted in the United States of America, actual results that differ from the
assumptions are accumulated and amortized over the future periods and
therefore, generally affect Makitas result of operation in such future
periods. Makita has a contributory retirement plan in Japan, which covers substantially
all of the employees of the Company. The discount rate assumed to determine the
pension obligation for the pension plan was 2.0% for the year ended March 31,
2004. Raising the discount rate for the pension plan by 0.5% would have
decreased the projected benefit obligation by approximately ¥5.8 billion at the
end of fiscal 2004, while reducing the discount rate by 0.5% would have
resulted in increased projected benefit obligation by approximately ¥6.8
billion. See Note 8 to the accompanying consolidated financial statement. While Makita believes that the assumptions are appropriate, significant
differences in its actual experience or significant changes in its assumptions
may materially affect Makitas accrued retirement and termination benefits and
future expenses. Realizability of Deferred Income Tax Assets
Makita is required to estimate its income taxes in each of the jurisdictions in
which Makita operates. This process involves estimating Makitas current tax
provision together with assessing temporary differences resulting from
differing treatment of items for income tax reporting and financial accounting
and reporting purposes. Such differences result in deferred income tax assets
and liabilities, which are included within Makitas consolidated balance
sheets. Makita must then assess the likelihood that Makitas deferred income
tax assets will be recovered from future taxable income, and to the extent
Makita believes that recovery is not more likely than not, Makita must
establish a valuation allowance. Significant management judgment is required in determining our provision for
income taxes, deferred income tax assets and liabilities and any valuation
allowance recorded against our net deferred income tax assets. We have recorded
a valuation allowance of ¥8,828 million as of March 31, 2004 due to
uncertainties about our ability to utilize certain deferred income tax assets
mainly for net operating loss carry forwards before they expire and an
impairment loss recognized for a golf course subsidiary. For the balance of
deferred income taxes, although realization is not assured, management
believes, judging from an authorized business plan, it is more likely than not
that all of the deferred income tax assets, less valuation allowance, will be
realized. The amount of such net deferred income tax assets that are considered
realizable, however, could change in the near term and any such change may have
a material effect on Makitas consolidated results of operations and financial
position if estimates of future taxable income are different. 
 B.     Liquidity and capital resources The Companys principal sources of liquidity are cash on hand, cash provided by
operating activities, and borrowings within credit lines. As of March 31, 2004,
the Company held cash and cash equivalents amounting to ¥24,576 million and the
Companys subsidiaries have credit lines up to ¥22,264 million. As of March 31,
2004, ¥1,044 million of these credit lines were used by overseas subsidiaries
and ¥21,220 million was unused. As of March 31, 2004, the
Company had ¥14,128 million in short-term borrowing, which included ¥12,994
million raised from the Companys third issuance of unsecured convertible
bonds, ¥1,044 million in bank borrowings, and ¥90 million in capital lease
obligations. The ¥12,994 outstanding convertible bonds are due for 24




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##### Table of Contents



repayment in March 2005. The Company plans to repay these bonds from its
current holdings of government bonds and other highly liquid assets. For
further information regarding our short-term borrowings, including the average
interest rate, see Note 9 to our accompanying consolidated financial
statements. Long-term indebtedness included bank and insurance company
borrowings and capital lease obligations. Certain borrowings of the Companys
financial subsidiary, amounting to ¥6,000 million, will fall due in March 2006.
The Company is scheduled to repay this indebtedness by using ¥ 6,000 million of
its term deposits and securities. As of March 31, 2004, the Companys total short-term borrowings and long-term
indebtedness amounted to ¥21,492 million, representing a decrease from the
¥22,735 million reported for the previous fiscal year-end. The Companys ratio
of indebtedness to shareholders equity declined 1.4%, to 11.1%. The reduction
in the balance of indebtedness and the decline in the ratio of total
indebtedness to shareholders equity reflect the efforts of management to
improve the efficiency of the usage of the Companys capital by reducing the
level of unused net cash provided by operating activities. Except as disclosed above, Makita has no potentially significant refinancing
requirements in fiscal 2005. Makita expects to continue to incur additional
indebtedness from time to time as required to finance working capital needs. Makita has historically maintained a high level of liquid assets. Management
estimates that the cash and cash equivalents level of ¥24,576 million as of
March 31, 2004, together with Makitas available credit facilities, cash flow
from operations, funds available from long-term and short-term debt financing,
will be
sufficient to satisfy our future working capital needs, capital expenditure,
research and development and debt service requirements through fiscal
2005 and thereafter. The ratings of convertible bonds, due 2005 from credit rating agencies
have not changed during the year. The ratings at March 31, 2004, were: Standard & Poors
    
    
    AMoodys Investors Service
    
    
    A2Rating and Investment Information, Inc.( R&I)
    
    
    A+
 We believe that Makita will continue to be able to access the capital markets
on terms and in amounts that will be satisfactory to us and as necessary to
support our business and to engage in hedging transactions on commercially
acceptable terms. Maintaining the level of the Companys production and marketing activities
requires capital investments of approximately ¥5 billion to ¥7 billion
annually. Please see -Fiscal Year 2004-Capital Expenditures below in this
section for a description of our principal capital expenditures for fiscal 2004
and the main planned expenditures for fiscal 2005. At the Regular General Meeting of Shareholders held in
June 2004, the Companys shareholders approved a cash dividend of ¥13 yen per
share. Total scheduled cash dividend payments amount to ¥1,871 million, which
the Company paid in June 2004. Fiscal year 2004 Cash Flows Net cash provided by operating activities in FY 2004 increased by ¥1,800 million to ¥28,941 million from ¥27,141 million in the previous fiscal year.
Of the Cash provided by operating activities,
¥19,643 million was provided by operations and
¥9,298 million was provided by changes in working capital.
The working capital changes occurred principally from increases in
inventories, accounts payable and accrued expenses partially offset
by a decrease in trade receivables. 25




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##### Table of Contents



In FY 2004, our net cash used in investing activities increased by ¥7,603
million to ¥17,262 million, from ¥9,659 million in the previous fiscal year.
Net cash outflow decreased by ¥5,154 million due to the sale of land and
structures adjacent to the Companys head office in Japan as well as branches
and warehouses in the United States and the reduction of cash used for capital
investment to ¥4,494 million from ¥5,691 million in FY 2004. Cash usage
increased because net securities purchases increased by ¥12,767 million to
¥16,762 million and our time deposits increased by ¥621 million to ¥1,162
million, as a result of an accumulation of funds in preparation for the
payments due to redeem our ¥12,994 million outstanding convertible bonds maturing in March 2005 as
well as the management of funds on hand. Net cash used in financing activities amounted to ¥6,596 million, compared with
¥13,381 million in the previous fiscal year. This included ¥2,220 million used
to purchase and retire treasury stock (2,074,685 shares) and ¥2,610 million
used to pay cash dividends. In FY 2004, net cash outflow from financing
activities decreased by ¥6,785 million to
¥6,596 million mainly due to a decrease in net repayment of short-term borrowings, a decrease in the
redemption of bonds and the repayment of club members deposits. As a result of these activities as well as the effects of exchange rate
changes, our cash and cash equivalents at March 31, 2004 amounted to ¥24,576
million, up ¥4,206 million from the end of fiscal 2003. Capital Expenditures Makita has continued to allocate sizable amounts of funds for capital
expenditures, which Makita believes is crucial for sustaining long-term growth.
However, in view of the severity of its current market competition, the
Company has focused its capital investments principally on expanding its new
plant in China and purchasing metal molds for new products to be manufactured
in Japan and China and in certain other areas, which enabled the Company to
reduce the amount of its capital expenditures in fiscal 2004 compare to fiscal
2003. Total capital expenditures amounted to ¥5,958 million, ¥5,691 million and
¥4,494 million for fiscal 2002, 2003 and 2004, respectively. Capital
expenditures in fiscal 2004 were mainly for the purchase of molds for new
products and construction of production facilities in Japan and Chinese plants. The capital
investments of the Company amounted to approximately ¥1.9 billion, while the
capital investments of overseas subsidiaries including manufacturing
subsidiaries in such countries as Germany, China, and the United States
amounted to approximately ¥2.6 billion. Capital expenditures for Makitas consolidated subsidiaries consisted primarily
of the construction of a headquarters building for Makita (Australia) Pty.
Ltd., the purchase of metal molds for new products of Dolmar GmbH, the
acquisition of production equipment by Makita (China) Co., Ltd. and the
construction of an assembly plant for Makita (Kunshan) Co., Ltd.
All of Makitas capital expenditures in fiscal 2004 were funded through internal
sources. Under its investment plans for fiscal 2005, the Makita Group is scheduled to
make capital investments totaling ¥6.0 billion, 34% higher than for the fiscal
2004. Of this total, the Company plans to make direct investments of ¥2.8
billion and its consolidated subsidiaries will invest ¥3.2 billion. 26




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##### Table of Contents



Fiscal year 2003 Cash Flows During fiscal 2003, Makitas cash flows from operating activities served as the
basic financing source for funds required for operating activities, capital
investment, research and development cost and the payment of dividends. Capital
investment was restrained to below the level of depreciation during fiscal
2003, just as in the previous fiscal year. Net cash provided by operating
activities was ¥27,141 million, compared with ¥20,196 million in the previous
fiscal year, mainly reflecting an increase in net income from ¥133 million in
FY 2002 to ¥6,723 million in FY 2003. Net cash used in investing activities
amounted to ¥9,659 million, compared with ¥1,151 million in net cash used in
investing activities in the previous fiscal year. This reflected cash outflow
due to capital expenditures, which were mainly for the construction of a new
headquarters facility in Japan and the net outflow in connection with the
purchase and sales of marketable and investment securities. Marketable and
investment securities are available for current operations and redemption of
convertible bonds due in FY 2005. Principally reflecting a drop in short-term
borrowings, due to the promotion of intra-Group financing transactions as well
as the purchase of common stock of Makita, net cash used in financing
activities amounted to ¥13,381 million, compared with ¥16,318 million in the
previous fiscal year. As a result of the preceding activities as well as the effects of exchange rate
changes on cash and cash equivalents, cash and cash equivalents, end of year,
increased ¥4,640 million, to ¥20,370 million. Capital Expenditures Makita has continued to allocate sizable amounts of funds for capital
expenditures, which Makita believes is crucial to sustaining long-term growth.
In view of the harshness of the operating environment, however, Makita limited
its capital expenditures in FY 2003 to ¥5,691 million, which was mainly used
for the construction of a new head quarters facility and the productive
purchase of molds for new products in Japan and China. Financial Position
Total assets at the end of fiscal 2004 amounted to ¥278,116 million, down 0.2%
from the previous fiscal year-end. Total current assets increased 12.0%, to
¥194,445 million, owing to such factors as the appreciation of securities.
Property, plant and equipment, at cost less accumulated depreciation, decreased
21.9%, to ¥52,965 million, reflecting the impairment of certain assets and the
restraint of capital investment to an annual rate lower than the rate of
depreciation. Investments and other assets dropped 17.5%, to ¥30,706 million,
because of a decrease in deferred tax assets. Total current liabilities grew
46.6%, to ¥46,623 million, reflecting the shift of convertible bonds maturing
in March 2005 to the current portion of long-term debt as well as a rise in
outstanding income taxes that accompanied the increase in income before income
taxes. Long-term liabilities dropped 41.7%, to ¥36,891 million, mainly because
of the shift of convertible bonds to the current portion of long-term debt as
well as a drop in provisions for retirement allowances that accompanied an
improvement in the profitability of pension fund management. Working capital
amounted to ¥147,822 million at the end of fiscal 2004. The current ratio was
4.2 times, compared with 5.5 at the previous year-end. Shareholders equity
grew 6.0%, to ¥193,348 million, because of the rise in net income as well as
the recovery in stock markets, which increased the value of net unrealized
holding gains on available-for-sale securities and the minimum pension
liability adjustment within total accumulated other comprehensive loss. As a
result, the shareholders equity ratio rose to 69.5%, from 65.5% at the
previous fiscal year-end. 27




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##### Table of Contents



C.     Research and development, patents and licenses Approximately 420 of Makitas employees are engaged in research and
development activities and product design. Makita also employs approximately
110 trained personnel in production engineering, and has developed a number of
the machine tools currently used in its factories. The majority of such
personnel are engaged in research and development of mechanical innovations,
and the remainders are engaged in electric, electronic and other applications. Makita places high priority on R&D and believes that strong capabilities in R&D
are crucial to its continuing development of high-quality, reliable products
that meet users needs. In FY 2004, Makita allocated ¥4,086 million to R&D, up
6.0% from the allocation in the previous year. This was equivalent to 2.2% of
net sales. In FY 2003, Makita allocated ¥3,856 million for R&D, up 2.9% from
the ¥3,746 million allocation in FY 2002. The ratio of R&D expenses
to net sales in FY 2003 was 2.2% compared to 2.3% in FY 2002. The Company is placing higher priority on designing power tools that are
smaller and lighter, feature electronic controls and have internal power
sources that allow cordless operation. Additional design priorities include
developing units that feature low noise, low vibration, measures to restrain
dust emissions and new safety features. Still another priority is to design
units that can be recycled to address environmental concerns. Moreover, to
respond quickly to customers needs, the Company is also placing emphasis on
shortening the time needed for new product development. To strengthen initiatives to reduce costs, in FY 2004 the Company focused
development activities on a more limited range of items and set objectives for
developing models that use more standard parts. New products developed in FY
2004 included a rechargeable impact driver, an interior, right-angle circular
saw and other products. In addition, the Company expanded its development program for the MAKTEC
series. Parts for this series are mostly procured locally in China. In
addition, the MAKTEC series focus on performance in practical work settings
and limit the number of features to achieve an improved balance between cost
and performance. The basic concept of this series is the development of
products that offer sufficient durability along with quality and safety. 
 D.     Trend information In the United States, despite a decline in orders from home centers, a steady
rise in orders for professional-use products is expected. Moreover, the Company
has reorganized its distribution bases and is continuing to reduce its
inventories and distribution costs with the goal of strengthening its
structural profitability.
In Europe, the launch of numerous new products spurred robust orders, and
inventories were maintained at appropriate levels. In the future, the Company
expects growth in orders from Eastern European countries and Russia. In Japan,
the demand for power tools remains lackluster, but sales of new products
designed for the home refurbishing and reform market have been strong. 
 E.     Off-balance sheet arrangements The Company did not have any off-balance sheet arrangements as of March 31,
2004. 28




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##### Table of Contents



F.     Tabular disclosure of contractual obligations Yen (millions)Expected maturity date, year ending March 31,Other andTotal
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    ThereafterJapanese yen convertible bonds
    
    
    12,994
    
    
    ¥
    12,994
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    Foreign currency loans from bank
    
    
    1,044
    
    
    
    1,044
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Japanese yen loans from
Japanese companies
    
    
    800
    
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Japanese yen loans from banks
and insurance companies
    
    
    6,391
    
    
    
    
    
    
    
    6,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Club members deposits
    
    
    13,045
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,045Capital lease
    
    
    263
    
    
    
    90
    
    
    
    87
    
    
    
    41
    
    
    
    13
    
    
    
    7
    
    
    
    25Operating lease
    
    
    2,094
    
    
    
    578
    
    
    
    462
    
    
    
    324
    
    
    
    241
    
    
    
    198
    
    
    
    291Purchase Obligation
    
    
    8,175
    
    
    
    8,175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    ¥
    44,806
    
    
    ¥
    23,681
    
    
    ¥
    6,940
    
    
    ¥
    365
    
    
    ¥
    254
    
    
    ¥
    205
    
    
    ¥
    13,361
 U.S. Dollars (thousands)Expected maturity date, year ending March 31,Total
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    ThereafterJapanese yen convertible bonds
    
    
    124,942
    
    
    $
    124,942
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Foreign currency loans from bank
    
    
    10,038
    
    
    
    10,038
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Japanese yen loans from
Japanese companies
    
    
    7,692
    
    
    
    7,692
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Japanese yen loans from banks
and insurance companies
    
    
    61,452
    
    
    
    
    
    
    
    61,452
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Club members deposits
    
    
    125,433
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,433Capital lease
    
    
    2,529
    
    
    
    866
    
    
    
    837
    
    
    
    394
    
    
    
    125
    
    
    
    67
    
    
    
    240Operating lease
    
    
    20,135
    
    
    
    5,558
    
    
    
    4,442
    
    
    
    3,316
    
    
    
    2,317
    
    
    
    1,904
    
    
    
    2,798Purchase Obligation
    
    
    78,606
    
    
    
    78,606
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    430,827
    
    
    $
    227,7024
    
    
    $
    66,731
    
    
    $
    3,510
    
    
    $
    2,442
    
    
    $
    1,971
    
    
    $
    128,471
 29




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##### Table of Contents



Item 6.
    
    Directors, Senior Management and Employees 
  A.
    
    Directors and senior management The Directors and Statutory Auditors of the Company as of June 29, 2004 are as
follows: Masahiko Goto
Current Position: President, Representative Director since May 1989
Date of Birth: November 16, 1946
Director since: May 1984 Masami Tsuruta
Current Position: Managing Director, General Manager of Domestic Sales Headquarters since June 2003
Date of Birth: December 26, 1942
Director since: June 1995
Business Experience:
June 1995: Director, Assistant General Manager of Domestic Sales Headquarters
June 1997: Director, General Manager of Domestic Sales Marketing Headquarters Yasuhiko Kanzaki
Current Position: Director, General Manager of International Sales Headquarters (Europe Area) since June 2003
Date of Birth: July 9, 1946
Director since: June 1999
Business Experience:
April 1995: Director of Makita International Europe Ltd.
June 1999: Director, Assistant General Manager of International Sales Headquarters 1 Ken-ichiro Nakai
Current Position: Director, General Manager of Administration Headquarters since June 2001
Date of Birth: November 17, 1946
Director since: June 2001
Business Experience:
October 2000: Assistant General Manager of Production Headquarters
April 2001: General Manager of Personnel Department Tadayoshi Torii
Current Position: Director, General Manager of Production Headquarters since June 2003
Date of Birth: December 10, 1946
Director since: June 2001
Business Experience:
October 1998: General Manager of Production Department
June 2001: Director, General Manager of Quality Control Headquarters Tomoyasu Kato
Current Position: Director, General Manager of Research and Development Headquarters since June 2001
Date of Birth: March 25, 1948
Director since: June 2001
Business Experience:
March 1999: General Manager of Technical Administration Department 30




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##### Table of Contents



Kazuya Nakamura
Current Position: Director, General Manager of International Sales Headquarters (Asia and Oceania Area) since June 2003
Date of Birth: April 13, 1948
Director since: June 2001
Business Experience:
October 2000: General Manager of Asia and Oceania Sales Department
June 2001: Director, General Manager of International Sales Headquarters 2 Masahiro Yamaguchi
Current Position: Director, General Manager of Purchasing Headquarters since June 2003
Date of Birth: May 9, 1945
Director since: June 2003
Business Experience:
April 1995: Assistant Manager of International Sales Department
August 1995: Transferred to Makita Manufacturing Europe Ltd.
May 2003: Assistant General Manager of Purchasing Headquarters (Makita Corporation) Shiro Hori
Current Position: Director, General Manager of Overseas Sales Headquarters (America Area and International Administration) since June 2003
Date of Birth: February 24, 1948
Director since: June 2003
Business Experience:
April 1997: Assistant General Manager of Europe Sales Department
March 1999: General Manager of Europe Sales Department Tadashi Asanuma
Current Position: Director, Assistant General Manager of Domestic Sales Marketing Headquarters since June 2003
Date of Birth: January 4, 1949
Director since: June 2003
Business Experience:
April 1995: Manager of Saitama Branch Office
April 2001: General Manager of Osaka Sales Department Hisayoshi Niwa
Current Position: Director, General Manager of Quality Control Headquarters since June 2003
Date of Birth: February 24, 1949
Director since: June 2003
Business Experience:
April 1995: Assistant General Manager of Production Control Department
October 1999: General Manager of Production Control Department Zenji Mashiko
Current Position: Director, Assistant General Manager of Domestic Sales Marketing Headquarters since June 2003
Date of Birth: May 28, 1949
Director since: June 2003
Business Experience:
April 1995: Manager of Tokyo Branch Office 31




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##### Table of Contents



Akio Kondo
Current Position: Standing Statutory Auditor since June 2004
Date of Birth: February 3, 1946
Statutory Auditor since: June 2004
Business Experience:
October 1995: General Manager of Accounting & Finance Department Hiromichi Murase
Current Position: Standing Statutory Auditor since June 2004
Date of Birth: April 5, 1946
Statutory Auditor since: June 2004
Business Experience:
June 1998: General Manager of General Affairs Department Keiichi Usui
Current Position: Outside Statutory Auditor since June 1994
Date of Birth: August 9, 1933
Statutory Auditor since: June 1994 Shoichi Hase
Current Position: Outside Statutory Auditor since June 2001
(Patent attorney, Hase International Patent office)
Date of Birth: March 30, 1934
Statutory Auditor since: June 2001
April 1967: Established Hase Patent Attorney Office The term of each director listed above expires in June 2005. The term of each
of Mr. Akio Kondo and Mr. Hiromichi Murase as Standing Statutory Auditor and
Mr. Shoichi Hase as Statutory Auditor expires in June 2008. The term of Mr.
Usui as Statutory Auditor expires in June 2007.
There is no family relationship between any of the persons named above. There
is no arrangement or understanding with major shareholders, customers,
suppliers, or others pursuant to which any person named above was selected as
a Director or a Statutory Auditor. 
 B.     Compensation The aggregate amount of remuneration, including bonuses but excluding
retirement allowances, paid by the Company during the fiscal year ended March
31, 2004 to all Directors and Statutory Auditors, who served during the fiscal
year ended March 31, 2004, totaled ¥133 million and paid by the Company
during the fiscal year ended March 31,2003 to all Directors and Statutory
Auditors, who served during the fiscal year ended March 31,2003, totaled ¥129 million. Some of the fringe benefits provided by the Company to its
employees in Japan, such as medical and dental service insurance and welfare
pension insurance are also made available to Directors and Standing Statutory
Auditors. 32




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##### Table of Contents



The Company has an unfunded retirement and termination allowances program for
Directors and Statutory Auditors. Under such program, the aggregate amount set
aside as retirement allowances for Directors and Statutory Auditors was ¥427
million as of March 31, 2003 and was decreased to ¥369 million as of March 31,
2004. 
 C.     Board practices The Companys Articles of Incorporation provide for a Board of Directors of 15
or less Directors and 3 to 5 Statutory Auditors. All Directors and Statutory
Auditors are elected at general meetings of shareholders. In general, the term
of office of Directors expires at the conclusion of the ordinary general
meeting of shareholders held with respect to the last closing of accounts
within 2 years after their assumption of office, and in the case of Statutory
Auditors, within 4 years after their assumption of office; however, Directors
and Statutory Auditors may serve any number of consecutive terms. With respect
to each expiration dates of the term of office of Directors and Statutory
Auditors, see A. Directors and senior management in this item above. The Directors constitute the Board of Directors, which has the ultimate
responsibility for administration of our affairs. The Board of Directors may
elect from among its members a Chairman and Director, one or more Vice Chairmen
and Directors, a President and Director, one or more Executive Vice Presidents
and Directors, Senior Managing Directors and Managing Directors. From among the
Directors referred to above, the Board of Directors may elect one or more
Representative Directors. Each Representative Director has the authority
individually to represent the Company in the conduct of the affairs of the
Company. The Statutory Auditors of the Company are not required to be and are not
certified public accountants. However, at least one of the Statutory Auditors
is required to be a person who has not been a director, executive officer, general manager or
any other employee of the Company or any of its subsidiaries during the 5-year period
prior to his election as a Statutory Auditor. After the conclusion of each
ordinary general meeting of shareholders held for any fiscal year ending on or
after May 1, 2005, at least half of the Statutory Auditors are required to be persons
who have never been in the past a director, executive officer,
general manager or any other employee of the Company or any
of its subsidiaries. The Statutory Auditors may not, while acting as such, be
directors, general managers or any other employees of the Company or any of its
subsidiaries, or executive officers of any of the Companys subsidiaries. Each Statutory Auditor has the statutory duty to supervise the administration
by the Directors of the Companys affairs and also to examine the financial
statements and business reports to be submitted by the Board of Directors at
the general meeting of shareholders. They are required to attend meetings of
the Board of Directors but are not entitled to vote. In addition to Statutory
Auditors, independent certified public accountants or an audit corporations
must be appointed by general meetings of shareholders. Such independent
certified public accountants or audit corporations have, as their primary
statutory duties, a duty to examine the financial statements proposed to be
submitted by the Board of Directors at general meetings of shareholders and to
report their opinion thereon to the Statutory Auditors and the Directors. The Statutory Auditors constitute the Board of Statutory Auditors. The Board of
Statutory Auditors has a statutory duty to prepare and submit its audit report
to the Board of Directors each year. A Statutory Auditor may note his or her
opinion in the audit report if his or her opinion is different from the opinion
expressed in the audit report. The Board of Statutory Auditors is empowered to
establish audit principles, method of examination by Statutory Auditors of the
Companys affairs, and financial position and other matters concerning the
performance of the Statutory Auditors duties. There are no contractual arrangements providing for benefits to Directors upon
termination of service. Also see B. Memorandum and articles of association 
Directors in Item 10. 33




