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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, 2005
Commission file number 0-12602  KABUSHIKI KAISHA MAKITA  MAKITA CORPORATION  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
    
    Name of each exchange on
which registeredNone
    
    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 ofMarch 31, 2005
    
    
    March 31, 2005Title of Class
    
    (Tokyo time)
    
    
    (New York time)Common Stock, excluding 4,231,153 shares
of Treasury Stock
    
    
    143,777,607American Depositary Shares, each
representing one share of Common Stock
    
    
    
    
    
    
    6,923,200
 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 Cautionary Statement with Respect to Forward-Looking Statements
    
    
    1PART IItem 1. Identity of Directors, Senior Management and Advisors
    
    
    3Item 2. Offer Statistics and Expected Timetable
    
    
    3Item 3. Key Information
    
    
    3A. Selected financial data
    
    
    3B. Capitalization and indebtedness
    
    
    4C. Reason for the offer and use of proceeds
    
    
    4D. Risk factors
    
    
    5Item 4. Information on the Company
    
    
    8A. History and development of the Company
    
    
    8B. Business overview
    
    
    9C. Organizational structure
    
    
    13D. Property, plant and equipment
    
    
    14Item 5. Operating and Financial Review and Prospects
    
    
    15A. Operating results
    
    
    15B. Liquidity and capital resources
    
    
    31C. Research and development, patents and licenses
    
    
    35D. Trend information
    
    
    35E. Off-balance sheet arrangements
    
    
    35F. Tabular disclosure of contractual obligations
    
    
    36Item 6. Directors, Senior Management and Employees
    
    
    37A. Directors and senior management
    
    
    37B. Compensation
    
    
    40C. Board practices
    
    
    40D. Employees
    
    
    42E. Share ownership
    
    
    43Item 7. Major Shareholders and Related Party Transactions
    
    
    43A. Major shareholders
    
    
    43B. Related party transactions
    
    
    45C. Interest of experts and counsel
    
    
    45Item 8. Financial Information
    
    
    46A. Consolidated statements and other financial information
    
    
    46B. Significant Changes
    
    
    47Item 9. The Offer and Listing
    
    
    47A. Offer and listing details
    
    
    47B. Plant of distribution
    
    
    48C. Markets
    
    
    48D. Selling shareholders
    
    
    48




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E. Dilution
    
    
    49F. Expenses of the issue
    
    
    49Item 10. Additional Information
    
    
    49A. Share capital
    
    
    49B. Memorandum and articles of association
    
    
    49C. Material contracts
    
    
    59D. Exchange controls
    
    
    59E. Taxation
    
    
    60F. Dividends and paying agents
    
    
    65G. Statement by experts
    
    
    65H. Documents on display
    
    
    66I. Subsidiary information
    
    
    66Item 11. Quantitative and Qualitative Disclosures about Market Risk
    
    
    66Item 12. Description of Securities Other than Equity Securities
    
    
    68PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    68Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    68Item 15. Controls and Procedures
    
    
    69Item 16A. Audit Committee Financial Expert
    
    
    69Item 16B. Code of ethics
    
    
    69Item 16C. Principal Accountant Fees and Services
    
    
    70Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    71PART IIIItem 17. Financial Statements
    
    
    73Item 18. Financial Statements
    
    
    73Item 19. Exhibits
    
    
    73EX-1.1 Articles of Incorporation, as amended and effective as of June 29, 2005 (English translation)EX-4.1 Summary translation of the Sponsorship agreementEX-12.1 302 Certification of President and Representative DirectorsEX-12.2 302 Certification of Director, General Manager of Administration HeadquartersEX-13.1 906 Certifications of President and Representative Director and Director, General Manager of Administration Headquarters




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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 2005 refers to the
twelve-month period ended March 31, 2005. All other references to years refer to the applicable
calendar year. All information contained in this annual report is as of March 31, 2005 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 ¥107 = 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, 2005.
On June 15, 2005 the noon buying rate for yen cable transfer in New York City as reported by the
Federal Reserve Bank of New York was ¥109.34 = $1.00. As used herein, the Company refers to Makita Corporation, and Makita or Makita Group refer 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;
    
    uncertainties surrounding market acceptance of the new products introduced in fiscal 2005
and scheduled for introduction in fiscal 2006, 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; 1