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##### Table of Contents



Exemptions from certain NASDAQ Corporate Governance Rules Pursuant to exemptions granted by the National Association of Securities
Dealers Automated Quotations (the NASDAQ), Makita Corporation (the
Company) is permitted to follow certain corporate governance practices
complying with Japanese laws, regulations, stock exchange rules, or generally
accepted business practices in lieu of the NASDAQ rules on corporate
governance (the NASDAQ Rules). Set forth below are the corporate governance
exemptions the Company currently receives from NASDAQ. 1.  Directors. The Company is exempt from the NASDAQ requirement relating to directors that
currently requires the Companys board of directors to be comprised of a majority of
independent directors. Unlike the NASDAQ Rules, the Commercial Code of Japan
and related legislation (including the Law for Special Exceptions to the
Commercial Code concerning Audit, etc. of Kabushiki-Kaisha, and collectively,
the Code) do not require Japanese companies with boards of statutory
auditors such as the Company to have any independent directors on its board of
directors. 2.  Audit Committee. The Company plans to avail itself of paragraph (c)(3) of
Rule 10A-3 of the Securities Exchange Act of 1934, as amended, which provides
a general exemption from the audit committee requirements to a foreign private
issuer with a board of statutory auditors, subject to certain requirements
which continue to be applicable under Rule 10A-3. The Company is exempt from
the NASDAQ requirement relating to audit committees that currently requires the Company to have, and
certify that it has and will continue to have, an audit committee of at least
three members, each of whom must be independent. Unlike the NASDAQ Rules,
under the Code, at least one of the statutory auditors of the Company must be
independent, which is such person who was not a director, executive officer,
general manager, or any other employee of the Company or any of its
subsidiaries during the five-year period prior to such statutory auditors
election. After the conclusion of the ordinary general meeting of shareholders
to be held with respect to the first fiscal year ending on and after May 1,
2005, at least half of the statutory auditors will be required to be persons
who have not been a director, executive officer, general manager, or any other
employee of the Company or any of its subsidiaries at any time prior such
statutory auditors election. Statutory auditors may not at the same time be
directors, general managers, or any other employees of the Company or any of
its subsidiaries, or executive officers of any of the Companys subsidiaries. 3.  Meetings of Ordinary Shareholders. The Company is exempt from the quorum
requirement of the NASDAQ, which currently requires each issuer to provide
for a quorum as specified in its by-laws for any meeting of the holders of
common stock, which shall in no case be less than 33 1/3 percent of the
outstanding shares of a companys common voting stock. In keeping with the
Code and generally accepted business practices in Japan, the Companys
Articles of Incorporation provide that except as otherwise provided by law or
by the Articles of Incorporation, a resolution can be adopted at a general
meeting of shareholders by a majority of the total number of voting rights of
all the shareholders represented at the meeting. The Code and the Companys
Articles of Incorporation provide, however, that the quorum for the election
of directors and statutory auditors shall not be less than one-third of the
total number of voting rights of all the shareholders. The Code and the
Companys Articles of Incorporation also provide that in order to amend the
Companys Articles of Incorporation and in certain other instances, including,
a reduction of stated capital, the removal of a director or statutory auditor,
dissolution, merger or consolidation subject to a certain exception under
which shareholders resolution is not required, the transfer of the whole or an
important part of the business, the taking over of the whole of the business
of any other corporation subject to a certain exception under which
shareholders resolution is not required, share exchange or share transfer for
the purpose of establishing one hundred percent parent-subsidiary
relationships subject to a certain exception under which shareholders
resolution is not required, splitting of the corporation into two or more
corporations subject to a certain exception under which shareholders
resolution is not required, or any offering of new shares at a substantially
favorable price (or any offering of stock acquisition rights to subscribe for
or acquire shares of capital stock (stock acquisition rights) or bonds with
stock acquisition rights under substantially favorable exercise conditions) to any persons other than shareholders, the quorum shall
be one-third of the total number of voting rights of all the shareholders and
the approval by at least two-thirds of the voting rights of all the
shareholders represented at the meeting is required. 34




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##### Table of Contents



D.     Employees The following table sets forth information about number of employees: Year ended March 31,2002
    
    2003
    
    2004Categorized by Geographic AreasJapan
    
    
    3,245
    
    
    
    3,057
    
    
    
    3,041Overseas
    
    
    4,912
    
    
    
    5,287
    
    
    
    5,392Total
    
    
    8,157
    
    
    
    8,344
    
    
    
    8,433
 During the fiscal year ended March 31, 2004, the Company hired on average
approximately 120 temporary employees in Japan who were not entitled to
retirement or certain other fringe benefits which regular full-time employees
receive.
The Company has a labor contract with the Makita Union covering wages and
conditions of employment. All full-time employees of the Company in Japan,
except management, and certain other employees, must be union members. The
Makita Union is affiliated with the Japanese Electrical Electronic &
Information Union. The Company has not been materially affected by any work
stoppages or difficulties in connection with labor negotiations in the past. 
 E.     Share ownership The total number of shares of the Companys Common Stock owned by the
Directors and Statutory Auditors as a group is as follows: Identity of
    
    Number of
    
    Percentage ofPerson or Group
    
    Shares Owned
    
    voting rightDirectors and
Statutory Auditors
    
    
    2,079,783
    
    
    1.41 %
 The following table lists the number of shares owned by the Directors and
Statutory Auditors of the Company as of June 29, 2004. Name
    
    Position
    
    Number of sharesMasahiko Goto
    
    President, Representative Director
    
    
    1,958,943Masami Tsuruta
    
    Managing Director
    
    
    14,722Yasuhiko Kanzaki
    
    Director
    
    
    9,469Ken-ichiro Nakai
    
    Director
    
    
    10,270Tadayoshi Torii
    
    Director
    
    
    11,000Tomoyasu Kato
    
    Director
    
    
    10,672Kazuya Nakamura
    
    Director
    
    
    6,000Masahiro Yamaguchi
    
    Director
    
    
    5,000Shiro Hori
    
    Director
    
    
    6,977Tadashi Asanuma
    
    Director
    
    
    4,000Hisayoshi Niwa
    
    Director
    
    
    5,000Zenji Mashiko
    
    Director
    
    
    5,000Akio Kondo
    
    Standing Statutory Auditor
    
    
    6,080Hiromichi Murase
    
    Standing Statutory Auditor
    
    
    4,450Keiichi Usui
    
    Outside Statutory Auditor
    
    
    7,200Shoichi Hase
    
    Outside Statutory Auditor
    
    
    15,000
 The shareholders listed above do not have voting lights that are different to
the other shareholders of the Company. 35




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##### Table of Contents



Item 7.
    
    Major Shareholders and Related Party Transactions 
 A.     Major Shareholders The following table sets forth the shareholders of 5% or more of the Companys
outstanding common stock on the list of shareholder as of March 31, 2004. Identity of
    
    Number of
    
    Percentage ofPerson or Group
    
    Shares Owned
    
    voting rightNorthern Trust Company (AVFC)
Sub-account American Client
    
    
    10,138,700
    
    
    
    6.85
    %Japan Trustee Services Bank, Ltd.
(Trust account)
    
    
    8,175,000
    
    
    
    5.52
 Except for Masahiko Goto holding 1.32% of the Companys outstanding common
stock as of March 31, 2004, none of the Companys Directors and Statutory
Auditors is the owner of more than one percent of the Companys Common Stock. As of March 31, 2004, 148,006,992 shares of the Companys common stock were
outstanding. Beneficial ownership of the Companys common stock in the table
below was prepared from publicly available records of the filings made by the
Companys shareholders regarding their ownership of the Companys common stock
under the Securities and Exchange Law of Japan. Under the Securities and Exchange Law of Japan, any person who becomes,
beneficially and solely or jointly, a holder, including, but not limited to, a
deemed holder who manages shares for another holder pursuant to a discretionary
investment agreement, of more than 5% of the shares with voting rights of a
company listed on a Japanese stock exchange (including ADSs representing such
shares), must file a report concerning the shareholding with the Director of
the relevant local finance bureau. A similar report must be filed, with certain
exceptions, if the percentage of shares held by a holder, solely or jointly, of
more than 5% of the total issued shares of a company increases or decreases by
1% or more, or if any change to a material matter set forth in any previously
filed reports occurs. Based on publicly available information, the following table sets forth the
beneficial ownership of holders of more than 5% of the Companys common stock
as of the dates indicated in the reports described below. Name of Beneficial Owner
    
    Number of Shares
    
    PercentageSilchester International Investors Limited
    
    
    9,267,000
    
    
    
    6.06%Barclays Global Investors, N.A.
    
    
    7,855,003
    
    
    
    5.31%Nippon Life Insurance Company
    
    
    7,601,503
    
    
    
    5.14%
 The number of shares owned by Silchester International Investors Limited and
its related entities is based on a report filed under the Securities and
Exchange Law of Japan stating that Silchester International and its related
entities held or was deemed to hold beneficially, as of June 21, 2002,
9,267,000 shares of the Companys common stock. The number of shares owned by Barclays Global Investors, N.A. and its related
entities is based on a report filed under the Securities and Exchange Law of
Japan stating that Barclays Global Investors, N.A. and its related entities
held or was deemed to hold beneficially, as of June 30, 2004, 7,855,003 shares
of the Companys common stock. The number of shares owned by Nippon Life Insurance Company and its related
company is based on a report filed under the Securities and Exchange Law of
Japan stating that Nippon Life Insurance Company and its related company held
or was deemed to hold beneficially, as of April 30, 2004, 7,601,503 shares of
the Companys common stock. 36




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##### Table of Contents



Based on information made publicly available on or after April 1, 2001, the
following table describes transactions resulting in a 1% or more change in the
percentage ownership held by major beneficial owners of the Companys common
stock. Shares Owned
    
    
    
    
    
    Number of
    
    Shares OwnedDate of
    
    Prior to
    
    
    
    
    
    Shares
    
    After theName of Shareholder
    
    Transaction
    
    Transaction
    
    Percentage
    
    Changed
    
    Transaction
    
    PercentageTempleton Global Advisors Limited
    
    May 1, 2001
    
    
    10,834,839
    
    
    
    7.08
    %
    
    
    (1,537,588
    )
    
    
    9,297,251
    
    
    
    6.08
    %Silchester International Investors Limited
    
    April 23, 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,661,000
    
    
    
    5.01
    %Templeton Global Advisors Limited
    
    September 30, 2001
    
    
    9,297,251
    
    
    
    6.08
    %
    
    
    (1,613,275
    )
    
    
    7,683,976
    
    
    
    5.02
    %Goldman Sachs International
    
    September 30, 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,095,000
    
    
    
    5.94
    %Silchester International Investors Limited
    
    June 21, 2002
    
    
    7,661,000
    
    
    
    5.01
    %
    
    
    1,606,000
    
    
    
    9,267,000
    
    
    
    6.06
    %Goldman Sachs International
    
    March 31, 2002
    
    
    9,095,000
    
    
    
    5.94
    %
    
    
    (2,762,100
    )
    
    
    6,332,900
    
    
    
    4.14
    %Templeton Global Advisors Limited
    
    September 30, 2002
    
    
    7,683,976
    
    
    
    5.02
    %
    
    
    (1,657,000
    )
    
    
    6,026,976
    
    
    
    3.94
    %Nippon Life Insurance Company
    
    April 30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,601,503
    
    
    
    5.14
    %Barclays
Global Investors, N.A.
    
    June 30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,855,003
    
    
    
    5.31
    %
 As of March 31, 2004, the Company had 148,006,992 outstanding shares of common
stock. According to the Bank of New York, depositary for the Companys ADSs, as
of March 31, 2004, 3,058,800 shares of the Companys common stock were held in
the form of ADRs and there were 51 ADR holders of record in the United States.
According to the Companys register of shareholders and register of beneficial
owners, as of March 31, 2004, there were 11,131 holders of common stock of
record worldwide and the number of record holders in the United States was 48. The major shareholders do not have voting rights that are different to the
other shareholders of the Company. As far as is known to the Company, there is no arrangement, the operation of
which may at a subsequent date result in a change in control of the Company. To the knowledge of the Company, it is not directly or indirectly owned or
controlled by any other corporation or by the Japanese or any foreign
government. 
 B.     Related party transactions Makita sells and purchases products, materials, supplies and services to and from
affiliated companies in the ordinary course of business.
No Director or Statutory Auditor has been indebted to the Company or any of its
subsidiaries at any time during the latest three fiscal years. Neither the
Company nor any of its subsidiaries expects to make any loans to Directors or Statutory
Auditors in the future.
See Note 18 to the consolidated financial statements. 
 C.     Interest of experts and counsel Not applicable 37




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##### Table of Contents



Item 8.
    
    Financial Information 
 A.     Consolidated
statements and other financial information 1-3.  Consolidated Financial Statements.
Makitas audited consolidated financial statements are included under Item 18
 Financial Statements. Except for Makitas consolidated financial statements
included under Item 18, no other information included in this annual report has
been audited by Makitas Independent Registered Public
Accounting Firm. 4.  Not applicable. 5.  Not applicable. 6.  Export Sales.
See Information on the Company  Business Overview  Principal Markets,
Distribution and After-Sale Services. 7.  Legal or arbitration proceedings
There are no material pending legal or arbitration proceedings to which Makita
is a party and which may have, or have had in the recent past, significant
effects on Makitas financial position or profitability. 8.  Dividend Policy
Makita has previously had a basic profit distribution policy of striving to
strengthen its capabilities and financial position to promote stable operations
over the long term while sustaining annual cash dividends per share at a stable
18 yen. However, in light of such factors as the increasing diversity of
shareholder needs regarding dividends, the Company has reconsidered its profit
distribution policy.
Consequently, beginning from the fiscal year ended March 31, 2004, Makita has
expanded the scope of its basic profit distribution policy goals to include, in
addition to the previous goals of stable operations over the long term and
stable annual cash dividends of 18 yen per share, the goal of keeping its
dividend payout ratio at 30% or higher. In addition, in order to implement a
flexible capital policy, augment the efficiency of its capital employment, and
thereby boost shareholder profit, Makita is continuing to consider repurchases
of its outstanding shares in light of trends in stock prices. The Company
intends to retire treasury stock when necessary based on consideration of the
balance of treasury stock and its capital policy.
Regarding internal reserves, Makita intends to maintain a financial position
strong enough to withstand the challenges associated with changes in its
operating environment and other changes and allocate funds for strategic
investments aimed at expanding its global operations. According to this basic policy, the Company paid cash dividends in fiscal 2004
of ¥22.0 per share including a special dividend of ¥4 per share, increased by
¥4 compared to fiscal 2003. In fiscal 2000, the Company paid a special
commemorative 85th anniversary cash dividend per share and ADS of ¥1, and thus
cash dividends per share for fiscal 2000 amounted to ¥19.0. 38




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##### Table of Contents



The following table sets forth cash dividends per share of Common Stock
declared in Japanese yen and as translated into U.S. dollars, the U.S. dollar
amounts being based on the exchange rates at the respective payment date, using
the noon buying rates for cable transfers in yen in New York City as certified
for customs purposes by the Federal Reserve Bank of New York: In Yen
    
    In U.S. DollarsYear ended March 31
    
    Interim
    
    Year-end
    
    Interim
    
    Year-end2000
    
    
    9.0
    
    
    
    10.0
    
    
    
    0.08
    
    
    
    0.102001
    
    
    9.0
    
    
    
    9.0
    
    
    
    0.07
    
    
    
    0.072002
    
    
    9.0
    
    
    
    9.0
    
    
    
    0.07
    
    
    
    0.072003
    
    
    9.0
    
    
    
    9.0
    
    
    
    0.07
    
    
    
    0.072004
    
    
    9.0
    
    
    
    13.0
    
    
    
    0.07
    
    
    
    0.11
 Note: Cash dividends in U.S. dollars are based on the exchange rates at the
respective payment date, using the noon buying rates for cable transfers in
yen in New York City as certified for customs purposes by the Federal Reserve
Bank of New York. 
 B.     Significant changes No significant changes have occurred since the date of Makitas latest annual
consolidated financial statements. 
  Item 9.
    
    The Offer and Listing 
 A.     Offer and listing details The shares of common stock of the Company have been listed on the First
Section of the Tokyo Stock Exchange, the Osaka Securities Exchange and the
Nagoya Stock Exchange since 1970. The Company decided to discontinue its
listing on the Osaka Securities Exchange due to the low level of trading
volume in its shares on that exchange, and it was desisted from that exchange
at the end of February 2003. The shares of common stock of the Company have
been listed on the Amsterdam Stock Exchange (Euronext Amsterdam) since 1973,
initially in the form of Continental Depositary Receipts. The Companys
American Depositary Shares, each representing five shares (from April 1, 1991,
one share) of common stock and evidenced by American Depositary Receipts
(ADRs), have been quoted since 1977 through the National Association of
Securities Dealers Automated Quotation (NASDAQ) System under MKTAY. 39




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##### Table of Contents



The following table shows the high and low sales prices of the Common Stock on
the Tokyo Stock Exchange for the periods indicated and the reported high and
low bid prices of American Depositary Shares through the NASDAQ system. Tokyo Stock Exchange Price
    
    NASDAQ PricePer Share of Common Stock
    
    Per American Depositary Share(Yen)
    
    (U.S. Dollars)Fiscal year ended March 31,
    
    High
    
    Low
    
    High
    
    Low2000
    
    
    1,426
    
    
    
    865
    
    
    
    12.38
    
    
    
    7.882001
    
    
    1,100
    
    
    
    711
    
    
    
    9.88
    
    
    
    5.942002
    
    
    871
    
    
    
    615
    
    
    
    6.85
    
    
    
    4.882003
    
    
    909
    
    
    
    654
    
    
    
    7.55
    
    
    
    5.352004
    
    
    1,343
    
    
    
    834
    
    
    
    15.45
    
    
    
    10.00QuarterlyFiscal year 20031st quarter ended June 30, 2002
    
    
    909
    
    
    
    755
    
    
    
    6.95
    
    
    
    6.252nd quarter ended September 30, 2002
    
    
    837
    
    
    
    661
    
    
    
    6.95
    
    
    
    5.893rd quarter ended December 31, 2002
    
    
    898
    
    
    
    654
    
    
    
    7.25
    
    
    
    5.354th quarter ended March 31, 2003
    
    
    890
    
    
    
    756
    
    
    
    7.55
    
    
    
    6.45Fiscal year 20041st quarter ended June 30, 2003
    
    
    978
    
    
    
    834
    
    
    
    8.30
    
    
    
    7.072nd quarter ended September 30, 2003
    
    
    1,109
    
    
    
    906
    
    
    
    9.33
    
    
    
    7.623rd quarter ended December 31, 2003
    
    
    1,109
    
    
    
    937
    
    
    
    10.24
    
    
    
    8.734th quarter ended March 31, 2004
    
    
    1,343
    
    
    
    1,040
    
    
    
    13.09
    
    
    
    10.00MonthlyJanuary 2004
    
    
    1,179
    
    
    
    1,040
    
    
    
    11.15
    
    
    
    10.00February 2004
    
    
    1,298
    
    
    
    1,123
    
    
    
    12.00
    
    
    
    10.50March 2004
    
    
    1,343
    
    
    
    1,258
    
    
    
    13.09
    
    
    
    11.35April 2004
    
    
    1,546
    
    
    
    1,315
    
    
    
    14.10
    
    
    
    12.88May 2004
    
    
    1,571
    
    
    
    1,382
    
    
    
    14.25
    
    
    
    12.00June 2004
    
    
    1,686
    
    
    
    1,452
    
    
    
    15.34
    
    
    
    13.27July 2004 (through July 15)
    
    
    1,686
    
    
    
    1,452
    
    
    
    15.45
    
    
    
    14.60
 
 B.     Plan of distribution Not applicable 
 C.     Markets See Item 9. A 
 D.     Selling
shareholders Not applicable 
 E.     Dilution Not applicable 40




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F.     Expenses of the issue Not applicable 
  Item 10.
    
    Additional Information 
 A.     Share capital Not applicable 
 B.     Memorandum and articles of association Organization The Company is a joint stock corporation (kabushiki kaisha)incorporated in
Japan under the Commercial Code (shoho)of Japan. It is registered in the
Commercial Register (shogyo tokibo)maintained by the Anjo Branch Office of the
Nagoya Legal Affairs Bureau of the Ministry of Justice of Japan. Objects and purposes Article 2 of the Articles of Incorporation of the Company provides that the
purposes of the Company are to engage in the following businesses:  
    
    Manufacture and sale of machine tools including electric power tools, pneumatic tools, etc., and wood-working tools;
    
    Manufacture and sale of electric machinery and equipment and various other machinery and equipment;
    
    Manufacture and sale of interior furnishings and household goods and their installation work;
    
    Purchase, sale, lease and management of real estate;
    
    Operation of sporting and recreational facilities;
    
    Casualty insurance agency and business relating to offering of life insurance;
    
    Tourist business under the Travel Agency Law;
    
    Acquisition, assignment and licensing of industrial property rights, copyrights and other intellectual property rights and
provision of technical guidance;
    
    Investment in various kinds of business; and
    
    All other business incidental or relative to any of the preceding items. Directors Under the Commercial Code, each Director has executive powers and duties to
manage the affairs of the Company and each Representative Director, who is
elected from among the Directors by the Board of Directors, has the statutory
authority to represent the Company in all respects. Under the Commercial Code,
the Directors must refrain from engaging in any business competing with the
Company unless approved by the Board of Directors and any Director who has a
material interest in the subject matter of a resolution to be taken by the
Board of Directors cannot vote on such resolution. The total amount of
remuneration to Directors and that to Statutory Auditors are subject to the
approval of the general meeting of shareholders. Within such authorized amounts
the Board of Directors and the Board of Statutory Auditors respectively
determine the compensation to each Director and Statutory Auditor. 41




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Except as stated below, neither the Commercial Code nor the Companys Articles
of Incorporation make special provisions as to:  
    
    the Directors or Statutory Auditors power to vote in connection with their compensation;
    
    the borrowing power exercisable by a Representative Director (or a Director who is given
power by a Representative Director to exercise such power);
    
    their retirement age; or
    
    requirement to hold any shares of capital stock of the Company. The Commercial Code specifically requires the resolution of the Board of Directors for a company:  
    
    to acquire or dispose of material assets;
    
    to borrow a substantial amount of money;
    
    to employ or discharge from employment important employees, such as general managers; and
    
    to establish, change or abolish material corporate organization such as a branch office. The Regulations of the Board of Directors of the Company require a resolution
of the Board of Directors for the Company to borrow money in an amount of 100
million yen or more or to give a guarantee in an amount of 10 million yen or
more. Common stock General Set forth below is information relating to the Companys Common Stock,
including brief summaries of the relevant provisions of the Companys Articles
of Incorporation and Share Handling Regulations, as currently in effect, and of
the Commercial Code of Japan and related legislation. In order to assert shareholders rights against the Company, a shareholder must
have its name and address registered or recorded on the Companys register of
shareholders in writing or digitally, in accordance with the Companys Share
Handling Regulations. The registered beneficial holder of deposited shares
underlying the ADSs is the Depositary for the ADSs. Accordingly, holders of
ADSs will not be able to directly assert shareholders rights against the
Company. A holder of shares may choose, at its discretion, to participate in the central
clearing system for share certificates under the Law Concerning Central
Clearing of Share Certificates and Other Securities of Japan. Participating
shareholders must deposit certificates representing all of the shares to be
included in this clearing system with the Japan Securities Depository Center,
Inc. (JASDEC). If a holder is not a participating institution in JASDEC, it
must participate through a participating institution, such as securities
company or a commercial bank having a clearing account with JASDEC. All shares
of Common Stock deposited with JASDEC will be registered in the name of JASDEC
on the Companys register of shareholders. Each participating shareholder will
in turn be registered on the Companys register of beneficial shareholders and
be treated in the same way as shareholders registered on the Companys register
of shareholders. For the purpose of transferring deposited shares, delivery of
share certificates is not required. Entry of the share transfer in the books
maintained by JASDEC for participating institutions, or in the book maintained
by a participating institution for its customers, has the same effect as
delivery of share certificates. The registered beneficial shareholders may
exercise the rights attached to the shares, such as voting rights, and will
receive dividends (if any) and notices to shareholders directly from the
Company. The shares held by a person as a registered shareholder and those held
by the same person as a registered beneficial shareholder 42




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are aggregated for these purposes. Beneficial shareholders may at any time
withdraw their shares from deposit and receive share certificates. Authorized capital Article 5 of the Articles of Incorporation of the Company provides that the
total number of shares authorized to be issued by the Company is 287,000,000
shares. As of March 31, 2004, 148,006,992 shares of Common Stock were in issue. All shares of Common Stock of the Company have no par value. Dividends The Articles of Incorporation of the Company provide that the accounts shall be
closed on March 31 of each year and that year-end dividends, if any, shall be
paid to shareholders, beneficial shareholders and pledgees of record as of the
end of such day. After the close of the fiscal period, the Board of Directors
prepares, among other things, a proposed allocation of profits for dividends
and other purposes; this proposal is submitted to the Board of Statutory
Auditors of the Company and to independent certified public accountants and
then submitted for approval to the ordinary general meeting of shareholders,
which is normally held in June each year. In addition to provisions for
dividends, if any, and for the legal reserve and other reserves, the allocation
of profits customarily includes a bonus to Directors and Statutory Auditors. In
addition to year-end dividends, the Board of Directors may by its resolution
declare a cash distribution pursuant to Article 293-5 of the Commercial Code
(an interim dividend) to shareholders, beneficial shareholders and pledgees
of record as of the end of September 30 of each year, without shareholders
approval, but subject to the limitations described below. The Commercial Code provides that a company may not make any distribution of
profit by way of year-end or interim dividends for any fiscal period unless it
has set aside in its legal reserve an amount equal to at least one-tenth of the
amount paid by way of appropriation of retained earnings for such fiscal period
or equal to one-tenth of the amount of such interim dividends until the
aggregate amount of its additional paid-in capital and its legal reserve equals
to one-quarter of its stated capital. Under the Commercial Code, the Company is
permitted to distribute profits by way of year-end or interim dividends out of
the excess of its net assets, on a non-consolidated basis, over the aggregate
of:  (i)
    
    its stated capital;(ii)
    
    its additional paid-in capital;(iii)
    
    its accumulated legal reserve;(iv)
    
    the legal reserve to be set aside in respect of the fiscal period concerned; and(v)
    
    such other amounts as are provided for by an ordinance of Ministry of
Justice of Japan.(y)
    
    In the case of interim dividends, the net assets are calculated by
reference to the non-consolidated balance sheet as of the last date of the
preceding fiscal year, but adjusted to reflect (a) any subsequent payment
by way of appropriation of retained earnings and transfer to legal reserve
in respect thereof; (b) any subsequent transfer of retained earnings to
stated capital; (c) if the Company has been authorized, pursuant to a
resolution of an ordinary general meeting of shareholders and/or a
resolution of the Board of Directors, to purchase shares of Common Stock
(see Acquisition by the Company of Common Stock below), the total amount
of the purchase price of such shares so authorized by such resolution that
may be paid by the Company; and (d) such other amounts as are set out in
an ordinance of the Ministry of Justice of Japan, 43




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provided that (x) if the Company reduces the amount of its stated capital,
additional paid-in capital or accumulated legal reserve after the end of
the preceding fiscal year, the amount so reduced, less the amount paid to
shareholders upon such reduction and certain other amounts, and (y) such
other amounts as are set out in an ordinance of the Ministry of Justice of
Japan, shall be added to the amount distributable as interim dividends as
described above. Interim dividends may not be paid if it is anticipated that at the end of the
fiscal year net assets, on a non-consolidated basis, will be less than the
aggregate of the amounts referred to in (i) through (v) above. Under its Articles of Incorporation, the Company is not obligated to pay any
dividends which are left unclaimed for a period of 3 years after the date on
which they first became payable. Stock splits The Company may at any time split shares of Common Stock in issue into a
greater number of shares by resolution of the Board of Directors, and may amend
its Articles of Incorporation to increase the number of the authorized shares
to be issued to allow such stock split pursuant to a resolution of the Board of
Directors rather than relying on a special resolution of a general meeting of
shareholders, which is otherwise required for amending the Articles of
Incorporation. In the event of a stock split, generally, shareholders will not be required to
exchange share certificates for new share certificates, but certificates
representing the additional shares resulting from the stock split will be
issued to shareholders. When a stock split is to be made, the Company must give
public notice of the stock split, specifying the record date therefor, at least
2 weeks prior to such record date. In addition, promptly after the stock split
takes effect, the Company must give notice to each shareholder specifying the
number of shares of Common Stock to which such shareholder is entitled by
virtue of the stock split. General meeting of shareholders The ordinary general meeting of shareholders of the Company for each fiscal
year is normally held in June in each year in or near Anjo, Aichi, Japan. In
addition, the Company may hold an extraordinary general meeting of shareholders
whenever necessary by giving notice of convocation thereof at least 2 weeks
prior to the date set for the meeting. Notice of convocation of a shareholders meeting setting forth the place, time
and purpose thereof, must be mailed to each shareholder having voting rights
(or, in the case of a non-resident shareholder, to his or her standing proxy or
mailing address in Japan) at least 2 weeks prior to the date set for the
meeting. Such notice may be given to shareholders by electronic means, subject
to the consent of the relevant shareholders. The record date for an ordinary
general meeting of shareholders is March 31 of each year. Any shareholder or group of shareholders holding at least 3 percent of the
total number of voting rights for a period of 6 months or more may require the
convocation of a general meeting of shareholders for a particular purpose.
Unless such shareholders meeting is convened promptly or a convocation notice
of a meeting which is to be held not later than 8 weeks from the day of such
demand is dispatched, the requiring shareholder may, upon obtaining a court
approval, convene such shareholders meeting.
Any shareholder or group of shareholders holding at least 300 voting rights or
one percent of the total number of voting rights for a period of 6 months or
more may propose a matter to be considered at a general meeting of 44




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shareholders by submitting a written request to a Representative Director at
least 8 weeks prior to the date set for such meeting. Voting rights So long as the Company maintains the unit share system (see Unit share
system below; currently 1,000 shares of Common Stock constitute one unit), a
holder of shares constituting one or more full units is entitled to one voting
right per unit of shares subject to the limitations on voting rights set forth
in the following 2 sentences. A corporate shareholder more than one-quarter of
whose total voting rights are directly or indirectly owned by the Company may
not exercise its voting rights with respect to shares of Common Stock of the
Company that it owns. In addition, the Company may not exercise its voting
rights with respect to shares of Common Stock that it owns. If the Company
eliminates from its Articles of Incorporation the provisions relating to the
unit of shares, holders of shares of Common Stock will have one voting right
for each share they hold. Except as otherwise provided by law or by the
Articles of Incorporation, a resolution can be adopted at a general meeting of
shareholders by a majority of the total number of voting rights of all the
shareholders represented at the meeting. The Commercial Code and the Companys
Articles of Incorporation provide, however, that the quorum for the election of
Directors and Statutory Auditors shall not be less than one-third of the total
number of voting rights of all the shareholders. The Companys shareholders are
not entitled to cumulative voting in the election of Directors. Shareholders
may exercise their voting rights through proxies, provided that the proxies are
also shareholders of the Company holding voting rights. The Companys
shareholders also may cast their votes in writing, or exercise their voting
rights by electronic means when the Board of Directors decides to permit such
method of exercising voting rights. The Commercial Code and the Companys Articles of Incorporation provide that in
order to amend the Companys Articles of Incorporation and in certain other
instances, including: a reduction of stated capital; the removal of a Director
or Statutory Auditor; dissolution, merger or consolidation subject to a certain
exception under which shareholders resolution is not required; the transfer of
the whole or an important part of the business; the taking over of the whole of
the business of any other corporation subject to a certain exception under
which shareholders resolution is not required; share exchange or share transfer
for the purpose of establishing 100 percent parent-subsidiary relationships
subject to a certain exception under which shareholders resolution is not
required; splitting of the corporation into 2 or more corporations subject to a
certain exception under which shareholders resolution is not required; or any
offering of new shares at a substantially favorable price (or any offering of
stock acquisition rights to subscribe for or acquire shares of capital stock
(stock acquisition rights) or bonds with stock acquisition rights under
substantially favorable exercise conditions) to any persons other than
shareholders, the quorum shall be one-third of the total voting rights of all
the shareholders and the approval by at least two-thirds of the voting rights
of all the shareholders represented at the meeting is required (the special
shareholders resolutions). Issue of additional shares and pre-emptive rights Holders of shares of Common Stock have no pre-emptive rights under the Articles
of Incorporation of the Company. Authorized but unissued shares may be issued
at such times and upon such terms as the Board of Directors determines, subject
to the limitations as to the offering of new shares at a substantially
favorable price mentioned under Voting rights above. The Board of Directors
may, however, determine that shareholders shall be given subscription rights
regarding a particular issue of new shares, in which case such rights must be
given on uniform terms to all shareholders as at a record date of which not
less than 2 weeks prior public notice must be given. Each of the shareholders
to whom such rights are given must also be given notice of the expiry thereof
at least 2 weeks prior to the date on which such rights expire. The Company may issue stock acquisition rights by a resolution of the Board of
Directors, subject to the limitations as to the offering of stock acquisition
rights on substantially favorable exercise conditions mentioned under 45




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Voting rights above. Holders of stock acquisition rights may exercise their
rights to acquire a certain number of shares within the exercise period as
prescribed in the terms of their stock acquisition rights. Upon exercise of
stock acquisition rights, the Company will be obliged to issue the relevant
number of new shares or alternatively to transfer the necessary number of
treasury stock held by it. Liquidation rights In the event of a liquidation of the Company, the assets remaining after
payment of all debts, liquidation expenses and taxes will be distributed among
shareholders in proportion to the respective numbers of shares of Common Stock
held by them. Record date March 31 is the record date for the Companys year-end dividends. So long as
the Company maintains the unit share system, the shareholders and beneficial
shareholders who are registered or recorded as the holders of one or more full
unit of shares in the Companys registers of shareholders and/or beneficial
shareholders in writing or digitally at the end of each March 31 are also
entitled to exercise shareholders rights at the ordinary general meeting of
shareholders with respect to the fiscal year ending on such March 31. September
30 is the record date for interim dividends. In addition, the Company may set a
record date for determining the shareholders and/or beneficial shareholders
entitled to other rights and for other purposes by giving at least 2 weeks
prior public notice. The price of shares of Common Stock generally goes ex-dividends or ex-rights on
Japanese stock exchanges on the third business day prior to a record date (or
if the record date is not a business day, the fourth business day prior
thereto), for the purpose of dividends or rights offerings. Acquisition by the Company of Common Stock The Company may acquire shares of Common Stock through a stock exchange on
which such shares are listed (pursuant to an ordinary resolution of an ordinary
general meeting of shareholders or a resolution of the Board of Directors), by
way of tender offer (pursuant to an ordinary resolution of an ordinary general
meeting of shareholders or a resolution of the Board of Directors), or by
purchase from a specific party other than a subsidiary of the Company (pursuant
to a special resolution of an ordinary general meeting of shareholders) or from
a subsidiary of the Company (pursuant to a resolution of the Board of
Directors). When such acquisition is made by the Company from a specific party
other than a subsidiary of the Company, any other shareholder may make a
request to a Representative Director, more than 5 calendar days prior to the
relevant shareholders meeting, to include him/her as the seller in the
proposed purchase. Any such acquisition of shares must satisfy certain
requirements, including that, in cases other than the acquisition by the
Company of shares of Common Stock pursuant to a resolution of the Board of
Directors, the total amount of the purchase price may not exceed the amount of
the retained earnings available for dividend payments after taking into account
any reduction, if any, of the stated capital, additional paid-in capital or
legal reserve (if such reduction of the stated capital, additional paid-in
capital or legal reserve has been authorized pursuant to a resolution of the
relevant ordinary general meeting of shareholders), minus the amount to be paid
by way of appropriation of retained earnings for the relevant fiscal year and
the amount to be transferred from retained earnings to stated capital. If the
Company purchases shares of Common Stock pursuant to a resolution of the Board
of Directors, the total amount of the purchase price may not exceed the amount
of the retained earnings available for an interim dividend payment minus the
amount of any interim dividend the Company actually paid. However, if it is
anticipated that the net assets on the non-consolidated balance sheet as at the
end of the relevant fiscal year will be less than the aggregate amount of the
stated capital, additional paid-in capital and other items as described in (i)
through (v) to Dividends above, the Company may not acquire such shares. 46




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Shares of Common Stock acquired by the Company may be held by it for any period
or may be cancelled by resolution of the Board of Directors. The Company may
also transfer to any person the shares of Common Stock held by it, subject to a
resolution of the Board of Directors, and subject also to other requirements
similar to those applicable to the issuance of new shares, as described in
Issue of additional shares and pre-emptive rights above. The Company may also
utilize its treasury stock for the purpose of transfer to any person upon
exercise of stock acquisition rights or for the purpose of acquiring another
company by way of merger, share exchange or corporate split through exchange of
treasury stock for shares or assets of the acquired company. Unit share system The Articles of Incorporation of the Company provide that 1,000 shares of
Common Stock constitute one unit of shares. Although the number of shares
constituting one unit is included in the Articles of Incorporation, any
amendment to the Articles of Incorporation reducing (but not increasing) the
number of shares constituting one unit or eliminating the provisions for the
unit of shares may be made by the resolution of the Board of Directors rather
than relying on by a special shareholders resolution, which is otherwise
required for amending the Articles of Incorporation. The number of shares
constituting one new unit, however, cannot exceed 1,000 or one-two hundredth of
all issued shares. Under the unit share system, shareholders shall have one voting right for each
unit of shares that they hold. Any number of shares less than one full unit
carries no voting rights. Unless the Companys shareholders amend the Articles of Incorporation of the
Company by a special shareholders resolution to eliminate the provision not to
issue share certificates for shares of Common Stock constituting less than one
full unit, a share certificate for any number of shares of Common Stock
constituting less than one full unit will in general not be issued. As the
transfer of shares normally requires the delivery of the share certificates
therefor, any fraction of a unit for which no share certificates are issued is
not transferable. A holder of shares of Common Stock constituting less than one full unit may
require the Company to purchase such shares at their market value in accordance
with the provisions of the Share Handling Regulations of the Company. In addition, the Articles of Incorporation of the Company provide that a holder
of shares of Common Stock constituting less than one full unit may request the
Company to sell to such holder such amount of shares of Common Stock which
will, when added together with the shares of Common Stock constituting less
than one full unit, constitute one full unit of shares, in accordance with the
provisions of the Share Handling Regulations of the Company. A holder who owns ADRs evidencing less than 1,000 ADSs will indirectly own
shares of Common Stock constituting less than one full unit. Although, as
discussed above, under the unit share system holders of shares of Common Stock
constituting less than one full unit have the right to require the Company to
purchase such shares held by them or sell shares of Common Stock held by the
Company to such holders, holders of ADRs evidencing ADSs that represent other
than integral multiples of full units are unable to withdraw the underlying
shares of Common Stock constituting less than one full unit and, therefore, are
unable, as a practical matter, to exercise the rights to require the Company to
purchase such underlying shares or sell shares of Common Stock held by the
Company to such holders, unless the Companys Articles of Incorporation are
amended to eliminate the provision not to issue share certificates for shares
of Common Stock constituting less than one full unit. As a result, access to
the Japanese markets by holders of ADRs through the withdrawal mechanism will
not be available for dispositions of shares of Common Stock in lots less than
one full unit. The unit share system does not affect the transferability of
ADSs, which may be transferred in lots of any size. 47




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Sale by the Company of
shares held by shareholders whose location is unknown The Company is not required to send a notice to a shareholder if a notice to
such shareholder fails to arrive at the registered address of the shareholder
in the Companys register of shareholders or at the address otherwise notified
to the Company continuously for 5 years or more. In addition, the Company may sell or otherwise dispose of shares of Common
Stock for which the location of the shareholder is unknown. Generally, if (i)
notices to a shareholder fail to arrive continuously for 5 years or more at the
shareholders registered address in the Companys register of shareholders or
at the address otherwise notified to the Company, and (ii) the shareholder
fails to receive dividends on the shares of Common Stock continuously for 5
years or more at the address registered in the Companys register of
shareholders or at the address otherwise notified to the Company, the Company
may sell or otherwise dispose of the shareholders shares at the then market
price of shares of Common Stock by a resolution of the Board of Directors and
after giving at least 3 months prior public and individual notice, and hold or
deposit the proceeds of such sale or disposal of shares of Common Stock for
such shareholder. Reporting of substantial shareholdings The Securities and Exchange Law of Japan and regulations thereunder require any
person, regardless of residence, who has become, beneficially and solely or
jointly, a holder of more than 5 percent of the total issued shares of capital
stock of a company listed on any Japanese stock exchange or whose shares are
traded on the over-the-counter market in Japan to file with the
Director-General of a competent Local Finance Bureau of Ministry of Finance
within 5 business days a report concerning such shareholdings. A similar report must also be filed in respect of any subsequent change of one
percent or more in any such holding or any change in material matters set out
in reports previously filed, with certain exceptions. For this purpose, shares
issuable to such person upon conversion of convertible securities or exercise
of share subscription warrants or stock acquisition rights are taken into
account in determining both the number of shares held by such holder and the
issuers total issued share capital. Copies of such report must also be
furnished to the issuer of such shares and all Japanese stock exchanges on
which the shares are listed or (in the case of shares traded over-the-counter)
the Japan Securities Dealers Association. Except for the general limitation under Japanese anti-trust and anti-monopoly
regulations against holding of shares of capital stock of a Japanese
corporation which leads or may lead to a restraint of trade or monopoly, and
except for general limitations under the Commercial Code or the Companys
Articles of Incorporation on the rights of shareholders applicable regardless
of residence or nationality, there is no limitation under Japanese laws and
regulations applicable to the Company or under its Articles of Incorporation on
the rights of non-resident or foreign shareholders to hold the shares of Common
Stock of the Company or exercise voting rights thereon.
There is no provision in the Companys Articles of Incorporation that would
have an effect of delaying, deferring or preventing a change in control of the
Company and that would operate only with respect to merger, consolidation,
acquisition or corporate restructuring involving the Company. 
 C.     Material contracts All material contracts concluded by the Company during the 2 years preceding
the date of this report were entered into in the ordinary course of business. 48




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D.     Exchange Controls The Foreign Exchange and Foreign Trade Law of Japan and its related cabinet
orders and ministerial ordinances (the Foreign Exchange Regulations) govern
the acquisition and holding of shares of Common Stock of the Company by
exchange non-residents and by foreign investors. The Foreign Exchange
Regulations currently in effect do not, however, affect transactions between
exchange non-residents to purchase or sell shares outside Japan using
currencies other than Japanese yen. Exchange non-residents are:  
    
    individuals who do not reside in Japan; and
    
    corporations whose principal offices are located outside Japan. Generally, branches and other offices of non-resident corporations that are
located within Japan are regarded as residents of Japan. Conversely, branches
and other offices of Japanese corporations located outside Japan are regarded
as exchange non-residents. Foreign investors are:  
    
    individuals who are exchange non-residents;
    
    corporations that are organized under the laws of foreign countries or
whose principal offices are located outside of Japan; and
    
    corporations (1) of which 50 percent or more of their shares are held
by individuals who are exchange non-residents and/or corporations (a)
that are organized under the laws of foreign countries or (b) whose
principal offices are located outside of Japan or (2) a majority of
whose officers, or officers having the power of representation, are
individuals who are exchange non-residents. In general, the acquisition of shares of a Japanese company (such as the shares
of Common Stock of the Company) by an exchange non-resident from a resident of
Japan is not subject to any prior filing requirements. In certain limited
circumstances, however, the Minister of Finance may require prior approval of
an acquisition of this type. While prior approval, as described above, is not
required, in the case where a resident of Japan transfers shares of a Japanese
company (such as the shares of Common Stock of the Company) for consideration
exceeding 100 million yen to an exchange non-resident, the resident of Japan
who transfers the shares is required to report the transfer to the Minister of
Finance within 20 days from the date of the transfer, unless the transfer was
made through a bank, securities company or financial futures trader licensed
under Japanese law. If a foreign investor acquires shares of a Japanese company that is listed on a
Japanese stock exchange (such as the shares of Common Stock of the Company) or
that is traded on an over-the-counter market in Japan and, as a result of the
acquisition, the foreign investor, in combination with any existing holdings,
directly or indirectly holds 10 percent or more of the issued shares of the
relevant company, the foreign investor must file a report of the acquisition
with the Minister of Finance and any other competent Ministers having
jurisdiction over that Japanese company within 15 days from and including the
date of the acquisition, except where the offering of the companys shares was
made overseas. In limited circumstances, such as where the foreign investor is
in a country that is not listed on an exemption schedule in the Foreign
Exchange Regulations, a prior notification of the acquisition must be filed
with the Minister of Finance and any other competent Ministers, who may then
modify or prohibit the proposed acquisition. 49




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Under the Foreign Exchange Regulations, dividends paid on and the proceeds from
sales in Japan of shares of Common Stock of the Company held by non-residents
of Japan may generally be converted into any foreign currency and repatriated
abroad. 
 E.     Taxation The discussion below is intended for general information only and does not
constitute a complete analysis of all tax consequences relating to the
ownership of shares of Common Stock or ADSs. Prospective purchasers of shares
of Common Stock or ADSs should consult their own tax advisors concerning the
tax consequences of their particular situations. The following is a general summary of the principal U.S. federal income
and Japanese national tax consequences of the acquisition, ownership and
disposition of shares of Common Stock or ADSs by an investor that holds those
shares of Common Stock or ADSs as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the Code). This
summary does not address any aspects of U.S. federal tax law other than income
taxation, and does not discuss any aspects of Japanese tax law other than such
income taxation as limited to national taxes and inheritance and gift taxation.
Investors are urged to consult their tax advisors regarding the U.S. federal,
state and local and Japanese and other tax consequences of acquiring, owning
and disposing of shares of Common Stock or ADSs. Also, this summary does not
purport to address all the material tax consequences that may be relevant to
the holders of shares of Common Stock or ADSs, and does not take into account
the specific circumstances of any particular investors, some of which (such as
tax-exempt entities, banks, insurance companies, broker-dealers, traders in
securities that elect to use a mark-to-market method of accounting for their
securities holdings, regulated investment companies, real estate investment
trusts, partnerships and other pass-through entities, investors liable for
alternative minimum tax, investors that own or are treated as owning 10 percent
or more of the Companys voting stock, investors that hold shares of Common
Stock or ADSs as part of a straddle, hedge, conversion or constructive sale
transaction or other integrated transaction, and U.S. Holders (as defined
below) whose functional currency is not the U.S. dollar) may be subject to
special tax rules. This summary is based on the tax laws of the United States
and Japan, judicial decisions, published rulings, administrative
pronouncements, and United States Treasury Regulations, all as in effect on the
date hereof, as well as on the applicable income tax convention between the
United States and Japan, all of which are subject to change (possibly with
retroactive effect), and/or to differing interpretations. U.S. Holders should note that the United States and Japan have ratified the new
income tax convention (the New Treaty), which is to replace its predecessor
income tax convention signed on March 8, 1971 (the Prior Treaty). The New
Treaty entered into force on March 30, 2004 and shall be applicable in Japan,
in place of the Prior Treaty, (i) with respect to taxes withheld at source, for
amounts taxable on or after July 1, 2004, and (ii) with respect to taxes on
income which are not withheld at source and the enterprise taxes, as regards
income for any taxable year beginning on or after January 1, 2005 (subject to
certain transitional rules with respect to both items (i) and (ii) above). The
Prior Treaty shall cease to have effect in relation to any tax from the date on
which the New Treaty shall be applicable (subject to certain transitional rules
allowing for exceptions). Where relevant, U.S. Holders are urged to confirm
with their tax advisors whether they are entitled to the treaty benefit
provided under the Prior Treaty or the New Treaty, as the case may be. In addition, this summary is based in part upon the representations of the
depositary and the assumption that each obligation in the deposit agreement for
ADSs, and in any related agreement, will be performed in accordance with its
terms. For purposes of this discussion, a U.S. Holder is any beneficial owner of
shares of Common Stock or ADSs that is, for U.S. federal income tax purposes:  1.
    
    an individual citizen or resident of the United States;2.
    
    a corporation (or other entity taxable as a corporation for U.S. federal
income tax purposes) organized in or under the laws of the United States,
any state thereof, or the District of Columbia;3.
    
    an estate the income of which is subject to U.S. federal income tax
without regard to its source; or 50




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4.
    
    a trust that is subject to the primary supervision of a U.S. court
and the control of one or more U.S. persons, or that has a valid
election in effect under applicable Treasury regulations to be treated as
a U.S. person. An Eligible U.S. Holder is a U.S. Holder that:  1.
    
    is a resident of the United States for purposes of the Prior Treaty or
the New Treaty, as applicable from time to time;2.
    
    does not maintain a permanent establishment or fixed base in Japan to
which shares of Common Stock or ADSs are attributable and through which
the U.S. Holder carries on or has carried on business (or, in the case of
an individual, performs or has performed independent personal services);
and3.
    
    is otherwise eligible for benefits under the Prior Treaty or the New
Treaty, as applicable, with respect to income and gain derived in
connection with shares of Common Stock or ADSs. In general, taking into account the earlier assumption, for purposes of the
Prior Treaty and the New Treaty, as applicable, and for U.S. federal income and
Japanese tax purposes, owners of ADRs evidencing ADSs will be treated as
the owners of shares of Common Stock represented by those ADSs, and exchanges
of shares of Common Stock for ADSs, and exchanges of ADSs for shares of Common
Stock, will not be subject to U.S. federal income or Japanese income tax. Japanese Taxation The following is a summary of the principal Japanese tax
consequences (limited to national taxes) to holders of shares of Common Stock
and of ADRs evidencing ADSs representing shares of Common Stock who are either
individuals who are not residents of Japan or non-Japanese corporations,
without a permanent establishment in Japan (non-resident Holders). Generally, a non-resident of Japan or a non-Japanese corporation is subject to
Japanese withholding tax on dividends paid by Japanese corporations. Stock
splits in themselves are not subject to Japanese income tax. In the absence of an applicable tax treaty, convention or agreement reducing
the maximum rate of Japanese withholding tax or allowing exemption from
Japanese withholding tax, the rate of Japanese withholding tax applicable to
dividends paid by Japanese corporations to individuals who are non-residents of
Japan or non-Japanese corporations is 20 percent. With respect to dividends
paid on listed shares issued by a Japanese corporation (such as shares of
Common Stock) to any corporate or individual shareholders (including those
shareholders who are non-Japanese corporations or Japanese non-resident
individuals, such as non-resident Holders), except for any individual
shareholder who holds 5 percent or more of the total shares issued by the
relevant Japanese corporation, the aforementioned 20 percent withholding tax
rate is reduced to (i) 7 percent for 51




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dividends due and payable on or before March 31, 2008, and (ii) 15 percent for
dividends due and payable on or after April 1, 2008. As of the date of this
annual report, Japan has income tax treaties, conventions or agreements whereby
the above-mentioned withholding tax rate is reduced, in most cases to 15
percent for portfolio investors with, among other countries, Australia,
Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg,
The Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland,
and the U.K. Under the Prior Treaty, the maximum rate of Japanese withholding tax which may
be imposed on dividends paid by a Japanese corporation to an Eligible U.S.
Holder that is a portfolio investor was limited to 15 percent of the gross
amount actually distributed. However, under the New Treaty which would become
applicable to dividends declared by the Company on or after July 1, 2004, the
maximum rate of Japanese withholding tax which may be imposed on dividends paid
by a Japanese corporation to an Eligible U.S. Holder that is a portfolio
investor is generally limited to 10 percent of the gross amount actually
distributed, and Japanese withholding tax with respect to dividends paid by a
Japanese corporation to an Eligible U.S. Holder that is a pension fund is
exempt from Japanese taxation by way of withholding or otherwise unless such
dividends are derived from the carrying on of a business, directly or
indirectly, by such pension fund. If the maximum tax rate provided for in the income tax treaty applicable to
dividends paid by the Company to any particular non-resident Holder is lower
than the withholding tax rate otherwise applicable under Japanese tax law or
any particular non-resident Holder is exempt from Japanese income tax with
respect to such dividends under the income tax treaty applicable to such
particular non-resident Holder, such non-resident Holder is required to submit
an Application Form for Income Tax Convention Regarding Relief from Japanese
Income Tax on Dividends in advance through the Company to the relevant tax
authority before the payment of dividends. A standing proxy for non-resident
Holders of a Japanese corporation may provide this application service. With
respect to ADSs, this reduced rate or exemption is applicable if the Depositary
or its agent submits two Application Forms (one before payment of dividends and
the other within 8 months after the Companys fiscal year-end). To claim this
reduced rate or exemption, any relevant non-resident Holder of ADSs will be
required to file a proof of taxpayer status, residence and beneficial ownership
(as applicable) and to provide other information or documents as may be
required by the Depositary. A non-resident Holder who is entitled, under an
applicable income tax treaty, to a reduced rate which is lower than the
withholding tax rate otherwise applicable under Japanese tax law or an
exemption from the withholding tax, but failed to submit the required
application in advance will be entitled to claim the refund of taxes withheld
in excess of the rate under an applicable tax treaty (if such non-resident
Holder is entitled to a reduced treaty rate under the applicable income tax
treaty) or the full amount of tax withheld (if such non-resident Holder is
entitled to an exemption under the applicable income tax treaty) from the
relevant Japanese tax authority. Gains derived from the sale of shares of Common Stock or ADSs outside Japan by
a non-resident Holder holding such shares of Common Stock or ADSs as portfolio
investors are, in general, not subject to Japanese income or corporation tax.
Eligible U.S. Holders are not subject to Japanese income or corporation tax
with respect to such gains under the Prior Treaty and the New Treaty, as
applicable. Japanese inheritance and gift taxes at progressive rates may be payable by an
individual who has acquired shares of Common Stock or ADSs as a legatee, heir
or donee even though neither the individual nor the deceased nor donor is a
Japanese resident. Holders of shares of Common Stock or ADSs should consult their tax advisors
regarding the effect of these taxes and, in the case of U.S. Holders, the
possible application of the Estate and Gift Tax Treaty between the U.S. and
Japan. U.S. Federal Income Taxation U.S. Holders The following discussion is a summary of the principal U.S. federal income tax
consequences to holders of shares of Common Stock and ADSs that are U.S.
Holders and that hold those shares or ADSs as capital assets (generally, for
investment purposes). 52