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
    
    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. 2




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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, 2005 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, 2004 and 2005, the related consolidated
statements of income, shareholders equity and cash flows for each of the three years ended March
31, 2005, and the notes thereto that appear elsewhere in this annual report. Makitas consolidated
financial statements were prepared in accordance with U.S. generally accepted accounting principles, 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)Fiscal year ended March 31,Income Statement Data:
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2005Net sales
    
    ¥
    156,314
    
    
    ¥
    166,169
    
    
    ¥
    175,603
    
    
    ¥
    184,117
    
    
    ¥
    194,737
    
    
    $
    1,819,972Operating income
    
    
    7,093
    
    
    
    5,873
    
    
    
    12,468
    
    
    
    14,696
    
    
    
    31,398
    
    
    
    293,439Net income
    
    
    2,133
    
    
    
    133
    
    
    
    6,723
    
    
    
    7,691
    
    
    
    22,136
    
    
    
    206,879Net income per share
of Common stock and
per ADS:Basic
    
    
    13.6
    
    
    
    0.9
    
    
    
    45.3
    
    
    
    53.2
    
    
    
    153.9
    
    
    
    1.44Diluted
    
    
    13.6
    
    
    
    0.9
    
    
    
    44.2
    
    
    
    51.9
    
    
    
    148.8
    
    
    
    1.39
 U.S. Dollars(Millions of yen, except per share amounts)
    
    (thousands)Fiscal year ended March 31,Balance Sheet Data:
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2005Total assets
    
    ¥
    293,995
    
    
    ¥
    285,138
    
    
    ¥
    278,600
    
    
    ¥
    278,116
    
    
    ¥
    289,904
    
    
    $
    2,709,383Cash and cash
equivalents, time
deposits and
marketable
securities
    
    
    71,340
    
    
    
    63,393
    
    
    
    64,083
    
    
    
    92,616
    
    
    
    91,266
    
    
    
    852,953Net working capital
    
    
    142,700
    
    
    
    144,929
    
    
    
    141,759
    
    
    
    147,822
    
    
    
    149,666
    
    
    
    1,398,748Short-term borrowings
    
    
    17,743
    
    
    
    8,984
    
    
    
    2,892
    
    
    
    14,128
    
    
    
    9,060
    
    
    
    84,673Long-term
indebtedness
    
    
    21,135
    
    
    
    20,102
    
    
    
    19,843
    
    
    
    7,364
    
    
    
    88
    
    
    
    822Common stock
    
    
    23,803
    
    
    
    23,803
    
    
    
    23,803
    
    
    
    23,803
    
    
    
    23,805
    
    
    
    222,477Treasury stock
    
    
    
    
    
    
    (2,229
    )
    
    
    (5,110
    )
    
    
    (3,316
    )
    
    
    (3,517
    )
    
    
    (32,869
    )Shareholders equity
    
    
    192,547
    
    
    
    189,939
    
    
    
    182,400
    
    
    
    193,348
    
    
    
    219,640
    
    
    
    2,052,710Total number of
shares outstanding
    
    
    153,006,992
    
    
    
    149,673,742
    
    
    
    145,967,876
    
    
    
    143,893,191
    
    
    
    143,777,607
    
    
    
    143,777,607
 Note: Net working capital equals current assets less current liabilities. 3




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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. The average Japanese yen
exchange rates represent average noon buying rates on the last business day of each month during
the previous period. (Japanese Yen per U.S. $1.00)Fiscal year ended March 31
    
    High
    
    
    Low
    
    
    Average
    
    
    Year-end2001
    
    
    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
    
    
    
    104.182005
    
    
    102.26
    
    
    
    114.30
    
    
    
    107.47
    
    
    
    107.22
 (Japanese Yen per U.S. $1.00)June2005
    
    January
    
    
    February
    
    
    March
    
    
    April
    
    
    May
    
    
    (through June 15)High
    
    
    102.26
    
    
    
    103.7
    
    
    
    103.87
    
    
    
    104.64
    
    
    
    104.41
    
    
    
    106.64Low
    
    
    104.93
    
    
    
    105.84
    
    
    
    107.49
    
    
    
    108.67
    
    
    
    108.17
    
    
    
    109.58
 On June 15, 2005 the noon buying rate for yen cable transfer in New York City as reported by the
Federal Reserve Bank of New York was ¥109.34 = U.S. $1.00 Cash dividends declared per share of common stock and per ADS: In Yen
    