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Taxation of Dividends Subject to the passive foreign investment company rules discussed below, under
U.S. federal income tax law, the gross amount of any distribution made by us in
respect of shares of Common Stock or ADSs (without reduction for Japanese
withholding taxes) will constitute a taxable dividend to the extent paid out of
current or accumulated earnings and profits, as determined under U.S. federal
income tax principles. The U.S. dollar amount of such a dividend generally will
be included in the gross income of a U.S. Holder, as ordinary income, when
actually or constructively received by the U.S. Holder, in the case of shares
of Common Stock, or by the depositary, in the case of ADSs. Dividends paid by
us will not be eligible for the dividends received deduction generally allowed
to U.S. corporations in respect of dividends received from other U.S.
corporation. Subject to certain exceptions for short-term and hedged positions, and provided
that we are not a passive foreign investment company (as discussed below),
dividends received by certain U.S. Holders (including individuals) prior to
January 1, 2009 with respect to the Common Stock or ADSs will be subject to
U.S. federal income taxation at a maximum rate of 15%. Investors should be
aware that the U.S. Treasury Department has announced its intention to
promulgate rules pursuant to which shareholders (and intermediaries) will be
permitted to rely on certifications from issuers to establish that dividends
qualify for the reduced rate of U.S. federal income taxation. Because such
procedures have not yet been issued, we are not certain that we will be able to
comply with them. U.S. Holders of ADSs or Common Stock should consult their own
tax advisors regarding the availability of the reduced rate in the light of
their own particular circumstances. The U.S. dollar amount of a dividend paid in Japanese yen will be determined
based on the Japanese yen/U.S. dollar exchange rate in effect on the date that
dividend is included in the income of the U. S. Holder, regardless of whether
the payment is converted into U.S. dollars on such date. Generally, any gain or loss
resulting from currency exchange fluctuations during the period from the date
the dividend payment is included in the gross income of a U.S. Holder through
the date that payment is converted into U.S. dollars (or the U.S. Holder
otherwise disposed of the Japanese yen) will be treated as U.S. source ordinary
income or loss. U.S. Holders should consult their own tax advisors regarding
the calculation and U.S. federal income tax treatment of foreign currency gain
or loss. To the extent, if any, that the amount of any distribution received by a U.S.
Holder in respect of shares of Common Stock or ADSs exceeds our current and
accumulated earnings and profits, as determined under U.S. federal income tax
principles, the distribution first will be treated as a tax-free return of the
U.S. Holders adjusted tax basis in those shares or ADSs, and thereafter as
U.S. source capital gain. Distributions of additional shares of Common Stock that are made to U.S.
Holders with respect to their shares of Common Stock or ADSs and that are part
of a pro rata distribution to all the Companys shareholders generally will not
be subject to U.S. federal income tax. For U.S. foreign tax credit purposes, dividends included in gross income by a
U.S. Holder in respect of shares of Common Stock or ADSs will constitute income
from sources outside the United States and generally will be treated
separately, together with other items of passive income (or, in the case of
some holders, financial services income) in computing foreign tax credit
limitations. Subject to generally applicable limitations under U.S. federal
income tax law and the Prior or New Treaty, any Japanese withholding tax
imposed in respect of a company dividend may be claimed either as a credit
against the U.S. federal income tax liability of a U.S. Holder or, if the U.S.
Holder elects not to take a credit for any foreign taxes that year, as a
deduction from that U.S. Holders taxable income. Special rules will generally
apply to the calculation of foreign tax credits in respect of dividend income
that qualifies for preferential U.S. federal income tax rates. Additionally,
special rules apply to individuals whose foreign source income during the
taxable year consists entirely of qualified passive income and whose
creditable foreign 53




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taxes paid or accrued during the taxable year do not exceed $300 ($600 in the
case of a joint return). Further, under some circumstances, a U.S. Holder that:  
    
    has held shares of Common Stock or ADSs for less than a specified minimum period, or
    
    is obligated to make payments related to our dividends, will not be allowed a foreign tax credit for foreign taxes imposed on our
dividends. The rules with respect to foreign tax credits are complex and
involve the application of rules that depend on a U.S. Holders particular
circumstances, and accordingly, U.S. Holders are urged to consult their tax
advisors regarding the availability of the foreign tax credit under their
particular circumstances. The Internal Revenue Service (IRS) has expressed
concern that parties to whom ADSs are released may be taking actions that are
inconsistent with the claiming of foreign tax credits by U.S. Holders of ADSs.
Accordingly, investors should be aware that the discussion above regarding the
creditability of Japanese withholding tax on dividends could be affected by
future actions that may be taken by the IRS. Taxation of Capital Gains and Losses In general, upon a sale or other taxable disposition of shares of Common Stock
or ADSs, a U.S. Holder will recognize gain or loss for U.S. federal income tax
purposes in an amount equal to the difference between the amount realized on
the sales or other taxable disposition and the U.S. Holders adjusted tax basis
in those Common Stock or ADSs. A U.S. Holder generally will have an adjusted
tax basis in a share of Common Stock or an ADS equal to its U.S. dollar cost.
In general, subject to the passive foreign investment company rules discussed
below, such gain or loss recognized on a sale or other taxable disposition of
shares of Common Stock or ADSs will be capital gain or loss and, if the U.S.
Holders holding period for those shares or ADSs exceeds one year, will be
long-term capital gain or loss. Certain U.S. Holders, including individuals,
are eligible for preferential rates of U.S. federal income tax in respect of
long-term capital gains. Under U.S. federal tax law, the deduction of capital
losses is subject to limitations. Any gain or loss recognized by a U.S. Holder
in respect of the sale or other taxable disposition of shares of Common Stock
or ADSs generally will be treated as derived from U.S. sources for U.S. foreign
tax credit purposes. Deposits and withdrawals of Common Stock in exchange for ADSs will not result
in the realization of gain or loss for U.S. federal income tax purposes. Passive Foreign Investment Companies Based on current estimates of our income and assets, we do not believe that we
are, for U.S. federal income tax purposes, a passive foreign investment company
(a PFIC), and we intend to continue our operations in such a manner that it
is highly unlikely that we would become a PFIC in the future. However, there
can be no assurance in this regard, because the PFIC determination is made
annually and is based on the portion of our assets (including goodwill) or the
portion of our income that is characterized as passive under the PFIC rules. If
we become a PFIC, unless a U.S. Holder elects to be taxed annually on a
mark-to-market basis with respect to its shares of Common Stock or ADSs, any
gain realized on a sale or other taxable disposition of shares of Common Stock
or ADSs and certain excess distributions (generally distributions in excess
of 125% of the average distribution over a three-year period, or shorter
holding period for the shares of Common Stock or ADSs) would be treated as
realized ratably over the U.S. Holders holding period for the shares of Common
Stock or ADSs; amounts allocated to prior years while we are a PFIC would be
taxed at the highest tax rate in effect for each such year, and an additional
interest charge may apply to the portion of the U.S. federal income tax
liability on such gains or distributions treated under the PFIC rules as having
been deferred by the U.S. Holder. Moreover, dividends that a U.S. Holder
receives from us 54




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will not be eligible for the reduced U.S. federal income tax rates described
above if we are a PFIC either in the taxable year of the distribution or the
preceding taxable year (and instead will be taxable at rates applicable to
ordinary income). If a market-to-market election were made, a U.S. Holder would take into account
each year the appreciation or depreciation in value of its shares of Common
Stock or ADS, which would be treated as ordinary income or (subject to
limitations) ordinary loss, as would gains or losses on actual dispositions of
Common Stock or ADSs. Any U.S. Holder who owns shares of Common Stock or ADSs
during any year that we are a PFIC would be required to file IRS Form 8621.
U.S. Holders should consult their own tax advisors regarding the application of
the PFIC rules to the shares of Common Stock or ADSs and the availability and
advisability of making an election to avoid the adverse tax consequences of
the PFIC rules should we be considered a PFIC for any taxable year. Non-U.S. Holders The following discussion is a summary of the principal U.S. federal income tax
consequences to beneficial holders of shares of Common Stock or ADSs that are
neither U.S. Holders nor partnerships for U.S. federal income tax purposes
(Non-U.S. Holders). Subject to the discussion below under Backup Withholding and Information
Reporting, a Non-U.S. Holder generally will not be subject to any U.S. federal
income or withholding tax on distributions received in respect of shares of
Common Stock or ADSs unless the distributions are effectively connected with
the conduct by the Non-U.S. Holder of a trade or business within the United
States (and, if an applicable tax treaty requires, are attributable to a U.S.
permanent establishment or fixed base of such Non-U.S. Holder). Subject to the discussion below under Backup Withholding and Information
Reporting, a Non-U.S. Holder generally will not be subject to U.S. federal
income tax in respect of gain recognized on a sale or other disposition of
shares of Common Stock or ADSs, unless:  (i)
    
    the gain is effectively connected with a trade or business conducted by
the Non-U.S. Holder within the United States (and, if an applicable tax
treaty requires, is attributable to a U.S. permanent establishment or
fixed base of such Non-U.S. Holder), or(ii)
    
    the Non-U.S. Holder is an individual who was present in the United States
for 183 or more days in the taxable year of the disposition and other
conditions are met. Backup Withholding and Information Reporting In general, except in the case of certain exempt recipients (such as
corporations), information reporting requirements will apply to dividends on
shares of Common Stock or ADSs paid to U.S. Holders in the United States or
through certain U.S. related financial intermediaries and to the proceeds
received upon the sale, exchange or redemption of shares of Common Stock or
ADSs by U.S. Holders within the United States or through certain U.S. related
financial intermediaries. Furthermore, backup withholding (currently at a rate
of 28%) may apply to those amounts if a U.S. Holder fails to provide an
accurate tax identification number, to certify that such holder is not subject
to backup withholding or to otherwise comply with the applicable requirements
of the backup withholding requirements. Dividends paid to a Non-U.S. Holder in respect of shares of Common Stock or
ADSs, and proceeds received in the sale, exchange or redemption of shares of
Common Stock or ADSs by a Non-U.S. Holder, generally, are exempt from
information reporting and backup withholding under current U.S. federal income
tax law. However, a Non-U.S. Holder may be required to provide certification of
non-U.S. status in order to obtain that exemption. Persons required to
establish their exempt status generally must provide such certification on IRS
Form W-9, entitled 55




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Request for Taxpayer Identification Number and Certification, in the case of
U.S. persons, and on IRS Form W-8BEN, entitled Certificate of Foreign Status
(or other appropriate IRS Form W-8), in the case of non-U.S. persons. Backup withholding is not an additional tax. The amount of backup withholding
imposed on a payment to a U.S. Holder will be allowed as a credit against the
holders U.S. federal income tax liability provided that the required
information is properly furnished to the IRS. THE SUMMARY OF U.S. FEDERAL INCOME AND JAPANESE TAX CONSEQUENCES SET OUT ABOVE
IS INTENDED FOR GENERAL INFORMATION PURPOSES ONLY. INVESTORS IN THE COMMON
STOCK OR ADSs ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING OR DISPOSING OF COMMON STOCK
OR ADSs, BASED ON THEIR PARTICULAR CIRCUMSTANCES. 
 F.     Dividends and paying agents Not applicable 
 G.     Statement by experts Not applicable 
 H.     Documents on display Makita files annual report on Form 20-F and reports on Form 6-K with the SEC.
You may read and copy documents referred to in this annual report on Form 20-F
that have been filed with the SEC at the SECs public reference room located at
450 Fifth Street, NW, Washington, D.C. 20549 or by accessing the SECs home
page (http://www.sec.gov) 
 I.     Subsidiary information Not applicable 
  Item 11.
    
    Quantitative and Qualitative Disclosures about Market Risk Market Risk Exposure
Makita is exposed to various market risks, including those related to changes
in foreign exchange rates, interest rates, and the prices of marketable
securities and investment securities. In order to hedge the risks of
fluctuations in foreign exchange rates and interest rates, Makita uses
derivative financial instruments. Makita does not hold or use derivative
financial instruments for trading purposes. Although the use of derivative
financial instruments exposes Makita to the risk of credit-related losses in
the event of nonperformance by counterparties, Makita believes that its
counterparties are creditworthy because they are required to have a credit
rating of a specified level or above, and Makita does not expect credit-related
losses, if any, to be significant. Equity and Debt Securities Price Risk
Makita classified investments of debt securities for current operations as
marketable securities within current assets. Other investments are classified
as investment securities as a part of investments and other assets in the
consolidated balance sheets. Makita does not hold marketable securities and
investment securities for trading purposes. The fair value of certain of these
investments expose Makita to equity price risks. These investments are subject
to changes 56




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in the market prices of the securities. The maturities and fair values of such
marketable securities and investment securities at March 31, 2003 and 2004 were
as follows: Yen (millions)
    
    U.S. Dollars (thousands)2003
    
    2004
    
    2004Carrying
    
    Fair
    
    Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    Value
    
    Amount
    
    ValueDue within one year
    
    ¥
    34,018
    
    
    ¥
    34,112
    
    
    ¥
    57,478
    
    
    ¥
    58,580
    
    
    $
    552,673
    
    
    $
    563,269Due after one year
through five years
    
    
    8,104
    
    
    
    8,207
    
    
    
    2,097
    
    
    
    2,218
    
    
    
    20,163
    
    
    
    21,327Due after five years
    
    
    3,092
    
    
    
    3,175
    
    
    
    3,337
    
    
    
    3,180
    
    
    
    32,087
    
    
    
    30,577Indefinite periods
    
    
    1,437
    
    
    
    1,415
    
    
    
    1,400
    
    
    
    1,600
    
    
    
    13,462
    
    
    
    15,385Equity securities
    
    
    10,365
    
    
    
    11,626
    
    
    
    10,014
    
    
    
    20,555
    
    
    
    96,288
    
    
    
    197,644¥
    57,016
    
    
    ¥
    58,535
    
    
    ¥
    74,326
    
    
    ¥
    86,133
    
    
    $
    714,673
    
    
    $
    828,202
 57




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Foreign Exchange Risk
Makitas international operations and indebtedness denominated in foreign
currencies expose Makita to the risk of fluctuation in foreign currency
exchange rates. To manage this exposure, Makita enters into certain foreign
exchange contracts with respect to a part of such international operations and
indebtedness. The following table provides information about Makitas major
derivative financial instruments related to foreign currency transactions as of
March 31, 2003 and March 31, 2004. Figures are translated into yen at the rates
prevailing at March 31, 2003 and March 31, 2004, together with the relevant
weighted average contractual exchange rates at March 31, 2004. All of the
foreign exchange contracts listed in the following table have contractual
maturities in FY 2003 and 2004. Yen (millions) (except average contractual rates)
    
    U.S. Dollars (thousands)2003
    
    2004
    
    2004Average
    
    
    
    
    
    
    
    
    
    AverageContract
    
    
    
    
    
    contractual
    
    Contract
    
    
    
    
    
    contractual
    
    Contractamounts
    
    Fair Value
    
    rates
    
    amounts
    
    Fair Value
    
    rates
    
    amounts
    
    Fair ValueForeign currency contracts;U.S.$/Yen
    
    ¥
    2,860
    
    
    ¥
    (25
    )
    
    ¥
    118.84
    
    
    ¥
    3,656
    
    
    ¥
    69
    
    
    ¥
    107.21
    
    
    $
    35,154
    
    
    $
    663Euro/Yen
    
    
    2,531
    
    
    
    (60
    )
    
    
    126.56
    
    
    
    3,035
    
    
    
    112
    
    
    
    133.59
    
    
    
    29,183
    
    
    
    1,077A$/Yen
    
    
    247
    
    
    
    (5
    )
    
    
    126.56
    
    
    
    567
    
    
    
    12
    
    
    
    81.02
    
    
    
    5,452
    
    
    
    115STG/Yen
    
    
    68
    
    
    
    2
    
    
    
    70.58
    
    
    
    48
    
    
    
    0
    
    
    
    190.17
    
    
    
    462
    
    
    
    0Euro/STG
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,374
    
    
    
    63
    
    
    
    
    
    
    
    13,212
    
    
    
    615Other
    
    
    38
    
    
    
    0
    
    
    
    
    
    
    
    770
    
    
    
    17
    
    
    
    
    
    
    
    7,402
    
    
    
    155Total
    
    ¥
    5,744
    
    
    ¥
    (88
    )
    
    
    
    
    
    ¥
    9,450
    
    
    ¥
    273
    
    
    
    
    
    
    $
    90,865
    
    
    $
    2,625Foreign currency swaps:U.S.$/Yen
    
    ¥
    5,748
    
    
    ¥
    (101
    )
    
    ¥
    118.52
    
    
    ¥
    240
    
    
    ¥
    27
    
    
    ¥
    119.99
    
    
    $
    2,308
    
    
    $
    260Euro/Yen
    
    
    6,367
    
    
    
    (456
    )
    
    
    121.28
    
    
    
    2,537
    
    
    
    77
    
    
    
    133.52
    
    
    
    24,394
    
    
    
    740CAN$/Yen
    
    
    646
    
    
    
    (8
    )
    
    
    80.70
    
    
    
    321
    
    
    
    (2
    )
    
    
    80.29
    
    
    
    3,087
    
    
    
    (19
    )A$/Yen
    
    
    992
    
    
    
    (21
    )
    
    
    70.85
    
    
    
    1,984
    
    
    
    (11
    )
    
    
    79.35
    
    
    
    19,077
    
    
    
    (106
    )NZ$/Yen
    
    
    428
    
    
    
    (4
    )
    
    
    65.77
    
    
    
    106
    
    
    
    1
    
    
    
    70.35
    
    
    
    1,019
    
    
    
    10SFr./Yen
    
    
    164
    
    
    
    (12
    )
    
    
    82.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    ¥
    14,345
    
    
    ¥
    (602
    )
    
    
    
    
    
    ¥
    5,188
    
    
    ¥
    92
    
    
    
    
    
    
    $
    49,885
    
    
    $
    885Options purchased to sell foreign currencies:U.S.$/Yen
    
    ¥
    309
    
    
    ¥
    3
    
    
    ¥
    116.75
    
    
    ¥
    270
    
    
    ¥
    7
    
    
    ¥
    105.93
    
    
    $
    2,596
    
    
    $
    67Euro/Yen
    
    
    505
    
    
    
    1
    
    
    
    126.19
    
    
    
    197
    
    
    
    5
    
    
    
    131.40
    
    
    
    1,894
    
    
    
    48Other
    
    
    366
    
    
    
    15
    
    
    
    
    
    
    
    126
    
    
    
    2
    
    
    
    
    
    
    
    1,212
    
    
    
    20Total
    
    ¥
    1,180
    
    
    ¥
    19
    
    
    
    
    
    
    ¥
    593
    
    
    ¥
    14
    
    
    
    
    
    
    $
    5,702
    
    
    $
    135Options written to buy foreign currencies:U.S.$/Yen
    
    ¥
    316
    
    
    ¥
    (6
    )
    
    ¥
    119.33
    
    
    ¥
    277
    
    
    ¥
    (2
    )
    
    ¥
    108.39
    
    
    $
    2,663
    
    
    $
    (19
    )Euro/Yen
    
    
    519
    
    
    
    (5
    )
    
    
    129.86
    
    
    
    201
    
    
    
    (1
    )
    
    
    134.18
    
    
    
    1,933
    
    
    
    (10
    )Other
    
    
    147
    
    
    
    (0
    )
    
    
    
    
    
    
    131
    
    
    
    (1
    )
    
    
    
    
    
    
    1,260
    
    
    
    (9
    )Total
    
    ¥
    982
    
    
    ¥
    (11
    )
    
    
    
    
    
    ¥
    609
    
    
    ¥
    (4
    )
    
    
    
    
    
    $
    5,856
    
    
    $
    (38
    )
 58




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##### Table of Contents



Interest Rate Risk
Makitas exposure to market risk due to changes in interest rates relates
primarily to its debt obligations. The Companys long-term debt bears fixed
rates. Interest rate swaps may be entered into from time to time by Makita to
hedge fair values of debt in accordance with Makitas internal rules. Regarding
obligations as of March 31, 2004, the following tables present information
translated into yen at the rate prevailing at the balance sheet date, together
with the relevant weighted average contractual interest rates at March 31,
2004. Yen (millions)Average
    
    
    
    
    
    Year ending March 31,Interest rates
    
    Total
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    ThereafterJapanese yen
Convertible bonds
    
    
    1.5
    %
    
    ¥
    12,994
    
    
    ¥
    12,994
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    Japanese yen loans
from banks and
insurance companies
    
    
    3.3
    %
    
    
    6,391
    
    
    
    
    
    
    
    6,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Japanese yen loans
from Japanese
companies
    
    
    0.6
    %
    
    
    800
    
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Japanese
yenCapital lease
    
    
    1.9
    %
    
    
    263
    
    
    
    90
    
    
    
    87
    
    
    
    41
    
    
    
    13
    
    
    
    7
    
    
    
    25Total
    
    
    
    
    
    ¥
    20,448
    
    
    ¥
    13,884
    
    
    ¥
    6,478
    
    
    ¥
    41
    
    
    ¥
    13
    
    
    ¥
    7
    
    
    ¥
    25
 U.S. Dollars (thousands)Average
    
    
    
    
    
    Year ending March 31,Interest rates
    
    Total
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    ThereafterJapanese yenConvertible bonds
    
    
    1.5
    %
    
    $
    124,942
    
    
    $
    124,942
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Foreign currencyloans from bank
    
    
    3.3
    %
    
    
    61,452
    
    
    
    
    
    
    
    61,452
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    loans from banks
and insurance companies
    
    
    0.6
    %
    
    
    7,692
    
    
    
    7,692
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Japanese yenCapital lease
    
    
    1.9
    %
    
    
    2,529
    
    
    
    866
    
    
    
    837
    
    
    
    394
    
    
    
    125
    
    
    
    67
    
    
    
    240Total
    
    
    
    
    
    $
    196,615
    
    
    $
    133,500
    
    
    $
    62,289
    
    
    $
    394
    
    
    $
    125
    
    
    $
    67
    
    
    $
    240
 59




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##### Table of Contents



Item 12.
    
    Description of Securities Other than Equity SecuritiesNot applicable 
 PART II 
  Item 13.
    
    Defaults, Dividend Arrearages and DelinquenciesNone 
  Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of ProceedsNone 
  Item 15.
    
    Controls and Procedures (a)  Evaluation of disclosure controls and procedures. As of March 31, 2004, Makita performed an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures. Disclosure
controls and procedures are designed to ensure that the material financial and
non-financial information required to be disclosed in Form 20-F and filed with
the SEC is recorded, processed, summarized and reported in a timely manner.
The evaluation was performed under the supervision of Masahiko Goto, Makitas
chief executive officer, and Ken-ichiro Nakai, Makitas principal financial
and accounting officer. In designing and evaluating the disclosure controls
and procedures, management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable, rather
than absolute, assurance of achieving the desired control objectives.
Managerial judgment was necessary to evaluate the cost-benefit relationship of
possible controls and procedures. Based on the foregoing, Mr. Goto and Mr.
Nakai concluded that Makitas disclosure controls and procedures were
effective. (d)  Changes in internal controls over financial reporting. There has been no change in Makitas internal control over financial reporting
that occurred during the period covered by this annual report that has
materially affected, or is reasonably likely to materially affect, its
internal control over financial reporting. 
  Item 16A.
    
    Audit Committee Financial Expert Makitas Board of Directors has determined that Akio Kondo qualifies as an
audit committee financial expert as defined by the rules of the SEC. Mr.
Kondo began his career at Makita in 1969, and from May 1979 to June 2004 he
has worked in the field of finance and accounting. From April 1991, he served
as an the Assistant General Manager of the Accounting & Finance Department,
and from October 1995 he served as a General Manager of the Accounting &
Finance Department, the division responsible for Makitas consolidated
reporting. Mr. Kondo was elected as one of Makitas corporate auditors at an
ordinary general meeting of shareholders held in June 2004. See Item 6.A. for
additional information regarding Mr. Kondo. 60




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##### Table of Contents



Item 16B.
    
    Code of Ethics On May 20, 2003, Makita
has adopted a code of ethics that applies to its directors and
executive officers, including its principal executive officer,
principal financial officer, principal accounting officer or
controller, or persons performing similar functions. On March 17, 2004, Makita
amended the code of ethics to: (1) ensure the protection of individuals who
report questionable behavior to its Internal Audit Division and (ii) clarify
that waivers to our code of ethics for employees must be requested in writing
to its Internal Audit Division and for executive officers, directors and
statutory auditors can only be granted by the board of directors, only if truly
necessary and warranted, and must be promptly disclosed to shareholders. Makitas code of ethics
is publicly available on its website at
www.makita.co.jp. If Makita makes any
substantive amendments to the code of ethics or grants any
waivers, including any implicit waiver, from a provision of this code
to its
directors and executive officers, including its principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions, Makita will disclose the nature of such
amendment or waiver on its website. 
  Item 16C.
    
    Principal Accountant Fees and Services KPMG AZSA & Co. has
served as our Independent Registered Public Accounting Firm for each of
the financial years in the three-year period ended March 31, 2004, for which
audited financial statements appear in this annual report on
Form 20-F. The following table presents the aggregate fees for professional services and
other services rendered by KPMG AZSA & Co. and the various member firms of
KPMG International to Makita in fiscal 2004 and fiscal 2003 Yen (millions)2003
    
    2004Audit Fees (1)
    
    ¥
    137
    
    
    ¥
    164Audit- related Fees (2)
    
    
    4
    
    
    
    3Tax Fees (3)
    
    
    15
    
    
    
    11All Other Fees(4)
    
    
    120
    
    
    
    127Total
    
    ¥
    276
    
    
    ¥
    306
  (1)
    
    Audit Fees consist of fees billed for the professional services rendered
by the Independent Registered Public Accounting Firm for the audit of Makitas annual or interim
financial statements and services that are normally provided by the
Independent Registered Public Accounting Firm in connection with statutory and regulatory filings
or engagement.(2)
    
    Audit-related Fees consist of fees billed for assurance and related
services by the Independent Registered Public Accounting Firm that are reasonably related to employee benefit plan audits, and consultation concerning financial
accounting and reporting standards.(3)
    
    Tax Fees include fees billed for the professional services rendered by
the Independent Registered Public Accounting Firm for tax compliance, tax advice, tax planning
and transfer pricing documentation.(4)
    
    All Other Fees comprise fees for all other services not included in any
of other categories noted above. The Other fees include the risk
management advisory services and treasury advisory services. 61




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##### Table of Contents



Policy on Pre-Approval of Audit and Non-Audit Services of Independent Registered Public Accounting Firm The Board of Statutory Auditors of Makita Corporation consisting of four
members, including two outside corporate auditors, is responsible for the
oversight of its Independent Registered Public Accounting Firms work. The Board of Statutory Auditors
has established Audit and Non-Audit Services Pre-approval Policies and
Procedures, effective as of August 7, 2003. The policies and procedures stipulate three means by which audit and non-audit
services may be pre-approved, depending on the content of and the fee for the
services. Under the United States Sarbanes-Oxley Act of 2002 (the Act), the Audit
Committee is required to pre-approve all audit and non-audit services provided
by the Independent Registered Public Accounting Firm to the Company in order to assure that they do not
impair their independence from the Company. To implement these provisions of
the Act, the US Securities and Exchange Commission has issued rules specifying
the types of services that an Independent Registered Public Accounting Firm may not provide to its audit
client, as well as the audit committees administration of the engagement of
the Independent Registered Public Accounting Firm. Accordingly, the Audit Committee has adopted this
Audit and Non-Audit Services Pre-approval Policy and Procedure, which sets
forth the policies, procedures and the conditions for which such services
proposed to be performed by Independent Registered Public Accounting
Firm may be pre-approved. Under this policy, the Audit Committee authorizes general pre-approval of all
such services, included Audit Services, Audit-related Services, Tax Services
and All other Services. Under General Pre-approval protocol, the pre-approved
services do not require specific pre-approval from the Audit Committee or its
delegated member on a case-by-case basis. The term of any general pre-approval is 12 months from the date of
pre-approval, unless the Audit Committee considers a different period and
states otherwise in the relevant appendix. The Audit Committee will annually
review this policy, including the services that may be provided by the
Independent Registered Public Accounting Firm without obtaining specific pre-approval from the Audit
Committee, and make any necessary or appropriate changes to this policy.
This policy is designed (1) to be detailed as to the particular services to be
provided by the independent auditor, (2) to ensure that the Audit Committee is
informed of each service provided by the independent auditor and (3) to ensure
that the policies and procedures set forth herein do not include delegation of
the Audit Committees responsibilities under the US Securities Exchange Act of
1934 to management. Nothing in this policy shall be interpreted to be a
delegation of the Audit Committees responsibilities under the Securities
Exchange Act of 1934 to management of the Company. 62




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##### Table of Contents



PART III 
  Item 17.
    
    Financial Statements We have responded to Item 18 in lieu of responding to this Item. 
  Item 18.
    
    Financial Statements The financial statements are filed as part of this annual report on
Form 20-F. 
  Item 19.
    
    Exhibits1.1
    
    The Articles of Incorporation, as amended and effective as of June 29, 2004
(English translation)11.1
    
    Code of Ethics12.1
    
    302 Certification13.1
    
    906 Certification 63




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##### Table of Contents



SIGNATURES The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf. MAKITA CORPORATIONBy:
    
    /s/  Masahiko GotoName:
    
    Masahiko GotoTitle:
    
    President and Representative Director Date:  July 30, 2004




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##### Table of Contents



Makita Corporation and Consolidated Subsidiaries INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Report
of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of March 31, 2003 and 2004
    
    F-3 and F-4Consolidated Statements of Income for the years ended March 31, 2002, 2003 and 2004
    
    
    F-5Consolidated Statements of Shareholders Equity for the years ended March 31, 2002, 2003 and 2004
    
    
    F-6Consolidated Statements of Cash Flows for the years ended March 31, 2002, 2003 and 2004
    
    F-7 and F-8Notes to Consolidated Financial Statements
    
    F-9 to F-36(Financial Statements of 50% or less owned persons accounted for by
the equity method have been omitted because they are not applicable.)Schedule:II. Valuation and Qualifying Accounts and Reserves for the years ended March 31, 2002, 2003 and 2004
    
    
    F-37(All schedules not listed above have been omitted because they
are not applicable, or are not required, or the information has
been otherwise supplied in the consolidated financial
statements.)
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors
of Makita Corporation: We have audited the consolidated financial statements of Makita Corporation (a
Japanese corporation) and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement
schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Makita Corporation
and subsidiaries as of March 31, 2003 and 2004, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 2004, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein. The accompanying consolidated financial statements as of and for the year ended
March 31, 2004 have been translated into United States dollars solely for the
convenience of the reader. We have recomputed the translation and, in our
opinion, the consolidated financial statements, expressed in yen, have been
translated into dollars on the basis set forth in Note 4 to the consolidated
financial statements. /s/ KPMG AZSA & Co. Tokyo, Japan
April 26, 2004, except as to note 19, which is as of June 28, 2004 F-2




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS MARCH 31, 2003 AND 2004 A S S E T S Yen
    
    U.S. Dollars(millions)
    
    (thousands)2003
    
    
    2004
    
    
    2004CURRENT ASSETS:Cash and cash equivalents
    
    ¥
    20,370
    
    
    ¥
    24,576
    
    
    $
    236,308Time deposits
    
    
    4,520
    
    
    
    4,050
    
    
    
    38,942Marketable securities
    
    
    39,193
    
    
    
    63,990
    
    
    
    615,288Trade receivables-Notes
    
    
    2,122
    
    
    
    2,254
    
    
    
    21,674Accounts
    
    
    34,630
    
    
    
    34,787
    
    
    
    334,490Less- Allowance for doubtful receivables
    
    
    (1,456
    )
    
    
    (1,346
    )
    
    
    (12,942
    )Inventories
    
    
    62,606
    
    
    
    54,326
    
    
    
    522,365Deferred income taxes
    
    
    3,515
    
    
    
    3,691
    
    
    
    35,490Prepaid expenses and other current assets
    
    
    8,065
    
    
    
    8,117
    
    
    
    78,048Total current assets
    
    
    173,565
    
    
    
    194,445
    
    
    
    1,869,663PROPERTY, PLANT AND EQUIPMENT, AT COST:Land
    
    
    21,497
    
    
    
    18,326
    
    
    
    176,211Buildings and improvements
    
    
    66,738
    
    
    
    50,648
    
    
    
    487,000Machinery and equipment
    
    
    78,221
    
    
    
    73,000
    
    
    
    701,923Construction in progress
    
    
    2,165
    
    
    
    222
    
    
    
    2,135168,621
    
    
    
    142,196
    
    
    
    1,367,269Less- Accumulated depreciation
    
    
    (100,823
    )
    
    
    (89,231
    )
    
    
    (857,990
    )67,798
    
    
    
    52,965
    
    
    
    509,279INVESTMENTS AND OTHER ASSETS:Investment securities
    
    
    19,342
    
    
    
    22,139
    
    
    
    212,875Deferred income taxes
    
    
    10,386
    
    
    
    880
    
    
    
    8,462Other assets
    
    
    7,509
    
    
    
    7,687
    
    
    
    73,91337,237
    
    
    
    30,706
    
    
    
    295,250¥
    278,600
    
    
    ¥
    278,116
    
    
    $
    2,674,192
 F-3




---



##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2003 AND 2004 LIABILITIES AND SHAREHOLDERS EQUITY Yen
    
    U.S. Dollars(millions)
    
    (thousands)2003
    
    
    2004
    
    
    2004CURRENT LIABILITIES:Short-term borrowings
    
    ¥
    2,892
    
    
    ¥
    14,128
    
    
    $
    135,846Trade notes and accounts payable
    
    
    13,956
    
    
    
    15,351
    
    
    
    147,606Accrued payroll
    
    
    7,162
    
    
    
    7,168
    
    
    
    68,923Accrued expenses and other
    
    
    3,535
    
    
    
    3,830
    
    
    
    36,827Income taxes payable
    
    
    3,858
    
    
    
    6,093
    
    
    
    58,586Deferred income taxes
    
    
    403
    
    
    
    53
    
    
    
    510Total current liabilities
    
    
    31,806
    
    
    
    46,623
    
    
    
    448,298LONG-TERM LIABILITIES:Long-term indebtedness
    
    
    19,843
    
    
    
    7,364
    
    
    
    70,808Club members deposits
    
    
    14,207
    
    
    
    13,045
    
    
    
    125,433Accrued retirement and termination benefits
    
    
    27,462
    
    
    
    15,905
    
    
    
    152,933Deferred income taxes
    
    
    1,407
    
    
    
    235
    
    
    
    2,259Other liabilities
    
    
    316
    
    
    
    342
    
    
    
    3,28863,235
    
    
    
    36,891
    
    
    
    354,721MINORITY INTERESTS
    
    
    1,159
    
    
    
    1,254
    
    
    
    12,058COMMITMENTS AND CONTINGENT LIABILITIES
    
    
    
    
    
    
    
    
    
    
    SHAREHOLDERS EQUITY:Common stock,Authorized - 292,000,000 shares in 2003287,000,000 shares in 2004Issued        - 153,006,992 shares in 2003148,006,992 shares in 2004
    
    
    23,803
    
    
    
    23,803
    
    
    
    228,875Additional paid-in capital
    
    
    45,419
    
    
    
    45,421
    
    
    
    436,740Legal reserve
    
    
    5,669
    
    
    
    5,669
    
    
    
    54,510Retained earnings
    
    
    137,753
    
    
    
    138,819
    
    
    
    1,334,798Accumulated other comprehensive income (loss)
    
    
    (25,134
    )
    
    
    (17,048
    )
    
    
    (163,923
    )Treasury stock, at cost: - 7,039,116 shares in 20034,113,801 shares in 2004
    
    
    (5,110
    )
    
    
    (3,316
    )
    
    
    (31,885
    )182,400
    
    
    
    193,348
    
    
    
    1,859,115¥
    278,600
    
    
    ¥
    278,116
    
    
    $
    2,674,192
 The accompanying notes to consolidated financial statements are
an integral part of these balance sheets. F-4




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED MARCH 31, 2002, 2003 AND 2004 Yen
    
    U.S. Dollars(millions)
    
    (thousands)2002
    
    
    2003
    
    
    2004
    
    
    2004NET SALES
    
    ¥
    166,169
    
    
    ¥
    175,603
    
    
    ¥
    184,117
    
    
    $
    1,770,356Cost of sales
    
    
    109,182
    
    
    
    110,226
    
    
    
    110,322
    
    
    
    1,060,789GROSS PROFIT
    
    
    56,987
    
    
    
    65,377
    
    
    
    73,795
    
    
    
    709,567Selling, general and administrative expenses
    
    
    50,775
    
    
    
    51,579
    
    
    
    53,698
    
    
    
    516,327Loss (Gain) on disposals or sales of
property, plant and equipment
    
    
    339
    
    
    
    1,330
    
    
    
    (2,379
    )
    
    
    (22,875
    )Impairment of long-lived assets
    
    
    
    
    
    
    
    
    
    
    7,780
    
    
    
    74,807OPERATING INCOME
    
    
    5,873
    
    
    
    12,468
    
    
    
    14,696
    
    
    
    141,308OTHER INCOME (EXPENSES):Interest and dividend income
    
    
    848
    
    
    
    786
    
    
    
    869
    
    
    
    8,356Interest expense
    
    
    (968
    )
    
    
    (665
    )
    
    
    (605
    )
    
    
    (5,817
    )Exchange gains (losses) on foreign
currency transactions, net
    
    
    273
    
    
    
    (1,460
    )
    
    
    (202
    )
    
    
    (1,942
    )Realized gains (losses) on securities, net
    
    
    (2,740
    )
    
    
    (2,590
    )
    
    
    555
    
    
    
    5,336Other, net
    
    
    117
    
    
    
    753
    
    
    
    857
    
    
    
    8,240Total
    
    
    (2,470
    )
    
    
    (3,176
    )
    
    
    1,474
    
    
    
    14,173INCOME BEFORE INCOME TAXES
    
    
    3,403
    
    
    
    9,292
    
    
    
    16,170
    
    
    
    155,481PROVISION FOR INCOME TAXES:Current
    
    
    4,027
    
    
    
    2,294
    
    
    
    8,745
    
    
    
    84,087Deferred
    
    
    (757
    )
    
    
    275
    
    
    
    (266
    )
    
    
    (2,558
    )Total
    
    
    3,270
    
    
    
    2,569
    
    
    
    8,479
    
    
    
    81,529NET INCOME
    
    ¥
    133
    
    
    ¥
    6,723
    
    
    ¥
    7,691
    
    
    $
    73,952
 Yen
    
    U.S. DollarsNET INCOME PER SHARE OF COMMON STOCK:Earnings per shareBasic
    
    ¥
    0.9
    
    
    ¥
    45.3
    
    
    ¥
    53.2
    
    
    $
    0.51Diluted
    
    
    0.9
    
    
    
    44.2
    
    
    
    51.9
    
    
    
    0.50Cash dividends for the year
    
    
    18.0
    
    
    
    18.0
    
    
    
    18.0
    
    
    
    0.21
 The accompanying notes to consolidated financial statements are
an integral part of these statements. F-5




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY FOR THE YEARS ENDED MARCH 31, 2002, 2003 AND 2004 Yen
    
    U.S. Dollars(millions)
    
    (thousands)2002
    
    
    2003
    
    
    2004
    
    
    2004COMMON STOCK:Beginning balance
    
    ¥
    23,803
    
    
    ¥
    23,803
    
    
    ¥
    23,803
    
    
    $
    228,875Ending balance
    
    ¥
    23,803
    
    
    ¥
    23,803
    
    
    ¥
    23,803
    
    
    $
    228,875ADDITIONAL PAID-IN CAPITAL:Beginning balance
    
    ¥
    45,419
    
    
    ¥
    45,419
    
    
    ¥
    45,419
    
    
    $
    436,721Gain on sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    19Ending balance
    
    ¥
    45,419
    
    
    ¥
    45,419
    
    
    ¥
    45,421
    
    
    $
    436,740LEGAL RESERVE:Beginning balance
    
    ¥
    5,525
    
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    $
    54,510Transfer from retained earnings
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    Ending balance
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    $
    54,510RETAINED EARNINGS:Beginning balance
    
    ¥
    136,488
    
    
    ¥
    133,723
    
    
    ¥
    137,753
    
    
    $
    1,324,548Net income
    
    
    133
    
    
    
    6,723
    
    
    
    7,691
    
    
    
    73,952Cash dividends
    
    
    (2,754
    )
    
    
    (2,693
    )
    
    
    (2,610
    )
    
    
    (25,096
    )Transfer to legal reserve
    
    
    (144
    )
    
    
    
    
    
    
    
    
    
    
    Retirement of treasury stock
    
    
    
    
    
    
    
    
    
    
    (4,015
    )
    
    
    (38,606
    )Ending balance
    
    ¥
    133,723
    
    
    ¥
    137,753
    
    
    ¥
    138,819
    
    
    $
    1,334,798ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):Beginning balance
    
    ¥
    (18,688
    )
    
    ¥
    (16,446
    )
    
    ¥
    (25,134
    )
    
    $
    (241,673
    )Other comprehensive income (loss) for the year
    
    
    2,242
    
    
    
    (8,688
    )
    
    
    8,086
    
    
    
    77,750Ending balance
    
    ¥
    (16,446
    )
    
    ¥
    (25,134
    )
    
    ¥
    (17,048
    )
    
    $
    (163,923
    )TREASURY STOCK:Beginning balance
    
    ¥
    
    
    
    ¥
    (2,229
    )
    
    ¥
    (5,110
    )
    
    $
    (49,135
    )Purchases
    
    
    (2,247
    )
    
    
    (2,881
    )
    
    
    (2,227
    )
    
    
    (21,413
    )Retirement and sales
    
    
    18
    
    
    
    
    
    
    
    4,021
    
    
    
    38,663Ending balance
    
    ¥
    (2,229
    )
    
    ¥
    (5,110
    )
    
    ¥
    (3,316
    )
    
    $
    (31,885
    )DISCLOSURE OF COMPREHENSIVE INCOME (LOSS):Net income for the year
    
    ¥
    133
    
    
    ¥
    6,723
    
    
    ¥
    7,691
    
    
    $
    73,952Other comprehensive income (loss) for the year
    
    
    2,242
    
    
    
    (8,688
    )
    
    
    8,086
    
    
    
    77,750Total comprehensive income (loss) for the year
    
    ¥
    2,375
    
    
    ¥
    (1,965
    )
    
    ¥
    15,777
    
    
    $
    151,702
 The accompanying notes to consolidated financial statements are
an integral part of these statements. F-6




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 2002, 2003 AND 2004 Yen
    
    U.S. Dollars(millions)
    
    (thousands)2002
    
    
    2003
    
    
    2004
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    ¥
    133
    
    
    ¥
    6,723
    
    
    ¥
    7,691
    
    
    $
    73,952Adjustments to reconcile net income to net cash
provided by operating activities-Depreciation and amortization
    
    
    9,754
    
    
    
    9,740
    
    
    
    7,963
    
    
    
    76,567Accrued retirement and termination benefits
    
    
    246
    
    
    
    290
    
    
    
    (591
    )
    
    
    (5,683
    )Deferred income taxes
    
    
    (757
    )
    
    
    275
    
    
    
    (266
    )
    
    
    (2,558
    )Realized (gains)losses on securities, net
    
    
    2,740
    
    
    
    2,590
    
    
    
    (555
    )
    
    
    (5,336
    )(Gain)Loss on disposals or sales of property,
plant and equipment
    
    
    339
    
    
    
    1,330
    
    
    
    (2,379
    )
    
    
    (22,875
    )Impairment of long-lived assets
    
    
    
    
    
    
    
    
    
    
    7,780
    
    
    
    74,807Changes in assets and liabilities-Trade receivables
    
    
    (950
    )
    
    
    647
    
    
    
    (1,610
    )
    
    
    (15,481
    )Inventories
    
    
    10,110
    
    
    
    5,446
    
    
    
    6,193
    
    
    
    59,548Payables and accrued expenses
    
    
    (1,246
    )
    
    
    343
    
    
    
    3,175
    
    
    
    30,529Income taxes payable
    
    
    (646
    )
    
    
    33
    
    
    
    2,368
    
    
    
    22,769Other, net
    
    
    473
    
    
    
    (276
    )
    
    
    (828
    )
    
    
    (7,960
    )Net cash provided by operating activities
    
    
    20,196
    
    
    
    27,141
    
    
    
    28,941
    
    
    
    278,279CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (5,958
    )
    
    
    (5,691
    )
    
    
    (4,494
    )
    
    
    (43,212
    )Purchases of available for sale and held to
maturity securities
    
    
    (16,973
    )
    
    
    (28,056
    )
    
    
    (34,952
    )
    
    
    (336,077
    )Proceeds from sales and maturities of available for
sale and held to maturity securities
    
    
    18,497
    
    
    
    24,061
    
    
    
    18,190
    
    
    
    174,904Proceeds from sales of property, plant and equipment
    
    
    534
    
    
    
    488
    
    
    
    5,154
    
    
    
    49,558Decrease (increase) in time deposits
    
    
    4,122
    
    
    
    (541
    )
    
    
    (1,162
    )
    
    
    (11,173
    )Decrease (increase) in other assets, net
    
    
    (1,373
    )
    
    
    80
    
    
    
    2
    
    
    
    19Net cash used in investing activities
    
    
    (1,151
    )
    
    
    (9,659
    )
    
    
    (17,262
    )
    
    
    (165,981
    )CASH FLOWS FROM FINANCING ACTIVITIES:Decrease in short-term borrowings
    
    
    (7,058
    )
    
    
    (4,254
    )
    
    
    (882
    )
    
    
    (8,481
    )Redemption of bonds
    
    
    (128
    )
    
    
    (1,610
    )
    
    
    
    
    
    
    Repayment of long-term indebtedness
    
    
    (3,727
    )
    
    
    (25
    )
    
    
    
    
    
    
    Repayment of club members deposits
    
    
    (422
    )
    
    
    (1,918
    )
    
    
    (884
    )
    
    
    (8,500
    )Purchases of common stock, net
    
    
    (2,229
    )
    
    
    (2,881
    )
    
    
    (2,220
    )
    
    
    (21,346
    )Cash dividends paid
    
    
    (2,754
    )
    
    
    (2,693
    )
    
    
    (2,610
    )
    
    
    (25,096
    )Net cash used in financing activities
    
    
    (16,318
    )
    
    
    (13,381
    )
    
    
    (6,596
    )
    
    
    (63,423
    )
 The accompanying notes to consolidated financial statements are
an integral part of these statements. F-7




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 2002, 2003 AND 2004 Yen
    
    U.S. Dollars(millions)
    
    (thousands)2002
    
    
    2003
    
    
    2004
    
    
    2004EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
    
    ¥
    (985
    )
    
    ¥
    539
    
    
    ¥
    (877
    )
    
    $
    (8,433
    )NET CHANGE IN CASH AND CASH
EQUIVALENTS
    
    
    1,742
    
    
    
    4,640
    
    
    
    4,206
    
    
    
    40,442CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
    
    
    13,988
    
    
    
    15,730
    
    
    
    20,370
    
    
    
    195,866CASH AND CASH EQUIVALENTS,
END OF YEAR
    
    ¥
    15,730
    
    
    ¥
    20,370
    
    
    ¥
    24,576
    
    
    $
    236,308SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:Cash paid during the year for-Interest
    
    ¥
    970
    
    
    ¥
    672
    
    
    ¥
    605
    
    
    $
    5,817Income taxes
    
    
    4,673
    
    
    
    2,262
    
    
    
    6,377
    
    
    
    61,317
 The accompanying notes to consolidated financial statements are
an integral part of these statements. F-8




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    
    DESCRIPTION OF BUSINESSMakita Corporation (the Company) is a recognized leader in manufacture and
sale of portable electric power tools . The Company and its consolidated
subsidiaries main products include circular saws, jig saws, planers, drills,
hammers, grinders and sanders. The Company and its consolidated subsidiaries
also manufacture and sell stationary woodworking machines and pneumatic tools
as well as garden tools and products for indoor household use.Domestic sales in Japan are made by the Company, while overseas sales are made
under the Makita or Maktec brand name, almost entirely through sales
subsidiaries and distributors. Approximately 78.7% of consolidated net sales
for the year ended March 31, 2004 were generated from customers outside Japan,
with 22.7% from North America, 36.0% from Europe and 20.0% from other areas.The Company and its consolidated subsidiaries manufacturing and assembly
operations are conducted primarily at two plants in Japan and seven plants
overseas, located in the United States, Germany, the United Kingdom, Brazil,
China and Canada.2.
    
    BASIS OF PRESENTING FINANCIAL STATEMENTSForeign subsidiaries translate their financial statements into Japanese yen
from each of their functional currencies. The accounts and the financial
statements of the Company and domestic subsidiaries are maintained and reported
in their functional currency, the Japanese yen.The books of the Company and its domestic subsidiaries are maintained in
conformity with Japanese accounting principles, while foreign subsidiaries
maintain their books in conformity with the standards of their country of
domicile.The accompanying consolidated financial statements reflect all necessary
adjustments, not recorded in the Companys and its consolidated subsidiaries
books, to present them in conformity with accounting principles generally
accepted in the United States of America (U.S. GAAP).3.
    
    SIGNIFICANT ACCOUNTING AND REPORTING POLICIES  (a)
    
    Principles of ConsolidationThe accompanying consolidated financial statements include the accounts
of the Company and all of its majority owned subsidiaries. All significant
inter-company balances and transactions have been eliminated in consolidation.(b)
    
    Foreign Currency TranslationUnder the provisions of Statement of Financial Accounting Standards
(SFAS) No.52 Foreign Currency Translation, overseas subsidiaries assets
and liabilities denominated in their local foreign currency are translated at
the exchange rate in effect at each fiscal year-end and income and expenses
are translated at the average rates of exchange prevailing during each fiscal
year. The local currencies of the overseas subsidiaries are regarded as their
functional currencies. The resulting currency translation adjustments are
included in accumulated other comprehensive income (loss) in shareholders
equity.Foreign currency receivables and payables in each reporting entity are
translated into the functional currency at the exchange rate in effect at each
fiscal year-end .Transaction gains and losses are recognized in earnings in
the period incurred. F-9




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##### Table of Contents



(c)
    
    Cash equivalentsFor purposes of the consolidated balance sheets and the consolidated
statements of cash flows, the Company considers highly liquid investments
with an original maturity of three months or less at the date of purchase to
be cash equivalents.(d)
    
    Marketable and Investment SecuritiesThe Company conforms to SFAS No.115 Accounting for Certain Investments in
Debt and Equity Securities. As a matter of policy, the Company does not
engage in trading activities. Held-to-maturity securities are debt securities
that the Company has the positive intent and ability to hold to maturity.
Available-for-sale securities are debt and equity securities not classified
as held-to-maturity securities.Held-to-maturity securities are reported at amortized cost, adjusted for the
amortization or accumulation of premiums or discounts. Except for
non-marketable equity securities, available-for-sale securities are reported
at fair value, and unrealized gains or losses are recorded as a separate
component of other comprehensive income (loss), net of applicable income
taxes. Non-marketable equity securities are carried at cost.A decline in fair value of any available-for-sale security below cost that is
deemed to be other than temporary results in a write-down of the cost basis
to fair value as a new cost basis and the amount of the write-down is
included in earnings. To determine whether an impairment is other than
temporary, the Company considers the period of time the fair value of an
available-for-sale security has been below the cost basis of the investment,
generally over nine consecutive months, financial condition and prospects of
each investee company, the fair value of an available-for-sale security
relative to the cost basis of the investment and other relevant factors.The Company and its consolidated subsidiaries classify marketable securities
in current assets which are available for current operations. Other
investments are classified as investment securities as a part of non-current
investments and other assets in the consolidated balance sheets.The cost of a security sold or the amount reclassified out of accumulated
other comprehensive income (loss) into earnings was determined by the average
cost method.(e)
    
    Allowance for Doubtful ReceivablesThe Company and its consolidated subsidiaries provide allowances for doubtful
receivables based upon historical write-off experience, adjusted to reflect
current economic conditions, and specific customer collection issues, for
which they conclude they will not fully recover all amounts due.(f)
    
    InventoriesInventories are stated at the lower of average cost or market. Inventory
costs include raw materials, labor and manufacturing overheads. F-10




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##### Table of Contents



(g)
    
    Property, Plant and Equipment and DepreciationDepreciation of property, plant and equipment is computed by using the
declining-balance method over the estimated useful lives. The depreciation
period generally ranges from 10 years to 50 years for buildings and from 3
years to 10 years for machinery and equipment. Average rates of depreciation
for the years ended March 31, 2002, 2003 and 2004 are summarized below: 2002
    
    
    2003
    
    
    2004Buildings and improvements
    
    
    8.8
    %
    
    
    11.9
    %
    
    
    12.6
    %Machinery and equipment
    
    
    28.1
    %
    
    
    28.3
    %
    
    
    27.6
    %
  Certain leased buildings, improvements, machinery and equipment are accounted
for as capital leases in conformity with SFAS No. 13, Accounting for Leases.
The aggregate cost included in property, plant and equipment and related
accumulated depreciation as of March 31, 2003 and 2004 was as follows: Yen
    
    U.S. Dollars(millions)
    
    (thousands)2003
    
    
    2004
    
    
    2004Aggregate cost
    
    ¥
    946
    
    
    ¥
    701
    
    
    $
    6,740Accumulated depreciation
    
    
    606
    
    
    
    470
    
    
    
    4,519
  Expenditures for ordinary maintenance and repairs are expensed as incurred.
Major replacements and improvements are capitalized. When properties are
retired or otherwise disposed of, the property and related accumulated
depreciation accounts are relieved of the applicable amounts and any
differences are included in earnings.(h)
    
    Goodwill and Other Intangible AssetsThe Company conforms to SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001 and further clarifies the criteria for recognition of
intangible assets separately from goodwill. SFAS No. 142 requires that
goodwill and indefinite-lived intangible assets no longer be amortized, but
instead requires that an annual review for impairment be performed. The
Company fully adopted the provisions of SFAS No. 141 and SFAS No. 142 on
April 1, 2002. The adoption of SFAS No. 141 and SFAS No. 142 did not have any
material effect on consolidated financial statements.(i)
    
    Research and Development Costs and Advertising CostsResearch and development costs, included in selling, general and
administrative expenses in the consolidated statements of income, are
expensed as incurred and totaled ¥3,746 million, ¥ 3,856 million and ¥4,086
million ($39,288 thousand) for the years ended March 31, 2002, 2003 and 2004,
respectively.Advertising costs are also expensed as incurred and totaled ¥3,738 million,
¥3,616 million and ¥3,797 million ($36,510 thousand) for the years ended
March 31, 2002, 2003 and 2004, respectively.(j)
    
    Shipping and Handling CostsShipping and handling costs, which mainly include transportation to
customers, are included in selling, general and administrative expenses in
the consolidated statements of income. Shipping and handling costs were
¥4,759 million, ¥4,003 million and ¥4,418 million ($42,481 thousand) for the
years ended March 31, 2002, 2003 and 2004, respectively. F-11




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##### Table of Contents



(k)
    
    Income TaxesThe Company conforms to SFAS No.109, Accounting for Income Taxes, which
requires an asset and liability approach for financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss carryforwards.
Deferred income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years the temporary
differences and carryforwards are expected to be recovered or settled. The
effect on deferred income tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.(l)
    
    Product WarrantiesA liability for the estimated product warranty related cost is established at
the time revenue is recognized and is included in accrued expenses and cost
of sales. Estimates for accrued product warranty cost are primarily based on
historical experience, and are affected by ongoing product failure rates,
specific product class failures outside of the baseline experience, material
usage and service delivery costs incurred in correcting a product failure.(m)
    