    
    In U.S. DollarsFiscal year ended March 31
    
    Interim
    
    
    Year-end
    
    
    Interim
    
    
    Year-end2001
    
    
    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
    
    
    
    0.112005
    
    
    11.0
    
    
    
    36.0
    
    
    
    0.10
    
    
    
    0.34
 Makitas basic dividend policy on the distribution of profits is to maintain a dividend payout
ratio of 30% or greater, with a lower limit on annual cash dividends of 18 yen per share. However,
in the event special circumstances arise, computation of the amount of dividends will be based on
consolidated net income after certain adjustments.  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 4




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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,
may become 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 the companies on which 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 76% of Makitas total production volume on a consolidated basis in fiscal 2005. 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. In the event that such developments cannot be foreseen or measures taken to
alleviate their damaging impact are inadequate, Makitas consolidated financial condition and
results of operations may be adversely affected. 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 emerging markets such as Russia and Eastern
Europe. In fiscal 2005, approximately 80% of Makitas consolidated net sales were derived from
products sold overseas. On a volume basis, Makita depended on overseas markets for 87% 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 enabling Makitas
competitors to strengthen their position;(4)
    
    Potentially unfavorable tax systems; and(5)
    
    Terrorism, war, and other factors that lead to social turbulence. Environmental or other government regulations may have a material adverse impact on Makitas
business activities.
Makita maintains strict compliance with environmental, commercial, export and import, tax, safety
and other regulations that are applicable to its activities in all the countries in which Makita
operates. If Makita is unable to continue its compliance with existing regulations or is unable 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 5




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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
products containing certain toxic substances, such as lead, mercury, cadmium, hexavalent chrome,
polybrominated biphenyls, and polysbrominated diphenyl ethers, beginning on July 1, 2006. In order
to comply with these directives, especially with RoHS, the cooperation of parts suppliers is
essential. Makita is preparing measures to respond to the implementation of these directives
including making requests to suppliers for eliminating such toxic substances in their products and
providing guidance to assist them. 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 from its suppliers 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, Makita 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 adversely affect Makitas financial results.
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 operating results, assets,
liabilities and shareholders equity are affected by fluctuation in values of the Japanese yen
against these local currencies. Sales denominated in foreign currencies account for approximately 74% of Makitas consolidated net
sales in fiscal 2005, and, accordingly, Makitas operating income is significantly affected by
foreign exchange fluctuations. In an effort to minimize the impact of short-term exchange rate fluctuations between major
currencies, mainly the U.S. dollar, the euro, and the yen, Makita engages in hedging transactions.
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 may help reduce 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
procurement, production, logistics, and sales activities as planned 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, 2005,
the aggregate carrying value of these securities was ¥24,594 million, which represents
approximately 11.2% of Makitas net assets. The values of these investments are influenced by
fluctuations in the quoted market prices. A significant depreciation in the value of these
securities will have an adverse impact on Makitas consolidated financial condition and results of
operations. 6




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If Makita cannot respond to changes in construction method and trends in demand, Makitas sales
may be materially and adversely affected.
In recent years, market trends in demand for various power tools have been 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 is
unable to respond to 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 growing 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 has intensified , with respect to lower end products. As the technology
of Chinese power tool manufacturers improves, 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. If Makita is no longer capable of quickly developing new products that meet the changing
needs of the market for high-end, professional users, it may have an adverse impact on Makitas
consolidated financial condition and results of operations. If Makita fails to maintain cooperative relationships with significant customers, Makitas
sales may be seriously affected.
Makita has a number of significant customers. If Makita loses these customers and is unable to
develop new sales channels to take their place, sales may decline and have an adverse impact on
Makitas business performance and financial position. In fiscal 2004 major home center retailers in
the United States began selling power tools, under their own brand name, which are supplied by
Chinese manufacturers. 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. Makita purchases some 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 2005. 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 effect on
Makitas consolidated financial condition and results of operations. When the procurement of raw materials used by the Company becomes difficult or prices of these
raw materials rise sharply, this may have an adverse impact on performance.
In manufacturing power tools, Makita Group purchases raw materials and components, including
silicon steel plates, aluminum, steel products, copper wire, and electronic parts. In recent years,
demand for these materials in China and the rest of the world has risen substantially, and some
suppliers are experiencing a shortage of capacity. Under these 7




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##### Table of Contents



circumstances, if the Makita Group is unable to obtain the necessary quantities of these materials,
this may have an effect on production schedules. In addition, the shortage of capacity among
suppliers is a factor leading to increased prices of production materials. If the Makita Group
experiences increases in prices of production materials, greater than what can be absorbed by
increased productivity or through other internal efforts and prices of final products cannot be
raised sufficiently, such circumstance may have a detrimental impact on the performance and
financial position of the Makita Group. Product liability litigation or recalls may harm Makitas financial statements and
reputation.
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 of
its products will be free of defects nor that if 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 Commercial Code of Japan on December 10, 1938 under the name of Makita
Electric Works, Ltd. as a joint stock corporation. 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 markets 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 150 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 Kingdom in 1989. In January 1991, Makita acquired all of the
shares of Sachs-Dolmar GmbH, a German company, subsequently renamed 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. During the fiscal year under review, Makita General Services Co., Ltd., and Makita Fastening
Corporation were newly included within the scope of consolidation. As a result, the number of
consolidated subsidiaries increased to 44. 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. 8




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##### Table of Contents



B.   Business overview Makitas principal activity is the manufacturing and sale of a wide range of power tools for
professional users worldwide. Makitas power tools consist of portable woodworking tools, primarily
saws and planers, and portable general purpose tools, primarily drills, grinders and sanders.
Makita also produces a line of stationary woodworking machines. For the fiscal year ended March 31,
2005, approximately 80% of Makitas sales were outside of Japan. Makita estimates that most of its
sales worldwide were made to commercial and professional users such as those engaged in timber and
metal processing, carpentry, and concrete and masonry works.
Makita focuses on creating user and environment-friendly products that enhance the work
environment, and have features such as low vibration, low noise and dust concentration. Products
The following table sets forth Makitas consolidated net sales by product categories for the
periods presented: (Millions of yen, except for percentage amounts)
    
    
    U.S. DollarsConsolidated Net Sales by Product Categories
    
    
    (thousands)Fiscal year ended March 31,2003
    
    
    2004
    
    
    2005
    
    
    2005Portable
Woodworking Tools
    
    ¥
    33,637
    
    
    
    19.1
    %
    
    ¥
    34,452
    
    
    
    18.7
    %
    
    ¥
    34,507
    
    
    
    17.7
    %
    
    
    322,495Portable General
Purpose Tools
    
    
    92,144
    
    
    
    52.5
    %
    
    
    98,176
    
    
    
    53.3
    %
    
    
    105,736
    
    
    
    54.3
    %
    
    
    988,187Stationary
Woodworking
Machines
    
    
    1,924
    
    
    
    1.1
    %
    
    
    1,711
    
    
    
    1.0
    %
    
    
    1,573
    
    
    
    0.8
    %
    
    
    14,701Other Products
    
    
    19,142
    
    
    
    10.9
    %
    
    
    19,548
    
    
    
    10.6
    %
    
    
    21,763
    
    
    
    11.2
    %
    
    
    203,393Parts, Repairs and
Accessories
    
    
    28,756
    
    
    
    16.4
    %
    
    
    30,230
    
    
    
    16.4
    %
    
    
    31,158
    
    
    
    16.0
    %
    
    
    291,196Total
    
    
    175,603
    
    
    
    100.0
    %
    
    
    184,117
    
    
    
    100.0
    %
    
    
    194,737
    
    
    
    100.0
    %
    
    
    1,819,972
 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 introduced during fiscal 2005 were the items in the
Circular Saws Series, which incorporate high-powered motors and a blower function to remove sawdust
along the line drawn to guide cutting operations and to remove sawdust and scraps from the rear of
the cutting edge, thus making possible a cleaner working environment. Other new products introduced
included the 190mm Slide Compound Saw, which is the first of its kind in the world to incorporate a
cyclone-type dust and scrap box to improve its waste collection capacity. The Slide Compound Saw
also features a new knob allowing for subtle adjustments of the saw blade angle, enabling the user
to cut with higher precision. 9