    Pension PlansThe Company conforms to SFAS No.87, Employers Accounting for Pensions, in
accounting for retirement and termination benefit plans. Under SFAS 87,
changes in the amount of either the projected benefit obligation or plan
assets resulting from actual results different from that assumed and from
changes in assumptions can result in gains and losses to be recognized in the
consolidated financial statements in future periods. Amortization of an
unrecognized net gain or loss is included as a component of the net periodic
benefit plan cost for a year if, as of the beginning of the year, that
unrecognized net gain or loss exceeds 10 percent of the greater of (1) the
projected benefit obligation or (2) the fair value of that plans assets. In
such case, the amount of amortization recognized is the resulting excess
divided by the average remaining service period of active employees expected
to receive benefits under the plan. The expected long-term rate of return on
plan assets used for pension accounting is determined based on the historical
long-term rate of return on plan assets and assessment of current plan
assets. The discount rate is determined based on the rates of return of
high-quality fixed-income investments currently available consistent with the
maturity of the pension benefits.(n)
    
    Earnings Per ShareThe Company conforms to SFAS No.128, Earnings per Share, which establishes
standards for computing and presenting earnings per share. SFAS No.128 also
requires dual presentation of basic and diluted earnings per share on the
face of the consolidated statements of income for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic and diluted earnings per share computation (see Note
13).Basic earnings per share has been computed by dividing net income available
to common shareholders by the weighted-average number of common shares
outstanding during each year. Diluted earnings per share reflects the
potential dilution computed on the basis that all convertible bonds were
converted at the beginning of the year or at the time of issuance unless they
were antidilutive. F-12




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##### Table of Contents



(o)
    
    Impairment of Long-Lived AssetsThe Company conforms to SFAS No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets, which requires that long-lived assets and
certain identifiable intangibles having finite useful lives to be held and
used by an entity be reviewed for impairment, based on the undiscounted cash
flows expected to be generated therefrom, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 144 also requires that any such impaired assets, other
long-lived assets and certain identifiable intangibles to be held for use or
held for sale be reported at the lower of carrying amount or fair value or
fair value less cost to sell (for assets held for sale).In fiscal 2004, the Company made a decision and vacated a certain research
and development facility and a related administrative facility. As a result
of this decision, the Company recorded an impairment charge of ¥1,541 million
to reduce the carrying value of the research and development facility and a
related administrative facility to its estimated fair value which was based
on discounted future cash flows, less cost to dispose. In December 2003, in connection with ongoing strategic revenue growth and cost cutting initiatives, specifically including an evaluation of its corporate wide marketing and promotional activities and the cost benefit relationship therefrom, and the continued rationalization of certain personnel related costs, Makita made a decision to no longer consider a golf course owned by a consolidated
subsidiary as a corporate asset and curtailed utilizing such for promotional, entertainment and employee welfare purposes. As a result of this decision,
Makita performed impairment analysis by considering cash flows expected to be generated from the golf course on a stand alone basis and recorded an impairment
charge of Yen 5,996 million to reduce the carrying value to its estimated fair value, as determined on a discounted cash flow basis. During the current year, Makita made a
decision to sell part of its production facility in the United Kingdom rather
than holding it for future use. As a result of this decision, Makita
recorded an impairment charge of ¥243 million, based on the expected sales
value less cost to sell the facility. The remaining carrying value of the
production facility was insignificant as of March 31, 2004.(p)
    
    Derivative Financial InstrumentsThe Company conforms to SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities and SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of SFAS No. 133.
Both statements require the Company and its consolidated subsidiaries to
recognize all derivative instruments as either assets or liabilities in the
consolidated balance sheets and measure those instruments at fair values. The
accounting for changes in the fair value of a derivative instrument depends
on whether it has been designated and qualifies as part of a hedging
relationship, and on the type of hedging relationship.The Company and its consolidated subsidiaries use various derivative
instruments to manage interest rate and currency exchange rate risk on
specific underlying exposures on recorded items . To qualify for fair value
hedge accounting in accordance with SFAS No. 133, the derivative instruments
must be effective in reducing the risk exposure that they are designated to
hedge. The Company and its consolidated subsidiaries formally designate and
document the derivative instruments as an effective hedge of specific
underlying exposures, as well as the risk management objectives and
strategies for undertaking the hedge transactions at the time of entering
into the hedge. Derivative instruments that meet established accounting
criteria are formally designated as hedges at the inception of the contract.
These criteria demonstrate that the derivative instruments are expected to be
highly effective at offsetting changes in fair value of the underlying
exposure both at the inception of the hedging relationship and on an ongoing
basis.Changes in the fair value of a derivative instrument that is designated as a
fair value hedge and highly effective, along with offsetting changes in fair
value of the underlying hedged exposure, are recorded in earnings.When the underlying hedged item ceases to exist, all changes in the fair
value of the derivative instrument are recognized in earnings until the
derivative instrument matures.Any changes in the fair value of derivative instruments that are not
designated as hedges, as well as changes in the value of derivatives that do
not offset the underlying hedged item throughout the designated hedge period
(collectively ineffectiveness), are immediately recognized in earnings. F-13




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##### Table of Contents



(q)
    
    Use of Estimates in the Preparation of Financial StatementsThe preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.The Company has identified the following areas where it believes assumptions
and estimates are particularly critical to the consolidated financial
statements. These are revenue recognition, determination of the allowance for
doubtful receivables, impairment on long-lived assets, realizability of
deferred income tax assets, the determination of unrealized losses on
securities of which the decline in market value is considered to be other
than temporary, the actuarial assumptions on retirement and termination
benefit plans and the determination of fair value of derivative instruments.(r)
    
    Revenue RecognitionThe Company and its consolidated subsidiaries recognize revenue when
persuasive evidence of an arrangement exists, delivery has occurred and title
and risk of loss has passed to the customers, the sales price is fixed or
determinable and collectibility is reasonably assured, which occurs when
products are shipped to customers. When repairs are made and charged to
customers, revenue from this source is recognized when the repairs have been
completed and the item is shipped to the customer. In addition, the Company
deducts sales incentives from revenues, such as co-op advertisement and
slotting fees where the Company is not receiving an identifiable benefit,
volume based rebates and cash discounts. Such deductions from revenues are
estimated and recorded at the time the revenues are recognized, based on past
experience and the content of contracts with customers.(s)
    
    ReclassificationsCertain reclassifications have been made to the prior years consolidated
financial statements to conform with the presentation used for the year ended
March 31, 2004.  4.
    
    TRANSLATION OF FINANCIAL STATEMENTSSolely for the convenience of the reader, the accompanying consolidated
financial statement amounts for the year ended March 31, 2004 are also
presented in U.S. Dollars by arithmetically translating all yen amounts using
the approximate prevailing exchange rate at the Federal Reserve Bank of New
York of ¥104 to US$1 at March 31, 2004. This translation should not be
construed as a representation that the amounts shown could be or could have been converted into
United States dollars at such rate.5.
    
    INVENTORIESInventories as of March 31, 2003 and 2004 comprised the following: Yen
    
    U.S. Dollars(millions)
    
    (thousands)2003
    
    
    2004
    
    
    2004Finished goods
    
    ¥
    53,068
    
    
    ¥
    44,159
    
    
    $
    424,606Work in process
    
    
    1,794
    
    
    
    1,858
    
    
    
    17,865Raw materials and parts
    
    
    7,744
    
    
    
    8,309
    
    
    
    79,894¥
    62,606
    
    
    ¥
    54,326
    
    
    $
    522,365
 F-14




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##### Table of Contents



6.
    
    MARKETABLE SECURITIES AND INVESTMENT SECURITIESMarketable securities and investment securities consisted of available-for-sale
securities and held-to-maturity securities.The cost, gross unrealized holding gains and losses and fair value for such
securities by major security type as of March 31, 2003 and 2004 were as
follows: Yen (millions)Gross UnrealizedHoldingAs of March 31, 2003
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair value
    
    
    CarryingAmountAvailable-for-sale:Marketable securities:Japanese and
foreign government
debt securities
    
    ¥
    200
    
    
    ¥
    13
    
    
    ¥
    
    
    
    ¥
    213
    
    
    ¥
    213Corporate and bank
debt securities
    
    
    7,597
    
    
    
    112
    
    
    
    1
    
    
    
    7,708
    
    
    
    7,708Funds in trusts
    
    
    654
    
    
    
    
    
    
    
    
    
    
    
    654
    
    
    
    654Investments in trusts
    
    
    28,837
    
    
    
    44
    
    
    
    26
    
    
    
    28,855
    
    
    
    28,855Marketable equity
securities
    
    
    1,582
    
    
    
    259
    
    
    
    78
    
    
    
    1,763
    
    
    
    1,763¥
    38,870
    
    
    ¥
    428
    
    
    ¥
    105
    
    
    ¥
    39,193
    
    
    ¥
    39,193Investment securities:Corporate and bank
debt securities
    
    ¥
    2,954
    
    
    ¥
    52
    
    
    ¥
    
    
    
    ¥
    3,006
    
    
    ¥
    3,006Investments in trusts
    
    
    922
    
    
    
    64
    
    
    
    
    
    
    
    986
    
    
    
    986Marketable equity
securities
    
    
    8,175
    
    
    
    1,570
    
    
    
    490
    
    
    
    9,255
    
    
    
    9,255Non-marketable
equity securities
(carried at cost)
    
    
    608
    
    
    
    
    
    
    
    
    
    
    
    608
    
    
    
    608¥
    12,659
    
    
    ¥
    1,686
    
    
    ¥
    490
    
    
    ¥
    13,855
    
    
    ¥
    13,855Held-to-maturity:Investment securities:Japanese government
debt securities
    
    ¥
    2,926
    
    
    ¥
    1
    
    
    ¥
    0
    
    
    ¥
    2,927
    
    
    ¥
    2,926Japanese corporate
debt securities
    
    
    2,561
    
    
    
    0
    
    
    
    1
    
    
    
    2,560
    
    
    
    2,5615,487
    
    
    
    1
    
    
    
    1
    
    
    
    5,487
    
    
    
    5,487Total investment securities
    
    ¥
    18,146
    
    
    ¥
    1,687
    
    
    ¥
    491
    
    
    ¥
    19,342
    
    
    ¥
    19,342
 F-15




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##### Table of Contents



Yen (millions)Gross UnrealizedHoldingAs of March 31, 2004
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair value
    
    
    CarryingAmountAvailable-for-sale:Marketable securities:Japanese and foreign
government debt securities
    
    ¥
    100
    
    
    ¥
    5
    
    
    ¥
    
    
    
    ¥
    105
    
    
    ¥
    105Corporate and bank debt
securities
    
    
    5,377
    
    
    
    78
    
    
    
    32
    
    
    
    5,423
    
    
    
    5,423Investments in trusts
    
    
    41,141
    
    
    
    1,093
    
    
    
    6
    
    
    
    42,228
    
    
    
    42,228Marketable equity securities
    
    
    1,494
    
    
    
    1,412
    
    
    
    
    
    
    
    2,906
    
    
    
    2,906¥
    48,112
    
    
    ¥
    2,588
    
    
    ¥
    38
    
    
    ¥
    50,662
    
    
    ¥
    50,662Investment securities:Corporate and bank debt
securities
    
    ¥
    2,954
    
    
    ¥
    75
    
    
    ¥
    
    
    
    ¥
    3,029
    
    
    ¥
    3,029Investments in trusts
    
    
    1,012
    
    
    
    47
    
    
    
    
    
    
    
    1,059
    
    
    
    1,059Marketable equity securities
    
    
    7,919
    
    
    
    9,137
    
    
    
    8
    
    
    
    17,048
    
    
    
    17,048Non-marketable equity
securities (carried at
cost)
    
    
    602
    
    
    
    
    
    
    
    
    
    
    
    602
    
    
    
    602¥
    12,487
    
    
    ¥
    9,259
    
    
    ¥
    8
    
    
    ¥
    21,738
    
    
    ¥
    21,738Held-to-maturity:Marketable securities:Japanese government debt
securities
    
    ¥
    10,367
    
    
    ¥
    7
    
    
    ¥
    0
    
    
    ¥
    10,374
    
    
    ¥
    10,377Japanese corporate debt
securities
    
    
    2,961
    
    
    
    0
    
    
    
    0
    
    
    
    2,961
    
    
    
    2,961¥
    13,328
    
    
    ¥
    7
    
    
    ¥
    0
    
    
    ¥
    13,335
    
    
    ¥
    13,328Investment securities:Japanese corporate debt
securities
    
    ¥
    401
    
    
    ¥
    0
    
    
    ¥
    2
    
    
    ¥
    399
    
    
    ¥
    401¥
    401
    
    
    ¥
    0
    
    
    ¥
    2
    
    
    ¥
    399
    
    
    ¥
    401Total marketable securities
    
    ¥
    61,440
    
    
    ¥
    2,595
    
    
    ¥
    38
    
    
    ¥
    63,997
    
    
    ¥
    63,990Total investment securities
    
    ¥
    12,888
    
    
    ¥
    9,259
    
    
    ¥
    10
    
    
    ¥
    22,137
    
    
    ¥
    22,139
 F-16




---



##### Table of Contents



U.S. Dollars (thousands)Gross UnrealizedHoldingAs of March 31, 2004
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair value
    
    
    CarryingAmountAvailable-for-sale:Marketable securities:Japanese and foreign
government debt securities
    
    $
    962
    
    
    $
    48
    
    
    $
    
    
    
    $
    1,010
    
    
    $
    1,010Corporate and bank debt
securities
    
    
    51,701
    
    
    
    750
    
    
    
    307
    
    
    
    52,144
    
    
    
    52,144Investments in trusts
    
    
    395,587
    
    
    
    10,510
    
    
    
    58
    
    
    
    406,039
    
    
    
    406,039Marketable equity securities
    
    
    14,365
    
    
    
    13,577
    
    
    
    
    
    
    
    27,942
    
    
    
    27,942$
    462,615
    
    
    $
    24,885
    
    
    $
    365
    
    
    $
    487,135
    
    
    $
    487,135Investment securities:Corporate and bank debt
securities
    
    $
    28,404
    
    
    $
    721
    
    
    $
    
    
    
    $
    29,125
    
    
    $
    29,125Investments in trusts
    
    
    9,731
    
    
    
    452
    
    
    
    
    
    
    
    10,183
    
    
    
    10,183Marketable equity securities
    
    
    76,144
    
    
    
    87,856
    
    
    
    77
    
    
    
    163,923
    
    
    
    163,923Non-marketable equity
securities (carried at cost)
    
    
    5,788
    
    
    
    
    
    
    
    
    
    
    
    5,788
    
    
    
    5,788$
    120,067
    
    
    $
    89,029
    
    
    $
    77
    
    
    $
    209,019
    
    
    $
    209,019Held-to-maturity:Marketable securities:Japanese government debt
securities
    
    $
    99,683
    
    
    $
    67
    
    
    $
    0
    
    
    $
    99,750
    
    
    $
    99,683Japanese corporate debt
securities
    
    
    28,470
    
    
    
    0
    
    
    
    0
    
    
    
    28,470
    
    
    
    28,470$
    128,153
    
    
    $
    67
    
    
    $
    0
    
    
    $
    128,220
    
    
    $
    128,153Investment securities:Japanese corporate debt
securities
    
    $
    3,856
    
    
    $
    0
    
    
    $
    19
    
    
    $
    3,837
    
    
    $
    3,856$
    3,856
    
    
    $
    0
    
    
    $
    19
    
    
    $
    3,837
    
    
    $
    3,856Total marketable securities
    
    $
    590,768
    
    
    $
    24,952
    
    
    $
    365
    
    
    $
    615,355
    
    
    $
    615,288Total investment securities
    
    $
    123,923
    
    
    $
    89,029
    
    
    $
    96
    
    
    $
    212,856
    
    
    $
    212,875
  Funds in trusts represent short-term funds deposited with trust banks in
individual accounts and managed by the Company. As of March 31, 2003, all such
funds in trusts consisted of bank deposits. As of March 31, 2004, the company
did not have funds in trusts.Investments in trusts represent funds deposited with trust banks in multiple
investor accounts and managed by fund managers in the trust banks. As of March
31, 2003 and 2004, each fund consisted of marketable equity securities and
interest-bearing bonds. F-17




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##### Table of Contents



The following table shows our investments gross unrealized losses and fair
value, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position, at March 31,
2004. Yen (millions)Less than 12 months
    
    12 months or moreGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    UnrealizedAs of March 31, 2004
    
    Fair value
    
    
    Loss
    
    
    Fair value
    
    
    LossAvailable-for-sale:Marketable securities:Corporate and bank debt securities
    
    ¥
    5,423
    
    
    ¥
    32
    
    
    ¥
    
    
    
    ¥
    Investments in trusts
    
    
    42,228
    
    
    
    6
    
    
    
    
    
    
    
    ¥
    47,651
    
    
    ¥
    38
    
    
    ¥
    
    
    
    ¥
    Available-for-sale:Investment securities:Marketable equity securities
    
    ¥
    17,048
    
    
    ¥
    8
    
    
    ¥
    
    
    
    ¥
    ¥
    17,048
    
    
    ¥
    8
    
    
    ¥
    
    
    
    ¥
    
 U.S. Dollars (thousands)Less than 12 months
    
    12 months or moreGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    UnrealizedAs of March 31, 2004
    
    Fair value
    
    
    Loss
    
    
    Fair value
    
    
    LossAvailable-for-sale:Marketable securities:Corporate and bank debt securities
    
    $
    52,144
    
    
    $
    307
    
    
    $
    
    
    
    $
    Investments in trusts
    
    
    406,039
    
    
    
    58
    
    
    
    
    
    
    
    $
    458,183
    
    
    $
    365
    
    
    $
    
    
    
    $
    Available-for-sale:Investment securities:Marketable equity securities
    
    $
    163,923
    
    
    $
    77
    
    
    $
    
    
    
    $
    $
    163,923
    
    
    $
    77
    
    
    $
    
    
    
    $
    
 Maturities of debt securities classified as available-for-sale or
held-to-maturity as of March 31, 2004, regardless of their balance sheet
classification, were as follows: Yen (millions)
    
    U.S. Dollars (thousands)Cost
    
    
    Fair value
    
    
    Cost
    
    
    Fair valueDue within one year
    
    ¥
    16,287
    
    
    ¥
    16,302
    
    
    $
    156,606
    
    
    $
    156,750Due after one to five years
    
    
    1,135
    
    
    
    1,209
    
    
    
    10,913
    
    
    
    11,625Due after five to ten years
    
    
    1,943
    
    
    
    1,814
    
    
    
    18,683
    
    
    
    17,442Due after ten years
    
    
    1,394
    
    
    
    1,366
    
    
    
    13,404
    
    
    
    13,135Indefinite periods
    
    
    1,400
    
    
    
    1,600
    
    
    
    13,462
    
    
    
    15,385¥
    22,159
    
    
    ¥
    22,291
    
    
    $
    213,068
    
    
    $
    214,337
  Debt securities which have indefinite periods shown above represent investments
in perpetual subordinated bonds with issuers optional redemption rights. Fixed
interest rates on such bonds are 2.00 or 2.01 per cent per annum for the
interest period to July 12 or 27, 2005, respectively, and 6 month LIBOR plus
2.25 per cent per annum for the interest period commencing on July 13 or 28,
2005, respectively, and thereafter pursuant to the terms of the contract. F-18




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##### Table of Contents



Gross realized gains on sales of marketable securities and investment
securities for the years ended March 31, 2002, 2003 and 2004 amounted to ¥546
million, ¥337 million and ¥862 million ($8,288 thousand), respectively, and
gross realized losses, which include the gross realized losses considered as
other than temporary, during the years ended March 31, 2002, 2003 and 2004
amounted to ¥3,286 million, ¥2,927 million and ¥307 million ($2,952 thousand),
respectively. The cost of the securities sold was computed based on the average
cost of all the shares of each such security held at the time of sale. Gross
unrealized losses on marketable securities and investment securities of which
declines in market value are considered to be other than temporary were charged
to earnings as realized losses on securities, amounting to ¥2,970 million,
¥2,630 million and ¥279 million ($2,683 thousand) for the years ended March 31,
2002, 2003 and 2004, respectively. Proceeds from the sales and maturities of
available-for-sale securities and held-to-maturity securities were ¥18,497
million, ¥24,061 million and ¥18,190 million ($174,904 thousand) for the years
ended March 31, 2002, 2003 and 2004, respectively.  7.
    
    INCOME TAXESIncome before income taxes and the provision for income taxes for the years
ended March 31, 2002, 2003 and 2004 were as follows: Yen
    
    U.S. Dollars(millions)
    
    (thousands)2002
    
    
    2003
    
    
    2004
    
    
    2004Income before income taxes:Domestic
    
    ¥
    4,221
    
    
    ¥
    3,029
    
    
    ¥
    3,945
    
    
    $
    37,933Foreign
    
    
    (818
    )
    
    
    6,263
    
    
    
    12,225
    
    
    
    117,548¥
    3,403
    
    
    ¥
    9,292
    
    
    ¥
    16,170
    
    
    $
    155,481Provision for income taxes:Current-Domestic
    
    ¥
    2,729
    
    
    ¥
    2,433
    
    
    ¥
    5,264
    
    
    $
    50,616Foreign
    
    
    1,298
    
    
    
    (139
    )
    
    
    3,481
    
    
    
    33,4714,027
    
    
    
    2,294
    
    
    
    8,745
    
    
    
    84,087Deferred-Domestic
    
    
    (599
    )
    
    
    687
    
    
    
    26
    
    
    
    250Foreign
    
    
    (158
    )
    
    
    (412
    )
    
    
    (292
    )
    
    
    (2,808
    )(757
    )
    
    
    275
    
    
    
    (266
    )
    
    
    (2,558
    )Consolidated provision for
income taxes
    
    ¥
    3,270
    
    
    ¥
    2,569
    
    
    ¥
    8,479
    
    
    $
    81,529
  Total income taxes were allocated as follows: Yen
    
    U.S. Dollars(millions)
    
    (thousands)2002
    
    
    2003
    
    
    2004
    
    
    2004Provision for income taxes
    
    ¥
    3,270
    
    
    ¥
    2,569
    
    
    ¥
    8,479
    
    
    $
    81,529Shareholders equity:Foreign currency translation
adjustment
    
    
    (619
    )
    
    
    (627
    )
    
    
    (458
    )
    
    
    (4,404
    )Net unrealized holding gains
(losses) on available-for-sale
securities
    
    
    (949
    )
    
    
    (599
    )
    
    
    4,168
    
    
    
    40,077Minimum pension liability adjustment
    
    
    (1,822
    )
    
    
    (3,899
    )
    
    
    4,392
    
    
    
    42,231¥
    (120
    )
    
    ¥
    (2,556
    )
    
    ¥
    16,581
    
    
    $
    159,433
  The Company and its domestic subsidiaries are subject to a National Corporate
tax of 30.0%, an Inhabitant tax of approximately 5.6% and a deductible
Enterprise tax of approximately 9.9%, which in the aggregate resulted in a
combined statutory income tax rate of approximately 41.4% for each of the years
in the three-year period ended March 31, 2004. F-19




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##### Table of Contents



Reconciliations of the combined statutory income tax rate to the effective
income tax rates are as follows: Year ended March 31,2002
    
    
    2003
    
    
    2004Combined statutory income tax rate in Japan
    
    
    41.4
    %
    
    
    41.4
    %
    
    
    41.4
    %Non-deductible expenses
    
    
    2.2
    
    
    
    1.0
    
    
    
    0.6Non-taxable dividends received
    
    
    (1.6
    )
    
    
    (0.3
    )
    
    
    (0.2
    )Change in valuation allowance
    
    
    56.8
    
    
    
    4.7
    
    
    
    18.5Impact of advance pricing agreement finalization
    
    
    
    
    
    
    (18.2
    )
    
    
    (1.3
    )Effect on change in enacted tax rate
    
    
    
    
    
    
    3.4
    
    
    
    0.1Tax sparing impact
    
    
    (3.0
    )
    
    
    (3.3
    )
    
    
    (1.8
    )Effect of reversal of income taxes payable
versus final tax paid
    
    
    
    
    
    
    (1.1
    )
    
    
    (3.6
    )Effect of the foreign tax rate differential
    
    
    
    
    
    
    
    
    
    
    (1.3
    )Other, net
    
    
    0.3
    
    
    
    
    
    
    
    Effective income tax rate
    
    
    96.1
    %
    
    
    27.6
    %
    
    
    52.4
    %
  In 1997, Makita USA and the Parent Company entered into a bilateral advance
pricing agreement (APA) negotiation with the Internal Revenue Service (IRS) and
the National Tax Authority of Japan (NTA) to avoid double taxation resulting
from transfer price adjustments. The APA covers fiscal years 1995 through 2001.
In July 2002, the IRS and the NTA reached an agreement, which results in
additional taxable income and reduced operating loss carryforwards in the U.S.,
and a reduction of taxable income and tax liability in Japan. Consequently the
effects of the APA resulted in an overall decrease to income taxes in 2003 and
2004.According to the provisions of tax treaties which have been concluded between
Japan and 19 countries, Japanese corporations can claim a tax credit against
Japanese income taxes on income earned in one of those 19 countries, even
though that income is exempted from income taxes or is reduced by special tax
incentive measures in those countries, as if no special exemption or reduction
was provided. The Company applied such tax sparing mainly to China with the
indicated tax reduction effect.As a result of the enactment of an amendment to the Japanese local tax law on
March 31, 2003, the effective tax rate used for the calculation of deferred
income tax assets and liabilities has been reduced from 41.4% to 40.2% for the
year ended March 31, 2003, and risen from 40.2% to 40.3% for the year ended
March 31,2004. The effect of this tax rate changes for the year ended March 31,
2003 and 2004 was ¥312 million and ¥11 million ($106 thousand), respectively. F-20




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##### Table of Contents



Significant components of deferred income tax assets and liabilities as of
March 31, 2003 and 2004 were as follows: Yen
    
    U.S. Dollars(millions)
    
    (thousands)2003
    
    
    2004
    
    
    2004Deferred income tax assets:Investment securities
    
    ¥
    1,671
    
    
    ¥
    2,462
    
    
    $
    23,673Accrued retirement and termination benefits
and other accrued expenses
    
    
    1,906
    
    
    
    2,250
    
    
    
    21,635Pension liability
    
    
    8,810
    
    
    
    4,429
    
    
    
    42,587Inventories
    
    
    1,591
    
    
    
    1,221
    
    
    
    11,740Property, plant and equipment
    
    
    2,726
    
    
    
    6,632
    
    
    
    63,769Accrued payroll
    
    
    1,653
    
    
    
    1,770
    
    
    
    17,019Net operating loss carryforwards
    
    
    2,952
    
    
    
    2,085
    
    
    
    20,048Other
    
    
    1,481
    
    
    
    379
    
    
    
    3,644Total gross deferred income tax assets
    
    
    22,790
    
    
    
    21,228
    
    
    
    204,115Valuation allowance
    
    
    (6,694
    )
    
    
    (8,828
    )
    