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##### Table of Contents



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. 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 introduced during fiscal 2005 was a 14.4 volt cordless
impact driver, which is equipped with a newly developed four-pole motor using ring-type, rare earth
magnets and incorporating lithium ion batteries, that is substantially smaller and lighter. This
impact driver also incorporates Makitas originally developed optimal battery charging system,
which substantially increases total work capacity. Makita also introduced the Disc Grinder Series,
which features 100mm, 115mm, and 125mm wheel diameter, that are easy to hold and have superior dust
resistance. 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 2005 were hedge trimmers featuring a
soft grip, which makes them easier to be hold and more slip-resistant, and a 320-watt motor
available in a choice of natural green or rose red against a white background. 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. 10




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##### Table of Contents



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)Fiscal year ended March 31,2003
    
    
    2004
    
    
    2005
    
    
    2005Japan
    
    ¥
    38,781
    
    
    
    22.1
    %
    
    ¥
    39,142
    
    
    
    21.3
    %
    
    ¥
    39,379
    
    
    
    20.2
    %
    
    $
    368,028North America
    
    
    45,573
    
    
    
    26.0
    
    
    
    41,853
    
    
    
    22.7
    
    
    
    38,490
    
    
    
    19.8
    
    
    
    359,720Europe
    
    
    57,648
    
    
    
    32.8
    
    
    
    66,369
    
    
    
    36.0
    
    
    
    75,263
    
    
    
    38.6
    
    
    
    703,392Asia
    
    
    13,774
    
    
    
    7.8
    
    
    
    14,245
    
    
    
    7.7
    
    
    
    16,341
    
    
    
    8.4
    
    
    
    152,720Other
    
    
    19,827
    
    
    
    11.3
    
    
    
    22,508
    
    
    
    12.3
    
    
    
    25,264
    
    
    
    13.0
    
    
    
    236,112Total
    
    ¥
    175,603
    
    
    
    100.0
    %
    
    ¥
    184,117
    
    
    
    100.0
    %
    
    ¥
    194,737
    
    
    
    100.0
    %
    
    $
    1,819,972
 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. The majority of Makitas products are sold through its 14 wholesalers. 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, 2005, 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 40% 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, 2005, 79.8% 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,
Ukraine and Slovakia. 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 and the remaining products are 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, 2005, Makita has over 100 service
depots outside of Japan. As of the fiscal year ended March 31, 2005, 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, and parts are
provided by Makita. 11




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##### Table of Contents



Seasonality
Makitas business has no significant seasonality that affects sales or profits. 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, in the
U.S. power tool industry, some leading home centers have introduced their own brands of power tools
for professionals, and a high level of M&A activity is in progress within the power tool industry.
Moreover, in the Japanese market, U.S. and Japanese companies are forming business alliances, and
competition is becoming more intense within a saturated market. Makita has also experienced
increasing competition, particularly in countries with lower purchasing power, from China-based
power tool manufacturers who often offer lower-priced products. 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, and these material prices were appreciation during fiscal 2005. Makitas purchases of raw materials and parts in the fiscal year ended March 31, 2005, amounted to
¥ 90,495 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 plumbs and levels, 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, 2005, Makita owned 325 patents and 54 utility model registrations in Japan and 287
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, 2005, Makita had made 569 applications
for additional patents and utility model registrations in Japan as well as 227 patent applications
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
significant that their expiration or termination would materially affect Makitas business. 12




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##### Table of Contents



C. Organizational structure As of March 31, 2005, the Makita Group consisted of 44 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 list of significant
subsidiaries of the Makita Group. Proportion ofCountry of
    
    Ownership andCompany Name
    
    Incorporation
    
    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
11 other subsidiaries
    
    Japan
    
    
    100.0
 Note: Proportion of ownership and voting interest includes indirect ownership and voting.
The management rights to Joyama Kaihatsu Ltd., were transferred to Tokyo Tatemono Co., Ltd., on May
31, 2005, and it ceased to be a consolidated subsidiary as of that date. 13




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##### Table of Contents



D. Property, plant and equipment The following table sets forth information relating to Makitas principal production facilities as
of March 31, 2005. 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 machinesOverseas;Makita Corporation of America
    
    
    24,053
    
    
    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 170,510 square meters of floor space occupied by the
head office, warehouse facilities, 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; and
    
    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. 14




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##### Table of Contents



Item 5.      Operating and Financial Review and Prospect 
 A. Operating Results The following table sets forth a summary of our results of operations for each of the years ended
March 31, 2003, 2004 and 2005. (Millions of yen, except for percentage amounts)
    
    
    U.S. Dollars (thousands)2003
    
    
    2004
    
    
    2005
    
    
    2005Change%
    
    
    
    
    
    
    %
    
    
    
    
    
    
    %
    
    
    
    
    
    
    %Net sales
    
    ¥
    175,603
    
    
    
    100.0
    
    
    ¥
    184,117
    
    
    
    100.0
    
    
    ¥
    194,737
    
    
    
    100.0
    
    
    $
    1,819,972
    
    
    
    5.8Cost of sales
    
    
    110,226
    
    
    
    62.8
    
    
    
    110,322
    
    
    
    59.9
    
    
    
    113,323
    
    
    
    58.2
    
    
    
    1,059,093
    
    
    
    2.7Gross profit
    
    
    65,377
    
    
    
    37.2
    
    
    
    73,795
    
    
    
    40.1
    
    
    
    81,414
    
    
    
    41.8
    
    
    
    760,879
    
    
    
    10.3Selling, general and
administrative expenses
    
    
    51,579
    
    
    
    29.4
    
    
    
    53,698
    
    
    
    29.2
    
    
    
    52,646
    
    
    
    27.1
    
    
    
    492,019
    
    
    
    (2.0
    )Loss (Gain) on
disposals or sales of
property, plant and
equipment
    
    
    1,330
    
    
    
    0.7
    
    
    
    (2,379
    )
    
    
    (1.3
    )
    
    
    1,234
    
    
    
    0.6
    
    
    
    11,533
    
    
    
    Impairment of
long-lived assets
    
    
    
    
    
    
    
    
    
    
    7,780
    
    
    
    4.2
    
    
    
    577
    
    
    
    0.3
    
    
    
    5,393
    
    
    
    (92.6
    )Transfer to the
government of the
substitutional portion
of pension plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,441
    )
    
    
    (2.3
    )
    
    
    (41,505
    )
    
    
    Operating income
    
    
    12,468
    
    
    
    7.1
    
    
    
    14,696
    
    
    
    8.0
    
    
    
    31,398
    
    
    
    16.1
    
    
    
    293,439
    
    
    
    113.6Other income (expenses)Interest and dividend
income
    
    
    786
    
    
    
    0.4
    
    
    
    869
    
    
    
    0.5
    
    
    
    1,157
    
    
    
    0.6
    
    
    
    10,813
    
    
    
    33.1Interest expense
    
    
    (665
    )
    
    
    (0.4
    )
    
    
    (605
    )
    
    
    (0.3
    )
    
    
    (588
    )
    
    
    (0.3
    )
    
    
    (5,495
    )
    
    
    (2.8
    )Exchange gains (losses)
on foreign currency
transactions, net
    
    
    (1,460
    )
    
    
    (0.8
    )
    
    
    (202
    )
    
    
    (0.1
    )
    
    
    37
    
    
    
    0.0
    
    
    
    346
    
    
    
    Realized gains
(losses) on
securities, net
    
    
    (2,590
    )
    
    
    (1.5
    )
    
    
    555
    
    
    
    0.3
    
    
    
    453
    
    
    
    0.2
    
    
    
    4,234
    
    
    
    (18.4
    )Other, net
    
    
    753
    
    
    
    0.5
    
    
    
    857
    
    
    
    0.4
    
    
    
    161
    
    
    
    0.1
    
    
    
    1,504
    
    
    
    (81.2
    )Total
    
    
    (3,176
    )
    
    
    (1.8
    )
    
    
    1,474
    
    
    
    0.8
    
    
    
    1,220
    
    
    
    0.6
    
    
    
    11,402
    
    
    
    (17.2
    )Income before income
taxes
    
    
    9,292
    
    
    
    5.3
    
    
    
    16,170
    
    
    
    8.8
    
    
    
    32,618
    
    
    
    16.7
    
    
    
    304,841
    
    
    
    101.7Provision for income
taxes
    
    
    2,569
    
    
    
    
    
    
    
    8,479
    
    
    
    
    
    
    
    10,482
    
    
    
    5.3
    
    
    
    97,962
    
    
    
    23.6Net income
    
    
    6,723
    
    
    
    3.8
    
    
    
    7,691
    
    
    
    4.2
    
    
    
    22,136
    
    
    
    11.4
    
    
    
    206,879
    
    
    