    
    (84,884
    )¥
    16,096
    
    
    ¥
    12,400
    
    
    $
    119,231Deferred income tax liabilities:Undistributed earnings of overseas subsidiaries
    
    ¥
    (2,291
    )
    
    ¥
    (2,849
    )
    
    $
    (27,394
    )Marketable securities
    
    
    (611
    )
    
    
    (4,756
    )
    
    
    (45,731
    )Inventories
    
    
    (1,014
    )
    
    
    (435
    )
    
    
    (4,183
    )Other
    
    
    (89
    )
    
    
    (77
    )
    
    
    (740
    )(4,005
    )
    
    
    (8,117
    )
    
    
    (78,048
    )Net deferred income tax assets
    
    ¥
    12,091
    
    
    ¥
    4,283
    
    
    $
    41,183
  Net deferred income tax assets are recorded in the consolidated balance sheets
as follows: Yen
    
    U.S. Dollars(millions)
    
    (thousands)2003
    
    
    2004
    
    
    2004Deferred income tax assetsCurrent assets
    
    ¥
    3,515
    
    
    ¥
    3,691
    
    
    $
    35,490Investment and other assets
    
    
    10,386
    
    
    
    880
    
    
    
    8,462Current liabilities
    
    
    (403
    )
    
    
    (53
    )
    
    
    (510
    )Long-term liabilities
    
    
    (1,407
    )
    
    
    (235
    )
    
    
    (2,259
    )¥
    12,091
    
    
    ¥
    4,283
    
    
    $
    41,183
  The valuation allowance was ¥6,115 million as of March 31,2001. The net change
in the total valuation allowances for the years ended March 31, 2002, 2003 and
2004 was an increase of ¥2,935 million, a decrease of ¥2,356 million and an
increase of ¥2,134 million ($ 20,519 thousand), respectively. The increase of
¥2,134 million ($ 20,519 thousand) for the ended March 31,2004 was mainly due
to the 100% valuation allowance provided on the deferred income tax asset on
the current year impairment charge on long-lived assets of Joyama Kaihatsu.In assessing the realizability of deferred income tax assets, the Company
considers whether it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. The ultimate realization of
deferred income tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. The Company considers the scheduled reversal of deferred income tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods in which the deferred
income tax assets are deductible, the Company believes it is more likely than
not that the benefits of these deductible F-21




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##### Table of Contents



differences, net of the existing valuation allowance, will be realized. The
actual amount of the deferred income tax asset realizable, however, would be
reduced if estimates of future taxable income during the carryforward period
were not achieved . The valuation allowance principally relates to the tax
effects of net operating losses and differences in book and tax depreciation
related to property, plant and equipment recorded by certain subsidiaries.As of March 31, 2004, certain subsidiaries have net operating loss
carryforwards for income tax purposes of ¥6,144 million ($59,077 thousand)
which were available to reduce future income taxes. The net operating losses
will expire as follows: U.S. DollarsYen (millions)
    
    
    (thousands)Within 5 years
    
    ¥
    1,052
    
    
    $
    10,1166 to 20 years
    
    
    3,494
    
    
    
    33,596Indefinite periods
    
    
    1,598
    
    
    
    15,365¥
    6,144
    
    
    $
    59,077
  8
    
    RETIREMENT AND TERMINATION BENEFIT PLANSThe Company and certain of its consolidated subsidiaries have various
contributory and noncontributory employees benefit plans covering substantially
all of their employees. Under the plans, employees are entitled to lump-sum
payments at the time of termination or retirement, or to pension payments. A
domestic contributory plan, which covers substantially all of the employees of
the Company, includes the governmental welfare pension benefits
(substitutional portion) that would otherwise be provided by the Japanese
government in accordance with the Welfare Pension Insurance Law in Japan.The amounts of lump-sum or pension payments under the plans are generally
determined on the basis of length of service and remuneration at the time of
termination or retirement.In December 2003, the Financial Accounting Standards Board (FASB) issued SFAS
No. 132 (revised 2003), Employers Disclosures about Pensions and Other
Postretirement Benefits. The revisions to SFAS 132 prescribes employers
disclosures about pension plans; it does not change the measurement or
recognition of those plans. The statement retains and revises the disclosure
requirement. In particular, the standard requires that companies provide more
details about their plan assets, benefit obligations, cash flows, net periodic
benefit costs and other relevant quantitative and qualitative information. SFAS
132 (revised) generally is effective for fiscal years ending after December 31,
2003. The following disclosures reflect the requirements of SFAS No. 132
(revised):The net periodic benefit costs of the defined benefit plans for the years ended
March 31, 2002, 2003 and 2004 consisted of the following components: Yen
    
    U.S. Dollars(millions)
    
    (thousands)2002
    
    
    2003
    
    
    2004
    
    
    2004Service cost-benefit earned during the year
    
    ¥
    1,983
    
    
    ¥
    2,211
    
    
    ¥
    1,671
    
    
    $
    16,067Interest cost on projected benefit obligation
    
    
    1,386
    
    
    
    1,302
    
    
    
    1,225
    
    
    
    11,779Expected return on plan assets
    
    
    (850
    )
    
    
    (764
    )
    
    
    (643
    )
    
    
    (6,183
    )Amortization of prior service cost
    
    
    66
    
    
    
    12
    
    
    
    14
    
    
    
    135Recognized actuarial loss
    
    
    340
    
    
    
    584
    
    
    
    975
    
    
    
    9,375Net periodic pension costs
    
    ¥
    2,925
    
    
    ¥
    3,345
    
    
    ¥
    3,242
    
    
    $
    31,173
 F-22




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##### Table of Contents



Reconciliations of beginning and ending balances of the benefit obligations and
the fair value of the plan assets were as follows: Yen
    
    U.S. Dollars(millions)
    
    (thousands)2003
    
    
    2004
    
    
    2004Change in benefit obligation:Benefit obligation at beginning of year
    
    ¥
    50,651
    
    
    ¥
    58,295
    
    
    $
    560,529Service cost
    
    
    2,211
    
    
    
    1,671
    
    
    
    16,067Interest cost
    
    
    1,302
    
    
    
    1,225
    
    
    
    11,779Employees contributions
    
    
    226
    
    
    
    35
    
    
    
    336Amendments
    
    
    (1,472
    )
    
    
    
    
    
    
    Actuarial loss
    
    
    6,392
    
    
    
    (5,217
    )
    
    
    (50,163
    )Benefits paid
    
    
    (1,185
    )
    
    
    (1,095
    )
    
    
    (10,529
    )Foreign exchange impact
    
    
    170
    
    
    
    (15
    )
    
    
    (144
    )Benefit obligation at end of year
    
    
    58,295
    
    
    
    54,899
    
    
    
    527,875Change in plan assets:Fair value of plan assets at beginning of year
    
    
    27,895
    
    
    
    26,201
    
    
    
    251,932Actual return on plan assets
    
    
    (3,910
    )
    
    
    4,194
    
    
    
    40,327Employer contributions
    
    
    3,098
    
    
    
    3,521
    
    
    
    33,856Employees contributions
    
    
    226
    
    
    
    35
    
    
    
    337Benefits paid
    
    
    (1,104
    )
    
    
    (968
    )
    
    
    (9,308
    )Foreign exchange impact
    
    
    (4
    )
    
    
    (2
    )
    
    
    (19
    )Fair value of plan assets at end of year
    
    
    26,201
    
    
    
    32,981
    
    
    
    317,125Funded status
    
    
    (32,094
    )
    
    
    (21,918
    )
    
    
    (210,750
    )Unrecognized net actuarial loss
    
    
    27,455
    
    
    
    17,759
    
    
    
    170,760Prior service cost not yet recognized in net
periodic benefit cost
    
    
    (507
    )
    
    
    (482
    )
    
    
    (4,635
    )Unrecognized net transition obligation being
recognized over 19 years
    
    
    190
    
    
    
    153
    
    
    
    1,471Net amount recognized
    
    ¥
    (4,956
    )
    
    ¥
    (4,488
    )
    
    $
    (43,154
    )Amounts recognized in the consolidated balance sheets
consist of;Accrued benefit liability
    
    ¥
    (26,929
    )
    
    ¥
    (15,537
    )
    
    $
    (149,394
    )Prepaid benefit expenses
    
    
    58
    
    
    
    58
    
    
    
    558Accumulated other comprehensive loss, gross of tax
    
    
    21,915
    
    
    
    10,991
    
    
    
    105,682Net amount recognized
    
    ¥
    (4,956
    )
    
    ¥
    (4,488
    )
    
    $
    (43,154
    )
  Measurement dateThe Company uses a December 31 measurement date for the majority of its plans. F-23




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##### Table of Contents



Assumptions Weighted-average assumptions used to determine benefit obligations at March 31, 2003 and 2004 were as follows:2003
    
    
    2004Discount rate
    
    
    2.1
    %
    
    
    2.1
    %Assumed rate of increase in future
compensation levels
    
    
    2.3
    %
    
    
    3.0
    %
 Weighted-average assumptions used to determine net periodic benefit cost for each of the years in the three years ended March 31 were as follows:2002
    
    
    2003
    
    
    2004Discount rate
    
    
    3.1
    %
    
    
    2.6
    %
    
    
    2.1
    %Assumed rate of increase in future
compensation levels
    
    
    2.4
    %
    
    
    2.3
    %
    
    
    2.3
    %Expected long-term rate of return on
plan assets
    
    
    3.0
    %
    
    
    2.5
    %
    
    
    2.0
    %
  Plan AssetsThe domestic benefit plan weighted-average assets allocations at March 31,
2003, and 2004, by asset category are follows; Asset Category
    
    2003
    
    
    2004Equity securities
    
    
    44.4
    %
    
    
    44.5
    %Debt securities
    
    
    32.7
    
    
    
    21.1Life insurance company general accounts
    
    
    14.5
    
    
    
    10.1Other
    
    
    8.4
    
    
    
    24.3100.0
    %
    
    
    100.0
    %
  The Companys funding policy is to contribute monthly the amounts which
would provide sufficient assets for future payments of pension benefits. The
plans assets are invested primarily in interest-bearing securities and
marketable equity securities.

     The mix of equity securities and debt securities is determined after
taking into consideration the expected long-term yield on pension assets. To
decide whether changes in the basic portfolio are necessary, the Company
examines the divergence between the expected long-term income and the actual
income from the portfolio on an annual basis. The Company revises the portfolio
when it is deemed necessary to reach the expected long-term yield.

     Equity securities include common stock of the Company in an amount of ¥3
million ($29 thousand) at March 31, 2004.Information for pension plans with an accumulated benefit obligation in excess
of plan assets Yen
    
    U.S. Dollars(millions)
    
    (thousands)2003
    
    
    2004
    
    
    2004Projected benefit obligation
    
    ¥
    58,295
    
    
    ¥
    54,899
    
    
    $
    527,875Accumulated benefit obligation
    
    
    53,072
    
    
    
    48,525
    
    
    
    466,587Fair value of plan assets
    
    
    26,201
    
    
    
    32,981
    
    
    
    317,125
 F-24




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##### Table of Contents



Cash flowMakita expects to contribute ¥2,271 million ($21,837 thousand) to its domestic
defined benefit plan in the year ending March 31, 2005.The domestic plan represents most of the pension obligation as of March 31,
2004. The discount rate and expected long-term rate of return on plan assets
assumed to determine the pension obligation for the Company relevant to the
domestic plan were 2.0% and 2.5% for the year ended March 31, 2003 and 2.0% and
2.0% for the year ended March 31, 2004, respectively.Certain foreign subsidiaries have defined contribution plans. The total
expenses charged to income under these plans were ¥252 million, ¥256 million
and ¥249 million ($2,394 thousand) for the years ended March 31, 2002, 2003 and
2004, respectively.As noted above, the domestic contributory plan is composed of a corporate
defined benefit portion established by the Company and a substitutional portion
based on benefits prescribed by the Japanese government (similar to social
security benefits in the United States). The Company has been exempted from
contributing to the Japanese Pension Insurance program that would otherwise
have been required if it had not elected to fund the government substitutional
portion of the benefit through a domestic contributory plan arrangement. The
plan assets of the domestic contributory plan are invested and managed as a
single portfolio for the entire domestic contributory plan and are not
separately attributed to the substitutional and corporate portions. The
substitutional portion represents approximately 33% of the total projected
benefit obligation of the domestic contributory plan as of March 31, 2004. In
June 2001, the Japanese pension law was amended to permit an employer to elect
to transfer the entire substitutional portion benefit obligation from the
domestic contributory plan to the government together with a specified amount
of plan assets pursuant to a government formula. After such transfer, the
employer would be required to make periodic contributions to the Japanese
Pension Insurance program, and the Japanese government would be responsible for
all benefit payments. The corporate portion of the domestic contributory plan
would continue to exist exclusively as a corporate defined benefit pension
plan. In this regard, the Company has elected to transfer the substitutional
portion of its domestic contributory plan to the government. The process of
separating the substitutional portion from the corporate portion includes
several phases. In January 2003, the Company received government approval of
exemption from the obligation for benefits related to future employee service
with respect to the substitutional portion of its domestic contributory plan.
The Company will account for the transfer in accordance with EITF 03-02
Accounting for the Transfer to the Japanese Government of the Substitutional
Portion of Employee Pension Fund Liabilities. As specified in EITF 03-02, the
entire separation process is to be accounted for at the time of completion of
the transfer to the government of the benefit obligation and related plan
assets as a settlement in accordance with SFAS No.88 Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits. Accordingly, there has been no effect on the Companys
consolidated financial statements for the fiscal year ended March 31, 2004. The
aggregate effect of this separation will be determined based on the Companys
pension benefit obligation as of the date the transfer is completed and the
amount of plan assets required to be transferred.The Company has an unfunded retirement and termination allowances program for Directors and Statutory Auditors. Under such program, the aggregate amount accrued as retirement allowances for Directors and Statutory Auditors was ¥427 million as of March 31, 2003 and was decreased to ¥369 million as of March 31, 2004.9.
    
    SHORT-TERM BORROWINGS AND LONG-TERM INDEBTEDNESSAs of March 31, 2003 and 2004, Short-term borrowings consisted of the
following: Yen
    
    U.S. Dollars(millions)
    
    (thousands)2003
    
    
    2004
    
    
    2004Bank borrowings
    
    ¥
    2,779
    
    
    ¥
    1,044
    
    
    $
    10,038Long-term debt due within one year
    
    
    113
    
    
    
    13,084
    
    
    
    125,808Total
    
    
    2,892
    
    
    
    14,128
    
    
    
    135,846
 F-25




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##### Table of Contents



Short-term borrowings, excluding current maturities of long-term indebtedness,
amounting to ¥2,779 million and ¥1,044 million ($10,038 thousand) as of March
31, 2003 and 2004, respectively consisted primarily of bank borrowings
denominated in foreign currencies by overseas subsidiaries. As of March 31,
2003 and 2004, the weighted average interest rates on the borrowings were 3.4%
and 6.3%, respectively.Certain subsidiaries of the Company had unused lines of credit available for
short-term borrowings without restrictions for immediate borrowing amounting to
¥26,332 million and ¥21,220 million ($204,038 thousand) as of March 31, 2003
and 2004, respectively.As of March 31, 2003 and 2004, long-term indebtedness consisted of the
following: Yen
    
    U.S. Dollars(millions)
    
    (thousands)2003
    
    
    2004
    
    
    20041.5% unsecured convertible bonds,
payable in yen, due 2005
    
    ¥
    12,994
    
    
    ¥
    12,994
    
    
    $
    124,9423.3% (weighted average rate) unsecured
loans from banks and insurance companies
in various foreign currencies, due 2005
    
    
    6,587
    
    
    
    6,391
    
    
    
    61,4520.6% (weighted average rate) unsecured
loans from Japanese companies, due 2005
    
    
    
    
    
    
    800
    
    
    
    7,692Capital lease obligations (see Note 3(g))
    
    
    375
    
    
    
    263
    
    
    
    2,529Total
    
    
    19,956
    
    
    
    20,448
    
    
    
    196,615Less- Current maturities included in
short-term borrowings
    
    
    (113
    )
    
    
    (13,084
    )
    
    
    (125,807
    )¥
    19,843
    
    
    ¥
    7,364
    
    
    $
    70,808
  In accordance with SFAS No. 133, changes in fair values of fixed rate long-term
indebtedness amounting to ¥587 million and ¥391 million ($3,760 thousand) as of
March 31, 2003 and 2004 respectively, which are effectively hedged by using
derivative instruments, are reflected in the carrying value of the long-term
indebtedness in the accompanying consolidated balance sheets.The 1.5% convertible bonds due 2005 are convertible into approximately
5,749,811 shares of common stock at a fixed conversion price of ¥2,259.90.The conversion price is subject to adjustment for stock splits and for shares
issued at less than market value. The outstanding convertible bonds are
redeemable at the option of the Company on or after April 1, 2004 at the issue
price under certain conditions as provided in the agreements.If all outstanding bonds were converted as of March 31, 2004, 5,749,811 shares
of common stock would be issuable.The aggregate annual maturities of long-term indebtedness subsequent to March
31, 2004 are as summarized below: Yen
    
    
    U.S. DollarsYear ending March 31,
    
    (millions)
    
    
    (thousands)2005
    
    ¥
    13,084
    
    
    $
    125,8072006
    
    
    7,278
    
    
    
    69,9812007
    
    
    41
    
    
    
    3942008
    
    
    13
    
    
    
    1252009
    
    
    7
    
    
    
    672010 and thereafter
    
    
    25
    
    
    
    241¥
    20,448
    
    
    $
    196,615
 F-26




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##### Table of Contents



10.
    
    CLUB MEMBERS DEPOSITSThe Company owns and operates a golf club in Japan and solicits golf club
members and receives non interest-bearing deposits accordingly. All golf club
members are required to maintain such deposits for at least a 10-year term, but
they are refundable if and when members terminate their memberships.
Accordingly, such deposits are recorded as club members deposits in long-term
liabilities in the accompanying consolidated balance sheets.11.
    
    SHAREHOLDERS EQUITYThe Commercial Code of Japan (the Code) provides that an amount equal to at
least 10% of cash dividends paid and other cash distributions from retained
earnings with respect to each fiscal year be transferred to the legal reserve
until the aggregate amount of additional paid-in capital and the legal reserve
equals 25% of the stated common stock amount. Under the condition that the
aggregate amount of additional paid-in capital and legal reserve remains at
least equal to 25% of the common stock amount, the excess portion is available
for distribution or release for certain other purposes by the resolution of the
annual general shareholders meeting.In addition, the Code provides that at least one-half of the issue price of new
shares be included in common stock. In conformity therewith, the Company may
divide the principal amount of bonds converted into common stock equally into
common stock and additional paid-in capital by resolution of the Board of
Directors.The Code allows the Company to purchase treasury stock for any reason at any
time by the resolution of the Board of Directors up to the limitation approved
by the shareholders.During the year ended March 31, 2002

On November 2, 2001, the Board of Directors passed a resolution approving the
purchase of the outstanding shares of the Company up to a maximum of 4.0
million shares. In connection therewith, the Company purchased 3.3 million
shares at a cost of ¥ 2,204 million for the year ended March 31, 2002.During the year ended March 31, 2003

On June 27, 2002, the shareholders of the Company approved purchase of the
outstanding shares of the Company up to a maximum of 4,000,000 shares and
¥4,000 million. In connection therewith, two share purchase resolutions were
approved by the Board. On November 19, 2002, the Board of Directors passed a
resolution approving the purchase of the outstanding shares of the Company up
to a maximum of 1,500,000 shares and ¥1,500 million. In connection therewith,
the Company had purchased such shares totaling 1,376,000 shares at a cost of
¥993 million. On December 16, 2002, the Board of Directors passed a resolution
approving the purchase of the outstanding shares of the Company up to a maximum
of 2,300,000 shares and ¥1,867 million. In connection therewith, the Company
had purchased such shares totaling 2,009,000 shares at a cost of ¥1,631
million. In addition, the Company had purchased 320,866 odd shares at a cost of
¥257 million during the year ended March 31, 2003. As a result, the Company
purchased 3,705,866 shares at a cost of ¥2,881 million during the year ended
March 31, 2003.During the year ended March 31, 2004

On June 27, 2003, the shareholders of the Company approved purchase of the
outstanding shares of the Company up to a maximum of 5,000,000 shares and
¥5,000 million ($48,077 thousand). In connection therewith, two share purchase
resolutions were approved by the Board of Directors. On August 7, 2003 the
Board of Directors passed a resolution approving the purchase of the
outstanding shares of the Company up to a maximum of 2,500,000 shares The
August 7, 2003 resolution also approved the retirement of 5 million outstanding
shares of the Company. In connection with the share purchase resolutions, the
Company purchased 2,002,000 shares at a cost of ¥2,142 million ($20,596
thousand) during FY 2004. In addition, the Company purchased 80,540 odd shares
at a cost of ¥85 million ($817 thousand) and sold 7,855 odd shares at a cost of
¥6 million ($58 thousand) during FY 2004. The Company retired shares totaling
5,000,000 shares at a cost of ¥4,015 million ($38,606 thousand) by offsetting
with unappropriated retained earnings based on the resolution of Board of
Directors mentioned above. As a result of the above noted actions, treasury
stock and retained earnings were decreased by 2,925,315 shares at a cost of
¥1,794 million ($17,250 thousand) and ¥4,015 million ($ 38,606 thousand) during
the year ended March 31, 2004. F-27




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##### Table of Contents



The Code provides that cash dividends may be approved semiannually by the
resolution of the annual general shareholders meeting after the end of each
fiscal year or by the declaration of the Board of Directors after the end of
each interim semi-annual period. Such dividends are payable to shareholders of
record at the end of each fiscal year or semi-annual period. In accordance with
the Code, the resolution or declaration of these dividends and the related
appropriations of retained earnings have not been reflected in the consolidated
financial statements at the end of such fiscal years or interim six-month
periods. The amount of retained earnings legally available under the Code for
distribution is that recorded in the Companys non-consolidated books and
equaled ¥108,480 million ($1,043,077 thousand) as of March 31, 2004. The Board
of Directors has declared a cash dividend (¥13 per share) totaling ¥1,871
million ($17,990 thousand) to be paid to the shareholders of record on March
31, 2004. As the dividend is subject to approval at the next annual general
shareholders meeting to be held on June 29, 2004, it has not been reflected in
the accompanying consolidated financial statements at March 31, 2004.12.
    
    OTHER COMPREHENSIVE INCOME (LOSS)Accumulated other comprehensive income (loss) as of March 31, 2002, 2003, 2004
was as follows Yen
    
    U.S. DollarsACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
    
    (millions)
    
    (thousands)2002
    
    
    2003
    
    
    2004
    
    
    2004Foreign currency translation adjustments:Beginning balance
    
    ¥
    (16,870
    )
    
    ¥
    (10,699
    )
    
    ¥
    (13,022
    )
    
    $
    (125,212
    )Adjustment for the year
    
    
    6,171
    
    
    
    (2,323
    )
    
    
    (4,560
    )
    
    
    (43,846
    )Ending balance
    
    ¥
    (10,699
    )
    
    ¥
    (13,022
    )
    
    ¥
    (17,582
    )
    
    $
    (169,058
    )Net unrealized holding gains on securitiesAvailable-for-sale:Beginning balance
    
    ¥
    2,674
    
    
    ¥
    1,325
    
    
    ¥
    478
    
    
    $
    4,597Adjustment for the year
    
    
    (1,349
    )
    
    
    (847
    )
    
    
    6,114
    
    
    
    58,788Ending balance
    
    ¥
    1,325
    
    
    ¥
    478
    
    
    ¥
    6,592
    
    
    $
    63,385Minimum pension liability adjustment:Beginning balance
    
    ¥
    (4,492
    )
    
    ¥
    (7,072
    )
    
    ¥
    (12,590
    )
    
    $
    (121,058
    )Adjustment for the year
    
    
    (2,580
    )
    
    
    (5,518
    )
    
    
    6,532
    
    
    
    62,808Ending balance
    
    ¥
    (7,072
    )
    
    ¥
    (12,590
    )
    
    ¥
    (6,058
    )
    
    $
    (58,250
    )Total accumulated comprehensive income (loss)Beginning balance
    
    ¥
    (18,688
    )
    
    ¥
    (16,446
    )
    
    ¥
    (25,134
    )
    
    $
    (241,673
    )Adjustment for the year
    
    
    2,242
    
    
    
    (8,688
    )
    
    
    8,086
    
    
    
    77,750Ending balance
    
    ¥
    (16,446
    )
    
    ¥
    (25,134
    )
    
    ¥
    (17,048
    )
    
    $
    (163,923
    )
 F-28




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##### Table of Contents



Tax effects allocated to each component of other comprehensive income (loss)
are as follows: Yen (millions)Tax benefit
    
    
    Net of taxPretax amount
    
    
    (expense)
    
    
    amountAs of March 31, 2002Foreign currency translation adjustment
    
    ¥
    5,552
    
    
    ¥
    619
    
    
    ¥
    6,171Unrealized gain (loss) on securities:Unrealized holding gains (losses)
arising during the year
    
    
    (5,038
    )
    
    
    2,083
    
    
    
    (2,955
    )Less- Reclassification adjustment
for (gains) losses realized in net
income
    
    
    2,740
    
    
    
    (1,134
    )
    
    
    1,606Net unrealized gains (losses)
    
    
    (2,298
    )
    
    
    949
    
    
    
    (1,349
    )Minimum pension liability adjustment
    
    
    (4,402
    )
    
    
    1,822
    
    
    
    (2,580
    )Other comprehensive income (loss)
    
    ¥
    (1,148
    )
    
    ¥
    3,390
    
    
    ¥
    2,242
 Yen (millions)Tax benefit
    
    
    Net of taxPretax amount
    
    
    (expense)
    
    
    amountAs of March 31, 2003Foreign currency translation adjustment
    
    ¥
    (2,950
    )
    
    ¥
    627
    
    
    ¥
    (2,323
    )Unrealized gain (loss) on securities:Unrealized holding gains (losses)
arising during the year
    
    
    (4,036
    )
    
    
    1,671
    
    
    
    (2,365
    )Less- Reclassification adjustment
for (gains) losses realized in net
income
    
    
    2,590
    
    
    
    (1,072
    )
    
    
    1,518Net unrealized gains (losses)
    
    
    (1,446
    )
    
    
    599
    
    
    
    (847
    )Minimum pension liability adjustment
    
    
    (9,417
    )
    
    
    3,899
    
    
    
    (5,518
    )Other comprehensive income (loss)
    
    ¥
    (13,813
    )
    
    ¥
    5,125
    
    
    ¥
    (8,688
    )
 Yen (millions)Tax benefit
    
    
    Net of taxPretax amount
    
    
    (expense)
    
    
    amountAs of March 31, 2004Foreign currency translation adjustment
    
    ¥
    (5,018
    )
    
    ¥
    458
    
    
    ¥
    (4,560
    )Unrealized gain (loss) on securities:Unrealized holding gains (losses)
arising during the year
    
    
    10,837
    
    
    
    (4,393
    )
    
    
    6,444Less- Reclassification adjustment
for (gains) losses realized in net
income
    
    
    (555
    )
    
    
    225
    
    
    
    (330
    )Net unrealized gains (losses)
    
    
    10,282
    
    
    
    (4,168
    )
    
    
    6,114Minimum pension liability adjustment
    
    
    10,924
    
    
    
    (4,392
    )
    
    
    6,532Other comprehensive income (loss)
    
    ¥
    16,188
    
    
    ¥
    (8,102
    )
    
    ¥
    8,086
 F-29




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##### Table of Contents



U.S. Dollars (thousands)Tax benefit
    
    
    Net of taxPretax amount
    
    
    (expense)
    
    
    amountAs of March 31, 2004Foreign currency translation adjustment
    
    $
    (48,250
    )
    
    $
    4,404
    
    
    $
    (43,846
    )Unrealized gain (loss) on securities:Unrealized holding gains (losses)
arising during the year
    
    
    104,202
    
    
    
    (42,240,
    )
    
    
    61,962Less- Reclassification adjustment
for (gains) losses realized in net
income
    
    
    (5,337
    )
    
    
    2,163
    
    
    
    (3,174
    )Net unrealized gains (losses)
    
    
    98,865
    
    
    
    (40,077
    )
    
    
    58,788Minimum pension liability adjustment
    
    
    105,039
    
    
    
    (42,231
    )
    
    
    62,808Other comprehensive income (loss)
    
    $
    155,654
    
    
    $
    (77,904
    )
    
    $
    77,750
  13.
    