    187.8
 General Overviews Regarding economic trends overseas during the year under review, the U.S. showed a moderate
expansionary trend supported by firm private consumption and private capital investment. In Europe,
although the U.K. economy was strong, boosted by demand for construction, the economies of Germany
and other major countries saw a weakening of export growth because of the appreciation of the euro.
Asian economies outside Japan, especially China, continued to sustain high rates of economic
growth. In Japan, expansion of private capital investment continued, but as a result of sharp increases
in prices of raw materials and other factors, the economy as whole lost robustness in the second
half of the fiscal year, thus bringing only relatively weak recovery. The principal business of Makita is the manufacture and sale of power tools and woodworking
machines. Principal products include circular saws, jigsaws, planers, drills, rotary hammers,
grinders and slide compound saws. 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. 15




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During fiscal 2005, Makita worked to expand its production in China and proceeded with initiatives
to develop high value-added products that accurately meet user needs. In its sales activities,
Makita continued to implement a global marketing strategy founded on after sales service that is
closely integrated into local areas. On a consolidated basis, our net sales in fiscal 2005 amounted to ¥194,737 million, up 5.8% from
the previous fiscal year, the highest level in Makitas history. Net income amounted to ¥22,136
million, 187.8% higher than the previous fiscal year. Factors accounting for this included Makitas
cost to sales ratio improved because of expansion in production at plants in Japan and China.
Moreover, during the previous year, Makita reported an impairment loss of ¥5,596 million related
to its golf course subsidiary. The absence of this loss in the year under review and other special
factors, including the reporting of a gain of ¥4,441 million in connection with the return of the
substitutional portion of the Companys Employee Pension Fund to the government resulted in an
increase in operating income of 2.1 times, to ¥31,398 million. Fiscal Year (FY) 2005 compared to FY2004 Net sales Makitas consolidated net sales for the fiscal year ended March 31, 2005 (FY 2005) amounted to
¥194,737 million, an increase of 5.8%, or ¥ 10,620 million, from the fiscal year ended March 31,
2004 (FY 2004). In FY 2005, the average yen-dollar exchange rate was ¥107.5 for $1.00,
representing a 5.5% appreciation of the yen compared with the average level in FY 2004. The average
level of the yen-euro exchange rate in FY 2005 was ¥135.2 for 1.00 euro, representing a 1.9%
depreciation of the yen compared with the average level in FY 2004. Excluding the effect of
appreciation of the euro and the depreciation of the U.S. dollar, consolidated net sales would have
increased by 6.2% in FY 2005. While Makitas consolidated net sales increased 5.8% in FY 2005, the overall number of units of
products sold increased significantly in FY 2005, and excluding the effect of the decrease in
prices of products, Makitas consolidated net sales would have increased by 7.5%, or by ¥ 13,798
million. The significant increase in the quantity of goods sold in FY 2005 primarily reflected
strong sales of Makitas portable general-purpose tools, such as grinders, rotary hammers and
hammer drills. Among others, Makitas new line-up cordless driver drill #6270 series were popular
especially in Europe over Makitas competitors, in part reflecting the lower sales price resulting
from the strength of the euro in FY 2005. The increase was partially offset by a decrease in sales
in the North American market, as the North American home centers, as customers of Makita, continued
to enhance their production and distribution of products under their own brand name. Among others,
the number of drills sold in the North America market declined significantly in FY 2005. The average price of Makitas products declined in FY 2005, and excluding the effect of the
increase in the number of units sold, the drop of prices would have decreased Makitas net sales by
1.9%, or by ¥ 3,537 million. The reduction in prices was caused primarily by increased price
competition in the markets and reduced cost of production, reflecting primarily the transfer of a
part of Makitas production from Japan to the Peoples Republic of China, where the overall costs
of production, including labor, parts and equipment, are significantly less expensive than in
Japan. A second factor contributing to the decrease in Makitas prices of goods was the increased
sales volume of MAKTEC, Makitas lower end brand, which continued to sell particularly well in
Asia. Sales of new products comprised 10.8% of consolidated net sales of Makita in FY 2005, or ¥ 21,119
million. Among others, new models of drills, hammer drills and circular saws were introduced during
FY 2005 in most of Makitas markets world-wide and contributed significantly to the increase of
Makitas net 16