    EARNINGS PER SHAREA reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations is as follows: Yen
    
    U.S. DollarsNumerator
    
    (millions)
    
    (thousands)2002
    
    
    2003
    
    
    2004
    
    
    2004Net income Basic
    
    ¥
    133
    
    
    ¥
    6,723
    
    
    ¥
    7,691
    
    
    $
    73,952Effect of dilutive securities:1.6% unsecured
convertible bonds, due
2003
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    1.5% unsecured
convertible bonds, due
2005
    
    
    
    
    
    
    115
    
    
    
    119
    
    
    
    1,144Net income  Diluted
    
    ¥
    133
    
    
    ¥
    6,851
    
    
    ¥
    7,810
    
    
    $
    75,096Denominator
    
    Number of sharesWeighted average common
shares outstanding  Basic
    
    
    151,776,242
    
    
    
    148,444,219
    
    
    
    144,682,696Dilutive effect of:1.6% unsecured
convertible bonds, due
2003
    
    
    
    
    
    
    828,134
    
    
    
    1.5% unsecured
convertible bonds, due
2005
    
    
    
    
    
    
    5,749,811
    
    
    
    5,749,811Weighted average common
shares outstanding  Diluted
    
    
    151,776,242
    
    
    
    155,022,164
    
    
    
    150,432,507Yen
    
    U.S. DollarsEarnings per share:Basic
    
    ¥
    0.9
    
    
    ¥
    45.3
    
    
    ¥
    53.2
    
    
    $
    0.51Diluted
    
    
    0.9
    
    
    
    44.2
    
    
    
    51.9
    
    
    
    0.50
 1.6% unsecured convertible bonds were redeemed in February 2003. The 1.5% and
1.6% bonds were antidilutive in 2002. F-30




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##### Table of Contents



14.
    
    COMMITMENTS AND CONTINGENT LIABILITIESIn November 2002, the FASB issued FIN No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others. FIN No. 45 elaborates on the disclosures to be made by
a guarantor in its financial statements about its obligations under guarantees
issued. FIN No. 45 also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The Company adopted FIN No. 45 in fiscal year 2003.The Company guarantees to third parties bank loans of its employees. The
guarantees for the employees are principally made for their housing and
education loans totaling ¥24 million ($231 thousand) as of March 31, 2004. The
carrying amount of above liabilities for the Companys obligations under the
guarantees described above as of March 31, 2004 were insignificant.The Company and certain subsidiaries were contingently liable for recourse obligation regarding discounted
notes with banks of ¥927 million ($8,913
thousand) as of March 31, 2004 in case notes issuers are not able to fulfill their payment obligation. The fair value of such guarantees is not significant.The purchase obligations mainly for raw materials of the Company and its
subsidiaries were ¥8,175 million ($78,606 thousand) as of March 31, 2004.The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Companys consolidated financial position, results of operations, or cash
flows.The Company and its consolidated subsidiaries made rental payments of ¥1,770
million, ¥1,737 million and ¥1,745 million ($16,779 thousand) under cancelable
and noncancelable operating lease agreements for offices, warehouses,
automobiles and office equipment during the years ended March 31, 2002, 2003
and 2004, respectively. The minimum rental payments required under
noncancelable operating lease agreements as of March 31, 2004 were as follows: Yen
    
    
    U.S. DollarsYear ending March 31,
    
    (millions)
    
    
    (thousands)2005
    
    ¥
    578
    
    
    $
    5,5582006
    
    
    462
    
    
    
    4,4422007
    
    
    324
    
    
    
    3,1162008
    
    
    241
    
    
    
    2,3172009
    
    
    198
    
    
    
    1,9042010 and thereafter
    
    
    291
    
    
    
    2,798¥
    2,094
    
    
    $
    20,135
  The Company and its consolidated subsidiaries generally guarantee the performance of products
delivered and services rendered for a certain period or term. Estimates for
product warranty cost are made based on historical warranty claim experience.
Change in accrued product warranty cost for the year ended March 31, 2004 is
summarized as follows: Yen
    
    U.S. Dollars(millions)
    
    (thousands)2003
    
    
    2004
    
    
    2004Balance at beginning of year
    
    ¥
    674
    
    
    ¥
    693
    
    
    $
    6,663Addition
    
    
    467
    
    
    
    529
    
    
    
    5,086Utilization
    
    
    (439
    )
    
    
    (532
    )
    
    
    (5,115
    )Foreign exchange impact
    
    
    (9
    )
    
    
    (23
    )
    
    
    (221
    )Balance at end of year
    
    ¥
    693
    
    
    ¥
    667
    
    
    $
    6,413
 F-31




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##### Table of Contents



15.
    
    DERIVATIVES AND HEDGING ACTIVITIES  (a)
    
    Risk management policyThe Company and its consolidated subsidiaries are exposed to market risks,
such as changes in currency exchange rates and interest rates. Derivative
financial instruments are comprised principally of foreign exchange
contracts, currency swaps, currency options and interest rate swaps utilized
by the Company and certain of its consolidated subsidiaries to reduce these
risks. The Company and its consolidated subsidiaries do not use derivative
instruments for trading or speculation purpose.The Company and its consolidated subsidiaries are also exposed to risk of
credit-related losses in the event of nonperformance by counter parties to
the financial instrument contracts, while it is not expected that any counter
parties will fail to meet their obligations, because the contracts are
diversified among a number of major internationally recognized credit worthy
financial institutions.(b)
    
    Foreign currency exchange rate risk managementThe Company and its consolidated subsidiaries operate internationally, giving
rise to significant exposure to market risks from changes in foreign exchange
rates, and enter into forward exchange contracts, currency swaps and currency
options to hedge the foreign currency exposure.These derivative instruments are principally intended to protect against
foreign exchange exposure related to intercompany transfer of inventories and
financing activities. The fair value of these derivative instruments as of
March 31, 2003 and 2004 were recorded as ¥27 million and ¥333 million ($3,202
thousand) in assets and ¥709 million and ¥21 million ($201 thousand) in
liabilities, respectively and changes in their fair values as of March 31,
2003 and 2004 amounted to ¥196 million and ¥1,057 million ($10,163 thousand),
respectively were recorded in other income.(c)
    
    Interest rate risk managementThe Company and its consolidated subsidiaries execute financing and investing
activities through its financial subsidiary, Euro Makita Corporation B.V.
(EMC). To manage the variability in the fair values of fixed rate long-term
indebtedness and fixed rate debt securities caused by fluctuations in
interest rates, EMC enters into interest rate swaps as a fair value hedge.As of March 31, 2003 and 2004, EMC had interest rate swaps with a fair value
of ¥587 million and ¥391 million ($3,760 thousand), respectively which have
been designated as fair value hedges of underlying long-term indebtedness
with fixed interest rates and recorded as current assets. Changes in fair
values of both the hedging interest rate swaps and the underlying long-term
indebtedness were recorded as equal and offsetting gains and losses in other
income (expenses). There was no hedging ineffectiveness or net gains or
losses excluded from the assessment of hedge effectiveness for the year ended
March 31, 2003 and 2004, as the critical terms of the interest rate swaps
match the terms of the hedged long-term indebtedness.As of March 31, 2003 and 2004, EMC also had interest rate swaps with a fair
value of ¥33 million and ¥19 million ($183 thousand), respectively which have
been designated as fair value hedges of underlying investment securities with
fixed interest rates and recorded as current liabilities. As the interest
rate swaps do not meet hedge accounting criteria, changes in fair value of
the hedging interest rate swaps which amounted to an expense of ¥ 6 million
and a gain of ¥14 million ($135 thousand) were recorded in earnings and
classified in other income (expenses) for the years ended March 31, 2003 and
2004, respectively. F-32




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##### Table of Contents



16.
    
    DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTSThe following methods and significant assumptions were used to estimate the
fair value of each class of financial instrument for which it is practicable to
estimate a value:  (a)
    
    Cash and Cash Equivalents, Time Deposits, Trade Notes and Accounts
Receivable, Short-term Borrowings, Trade Notes and Accounts Payable, and Other
Accrued Expenses

The carrying amount approximates fair value because of the short or undefined
maturities of those instruments.(b)
    
    Long-term Time Deposits

The fair value is estimated by discounting the future cash flows using the
current rates that the Company and its consolidated subsidiaries would be
offered for deposits with similar terms and remaining maturities.(c)
    
    Marketable Securities and Investment Securities

The fair value of marketable securities is estimated based on quoted market
prices at March 31,2003 and 2004. For other investments for which there are
no quoted market prices, amounted to ¥601 million ($5,779 thousand) a
reasonable estimation of fair value could not be made without incurring
excessive cost.(d)
    
    Long-term Indebtedness

The fair value of long-term indebtedness is based on the quoted price in the
most active market or the present value of future cash flows associated with
each instrument discounted using the current borrowing rate for similar debt
of comparable maturity.(e)
    
    Club Members Deposits

The fair value of club members deposits is based on the latest actual
transaction price.(f)
    
    Interest Rate Swap Agreements

The fair values of interest rate swap agreements are based on the estimated
amount that the Company and its consolidated subsidiaries would receive or
pay to terminate the swap agreements which are based on quoted prices
obtained from brokers.(g)
    
    Other Derivative Financial Instruments

The fair values of other derivative financial instruments, foreign currency
contracts, currency swaps and currency option contracts, all of which are
used for hedging purposes, are estimated by obtaining quotes and other
relevant information from brokers. F-33




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##### Table of Contents



The estimated fair value of the financial instruments was as follows: Yen
    
    U.S. Dollars(millions)
    
    (thousands)2003
    
    2004
    
    2004Carrying
    
    
    
    
    
    
    Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueMarketable securities
    
    ¥
    39,193
    
    
    ¥
    39,193
    
    
    ¥
    63,990
    
    
    ¥
    63,997
    
    
    $
    615,288
    
    
    $
    615,356Investment securities
    
    
    19,342
    
    
    
    19,342
    
    
    
    22,139
    
    
    
    22,136
    
    
    
    212,875
    
    
    
    212,846Long-term time deposits
    
    
    4,505
    
    
    
    4,505
    
    
    
    5,901
    
    
    
    5,911
    
    
    
    56,740
    
    
    
    56,837Long-term indebtedness
    
    
    (19,956
    )
    
    
    (20,229
    )
    
    
    (20,448
    )
    
    
    (20,604
    )
    
    
    (196,615
    )
    
    
    (198,115
    )Club members deposits
    
    
    (14,207
    )
    
    
    (6,288
    )
    
    
    (13,045
    )
    
    
    (5,553
    )
    
    
    (125,433
    )
    
    
    (53,394
    )Interest rate swap agreements:Assets
    
    
    587
    
    
    
    587
    
    
    
    391
    
    
    
    391
    
    
    
    3,760
    
    
    
    3,760Interest rate swap agreements:Liabilities
    
    
    (33
    )
    
    
    (33
    )
    
    
    (26
    )
    
    
    (26
    )
    
    
    (250
    )
    
    
    (250
    )Foreign currency contracts:Assets
    
    
    4
    
    
    
    4
    
    
    
    199
    
    
    
    199
    
    
    
    1,913
    
    
    
    1,913Foreign currency contracts:Liabilities
    
    
    (92
    )
    
    
    (92
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    (19
    )
    
    
    (19
    )Currency swaps:Assets
    
    
    4
    
    
    
    4
    
    
    
    120
    
    
    
    120
    
    
    
    1,154
    
    
    
    1,154Currency swaps:Liabilities
    
    
    (606
    )
    
    
    (606
    )
    
    
    (15
    )
    
    
    (15
    )
    
    
    (144
    )
    
    
    (144
    )Currency option contracts:Assets
    
    
    19
    
    
    
    19
    
    
    
    14
    
    
    
    14
    
    
    
    135
    
    
    
    135Currency option contracts:Liabilities
    
    
    (11
    )
    
    
    (11
    )
    
    
    (4
    )
    
    
    (4
    )
    
    
    (38
    )
    
    
    (38
    )
  (h)
    
    Limitation

Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.  17.
    
    OPERATING SEGMENT INFORMATIONThe operating segments presented below are defined as components of an
enterprise for which separate financial information is available and regularly
reviewed by the Companys chief operating decision maker. The Companys chief
operating decision maker utilizes various measurements to assess segment
performance and allocate resources to the segments.During the three years ended March 31, 2002,2003 and 2004, the Companys
operating structure included the following operating segments: Japan Group,
North America Group, Europe Group, Asia Group, and Other Group.The Company evaluates the performance of each operating segment based on
accounting principles generally accepted in the United States of America. To
present the content more accurately, for the year ended March 31,2004, the name
of the geographic segment Southeast Asia has been changed to Asia with no
impact on reported segment amounts. F-34




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##### Table of Contents



Segment Products and Services

The Company and its consolidated subsidiaries are manufacturers and wholesalers
of electric power tools and other tools. The operating segments derive
substantially all their revenues from the sale of electric power tools and
parts and repairs.  Year ended March 31, 2002 Yen(millions)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    America
    
    
    Europe
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    ¥
    46,029
    
    
    ¥
    48,826
    
    
    ¥
    48,738
    
    
    ¥
    6,659
    
    
    ¥
    15,917
    
    
    ¥
    166,169
    
    
    ¥
    
    
    
    ¥
    166,169Intersegment
    
    
    44,065
    
    
    
    1,584
    
    
    
    4,071
    
    
    
    16,524
    
    
    
    91
    
    
    
    66,335
    
    
    
    (66,335
    )
    
    
    Total
    
    ¥
    90,094
    
    
    ¥
    50,410
    
    
    ¥
    52,809
    
    
    ¥
    23,183
    
    
    ¥
    16,008
    
    
    ¥
    232,504
    
    
    ¥
    (66,335
    )
    
    ¥
    166,169Operating expenses
    
    ¥
    83,458
    
    
    ¥
    54,150
    
    
    ¥
    50,682
    
    
    ¥
    21,043
    
    
    ¥
    15,927
    
    
    ¥
    225,260
    
    
    ¥
    (64,964
    )
    
    ¥
    160,296Operating income
    
    
    6,636
    
    
    
    (3,740
    )
    
    
    2,127
    
    
    
    2,140
    
    
    
    81
    
    
    
    7,244
    
    
    
    (1,371
    )
    
    
    5,873Long-lived assets
    
    
    54,466
    
    
    
    7,920
    
    
    
    7,430
    
    
    
    8,274
    
    
    
    1,540
    
    
    
    79,630
    
    
    
    (625
    )
    
    
    79,005Identifiable assets
    
    
    239,891
    
    
    
    50,059
    
    
    
    63,163
    
    
    
    26,972
    
    
    
    15,162
    
    
    
    395,247
    
    
    
    (110,109
    )
    
    
    285,138Depreciation and
amortization
    
    
    5,807
    
    
    
    1,819
    
    
    
    1,075
    
    
    
    910
    
    
    
    197
    
    
    
    9,808
    
    
    
    (54
    )
    
    
    9,754Capital expenditures
    
    
    2,823
    
    
    
    827
    
    
    
    1,029
    
    
    
    1,210
    
    
    
    116
    
    
    
    6,005
    
    
    
    (47
    )
    
    
    5,958
 Year ended March 31, 2003 Yen(millions)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    America
    
    
    Europe
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    ¥
    46,896
    
    
    ¥
    45,807
    
    
    ¥
    57,995
    
    
    ¥
    7,013
    
    
    ¥
    17,892
    
    
    ¥
    175,603
    
    
    ¥
    
    
    
    ¥
    175,603Intersegment
    
    
    39,943
    
    
    
    3,898
    
    
    
    5,227
    
    
    
    18,775
    
    
    
    82
    
    
    
    67,925
    
    
    
    (67,925
    )
    
    
    Total
    
    ¥
    86,839
    
    
    ¥
    49,705
    
    
    ¥
    63,222
    
    
    ¥
    25,788
    
    
    ¥
    17,974
    
    
    ¥
    243,528
    
    
    ¥
    (67,925
    )
    
    ¥
    175,603Operating expenses
    
    ¥
    82,913
    
    
    ¥
    49,436
    
    
    ¥
    59,343
    
    
    ¥
    23,388
    
    
    ¥
    17,316
    
    
    ¥
    232,396
    
    
    ¥
    (69,261
    )
    
    ¥
    163,135Operating income
    
    
    3,926
    
    
    
    269
    
    
    
    3,879
    
    
    
    2,400
    
    
    
    658
    
    
    
    11,132
    
    
    
    1,336
    
    
    
    12,468Long-lived assets
    
    
    49,082
    
    
    
    5,969
    
    
    
    7,633
    
    
    
    7,130
    
    
    
    1,186
    
    
    
    71,000
    
    
    
    (594
    )
    
    
    70,406Identifiable assets
    
    
    233,165
    
    
    
    37,757
    
    
    
    67,454
    
    
    
    27,424
    
    
    
    14,514
    
    
    
    380,314
    
    
    
    (101,714
    )
    
    
    278,600Depreciation and
amortization
    
    
    6,014
    
    
    
    1,571
    
    
    
    1,125
    
    
    
    932
    
    
    
    149
    
    
    
    9,791
    
    
    
    (51
    )
    
    
    9,740Capital expenditures
    
    
    3,160
    
    
    
    394
    
    
    
    1,287
    
    
    
    754
    
    
    
    149
    
    
    
    5,744
    
    
    
    (53
    )
    
    
    5,691
 Year ended March 31, 2004 Yen(millions)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    America
    
    
    Europe
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    ¥
    48,413
    
    
    ¥
    41,699
    
    
    ¥
    67,110
    
    
    ¥
    6,612
    
    
    ¥
    20,283
    
    
    ¥
    184,117
    
    
    ¥
    
    
    
    ¥
    184,117Intersegment
    
    
    40,633
    
    
    
    3,978
    
    
    
    4,726
    
    
    
    22,364
    
    
    
    123
    
    
    
    71,824
    
    
    
    (71,824
    )
    
    
    Total
    
    ¥
    89,046
    
    
    ¥
    45,677
    
    
    ¥
    71,836
    
    
    ¥
    28,976
    
    
    ¥
    20,406
    
    
    ¥
    255,941
    
    
    ¥
    (71,824
    )
    
    ¥
    184,117Operating expenses
    
    ¥
    87,594
    
    
    ¥
    44,958
    
    
    ¥
    64,358
    
    
    ¥
    26,048
    
    
    ¥
    19,061
    
    
    ¥
    242,019
    
    
    ¥
    (72,598
    )
    
    ¥
    169,421Operating income
    
    
    1,452
    
    
    
    719
    
    
    
    7,478
    
    
    
    2,928
    
    
    
    1,345
    
    
    
    13,922
    
    
    
    774
    
    
    
    14,696Long-lived assets
    
    
    36,443
    
    
    
    3,835
    
    
    
    6,719
    
    
    
    6,668
    
    
    
    1,342
    
    
    
    55,007
    
    
    
    (648
    )
    
    
    54,359Identifiable assets
    
    
    230,165
    
    
    
    29,037
    
    
    
    69,908
    
    
    
    28,526
    
    
    
    16,364
    
    
    
    374,000
    
    
    
    (95,884
    )
    
    
    278,116Depreciation and
amortization
    
    
    4,804
    
    
    
    1,163
    
    
    
    1,044
    
    
    
    824
    
    
    
    172
    
    
    
    8,007
    
    
    
    (44
    )
    
    
    7,963Capital expenditures
    
    
    1,958
    
    
    
    256
    
    
    
    1,149
    
    
    
    1,266
    
    
    
    273
    
    
    
    4,902
    
    
    
    (408
    )
    
    
    4,494
 F-35




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##### Table of Contents



Year ended March 31, 2004 U.S. Dollars(thousands)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    America
    
    
    Europe
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    $
    465,510
    
    
    $
    400,952
    
    
    $
    645,288
    
    
    $
    63,577
    
    
    $
    195,029
    
    
    $
    1,770,356
    
    
    $
    
    
    
    $
    1,770,356Intersegment
    
    
    390,702
    
    
    
    38,250
    
    
    
    45,442
    
    
    
    215,038
    
    
    
    1,183
    
    
    
    690,615
    
    
    
    (690,615
    )
    
    
    Total
    
    $
    856,212
    
    
    $
    439,202
    
    
    $
    690,730
    
    
    $
    278,615
    
    
    $
    196,212
    
    
    $
    2,460,971
    
    
    $
    (690,615
    )
    
    $
    1,770,356Operating expenses
    
    $
    842,250
    
    
    $
    432,288
    
    
    $
    618,827
    
    
    $
    250,462
    
    
    $
    183,279
    
    
    $
    2,327,106
    
    
    $
    (698,058
    )
    
    $
    1,629,048Operating income
    
    
    13,962
    
    
    
    6,914
    
    
    
    71,903
    
    
    
    28,153
    
    
    
    12,933
    
    
    
    133,865
    
    
    
    7,443
    
    
    
    141,308Long-lived assets
    
    
    350,413
    
    
    
    36,875
    
    
    
    64,606
    
    
    
    64,115
    
    
    
    12,904
    
    
    
    528,913
    
    
    
    (6,231
    )
    
    
    522,683Identifiable assets
    
    
    2,213,125
    
    
    
    279,202
    
    
    
    672,192
    
    
    
    274,288
    
    
    
    157,346
    
    
    
    3,596,154
    
    
    
    (921,962
    )
    
    
    2,674,192Depreciation and
amortization
    
    
    46,192
    
    
    
    11,183
    
    
    
    10,038
    
    
    
    7,923
    
    
    
    1,654
    
    
    
    76,990
    
    
    
    (423
    )
    
    
    76,567Capital expenditures
    
    
    18,827
    
    
    
    2,462
    
    
    
    11,048
    
    
    
    12,173
    
    
    
    2,625
    
    
    
    47,135
    
    
    
    (3,923
    )
    
    
    43,212
  Long-lived assets shown above consist of property, plant and equipment,
security deposits and other intangible assets and other.Transfers between segments are made at estimated arms-length prices. No single
external customer accounted for 10% or more of the Company and its consolidated
subsidiaries revenues for each of the years ended March 31, 2002, 2003 and
2004.
Segment information is determined by the location of the Company and its relevant subsidiaries.18.
    
    RELATED PARTY TRANSACTIONSThe Companys consolidated subsidiary has long-term borrowings from Maruwa Co.,
Ltd. (Maruwa), where the president of the Company and certain of his family
relatives serve as directors. The amount of these borrowings was ¥500 million
as of March 31, 2003, and March 31, 2004. In addition, transactions of the
Company and its consolidated subsidiary with Maruwa for the fiscal years ended
March 31, 2003 and 2004, amounted to ¥3 million paid in interest on the
subsidiarys borrowings from Maruwa and ¥2 million in advertising expenses.The Companys purchases of raw materials and production equipment from Toa Co.,
Ltd., where the president of the Company and certain of his family relatives
serve as directors, were ¥162 million and ¥174 million, respectively, during
the fiscal year ended March 31, 2003, and ¥199 million and ¥215 million,
respectively, during the fiscal year ended March 31, 2004. Accounts payable by
the Company related to these transactions were ¥28 million as of March 31,
2003, and ¥79 million as of March 31, 2004.19.
    
    SUBSEQUENT EVENTSThe Company received an approval of exemption from the Minister of health,
Labor and Welfare in January 2003, from the obligation for benefits related to
future employee service with respect to the substitutional portion of its
domestic contributory plan. The Company received government approval of
exemption from the obligation for benefits related to past employee service in
April 2004 with respect to the substitutional portion of its domestic
contributory plan. The transfer to the government was completed on June 28,
2004.

As a result of the transfer, the Company recognized as a subsidy from the Japanese government equal to the difference between
the fair value of the obligation deemed settled with the Japanese government and the assets
required to be transferred to the government in the amount of Yen 9,128 million ($87,769 thousand) in the first
quarter ended June 30, 2004. In addition, the Company recognized as a settlement loss equal to the amount
calculated as the ratio of the obligation settled to the total employees pension fund obligation immediately prior to
settlement, both of which exclude the effect of future salary progression relating to the substitutional portion, times
the net unrecognized gain/loss immediately prior to settlement, which amounted to Yen 4,687 million ($45,067 
thousand). This gain and loss were included in operating income in the first quarter ended June 30, 2004. F-36




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIESSCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS AND RESERVESFOR THE YEARS ENDED MARCH 31, 2002, 2003 AND 2004 Japanese Yen (millions)Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column E
    
    
    Column F
    
    
    Column GAdditionsBalance at
    
    
    Charged to
    
    
    Charged to
    
    
    Deductions
    
    
    
    
    
    
    Balance atbeginning
    
    
    costs and
    
    
    other
    
    
    from
    
    
    Translation
    
    
    end ofDescriptions
    
    of year
    
    
    expenses
    
    
    Accounts
    
    
    reserves(1)
    
    
    adjustments
    
    
    year2002:Allowance for
doubtful
receivables
    
    
    1,363
    
    
    
    139
    
    
    
    
    
    
    
    (86
    )
    
    
    103
    
    
    
    1,519Deferred income tax
assets valuation
allowance
    
    
    6,115
    
    
    
    2,519
    
    
    
    
    
    
    
    
    
    
    
    416
    
    
    
    9,0502003:Allowance for
doubtful
receivables
    
    
    1,519
    
    
    
    113
    
    
    
    
    
    
    
    (84
    )
    
    
    (92
    )
    
    
    1,456Deferred income tax
assets valuation
allowance
    
    
    9,050
    
    
    
    832
    
    
    
    
    
    
    
    (2,621
    )
    
    
    (567
    )
    
    
    6,6942004:Allowance for
doubtful
receivables
    
    
    1,456
    
    
    
    136
    
    
    
    
    
    
    
    (135
    )
    
    
    (111
    )
    
    
    1,346Deferred income tax
assets valuation
allowance
    
    
    6,694
    
    
    
    2,938
    
    
    
    
    
    
    
    (459
    )
    
    
    (345
    )
    
    
    8,828
 Note: (1) Charges for which reserves were created or reversed. F-37