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sales in FY 2005. In particular, in overseas markets, especially in Europe, Makitas new products
such as its new line-up cordless driver drill #6270 series proved very popular, in part because of
the features and design and in part because of lower product prices reflecting the lower cost of
production. In Japan, Makitas new cordless impact drivers and new circular saws sold well,
responding to the increasing demand for renovation-related products in the market. In terms of product type, there was an increase in the sales of portable general-purpose tools and
income from parts, repairs and accessories by 6.3% or ¥ 9,692 million and 3.1% or ¥ 928 million,
respectively. In particular, sales increased significantly in cordless impact drivers, circular
saws and rotary hammers. Sales by region The increase in consolidated net sales in FY 2005 can be attributed primarily to increased sales in
Asia (excluding Japan) increasing 14.7%, or ¥2,096 million, to ¥16,341 million and to increased
sales in Europe increasing 13.4%, or ¥8,894 million, to ¥75,263 million and, to a lesser extent,
increased sales in other regions including Australia, Latin America and Middle East increasing
12.2% or ¥2,756 million, to ¥25,264 million and increased sales in Japan increasing 0.6%, or ¥237
million, to ¥39,379 million. The increase was offset partially by decreased sales in North America
falling 8.0%, or ¥3,363 million, to ¥38,490 million. The increased sales in Asia (excluding Japan) in FY 2005 primarily reflected the increased number
of units sold in Asia, particularly with respect to portable general-purpose tools, especially
grinders and hammer drills. The increased quantity of units sold were mostly offset by the
decreased price per product, resulting from the increased popularity of Makitas lower end brand,
MAKTEC and, to a lesser extent, Makitas reduced cost of production. Net sales in yen terms
increased in the Peoples Republic of China by 9.6% over amounts recorded in FY 2004. In addition,
the introduction of new products contributed significantly to the increase of sales in Asia, in
particular new models of drills and grinders. Excluding the effect of fluctuations of the local
currencies, consolidated net sales would have increased by 16.6%, or ¥2,371 million in FY 2005. The increased sales in Europe in FY 2005 primarily reflected the appreciation of the euro against
the yen. In addition, the increased number of units sold in Europe, particularly with respect to
portable general purpose tools, in especially Russia, Eastern European countries, the United
Kingdom, Germany and France contributed to increased sales in Europe, partially offset by the
decreased price per product resulting from reduced cost of production. Net sales in yen terms
increased in Russia and Eastern Europe by 24.3%, in the United Kingdom by 14.1%, in Germany by 6.9%
and in France by 15.1% over amounts recorded in FY 2004. Among others, Makitas products such as
drills and rotary hammers were particularly popular in countries such as Germany and the United
Kingdom, partly reflecting the lower sales price resulting from the strength of the euro in FY
2005. Drills and rotary hammers increased by 13.5% and 13.6% respectively. In addition, the
introduction of new products contributed significantly to the increase of sales in Europe, in
particular new models of cordless driver-drills, rotary hammers and chain saws. Excluding the
effect of fluctuations of the local currencies, consolidated net sales would have increased by
11.0%, or ¥7,304 million in FY 2005. The increased sales in other regions including Australia, Latin America and the Middle East in FY
2005 were primarily due to an increased number of units sold in such other regions, particularly
with respect to portable general purpose tools such as grinders, impact driver drills and rotary
hammers sold in the Middle East, Africa and Australia. In FY 2005 Makita saw significant success in
its sales efforts to new markets in the Middle East and Africa. The increased number of Makita
products sold in other regions was partially offset by the decreased price per product resulting
from the reduced cost of production, especially in 17




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grinders. Overall, net sales of grinders increased by 11.8% over amounts recorded in FY 2004. In
addition, the introduction of new products contributed significantly to the increase of sales in
other regions, in particular new models of rotary hammers and grinders. Excluding the effect of
fluctuations of the local currencies, consolidated net sales would have increased by 14.3%, or
¥3,214 million in FY 2005. The increased sales in Japan in FY 2005 primarily reflected the increased number of units sold with
respect to its portable general purpose tools such as Makitas mainstay impact driver drills and
circular saws, partially offset by the decline in the number of units sold in stationary
woodworking machines and parts for repairs. On the other hand, continuing low levels of housing
construction in Japan restrained the growth of demand for Makitas products and increased overall
competition resulted in price pressure. In addition, the introduction of new products contributed
significantly to the increase of sales in Japan, in particular new models of renovation-related
products such as cordless impact driver drills and circular saws. The decreased sales in North America in FY 2005 were primarily due to the depreciation of the
dollar against the yen. To a lesser extent, decreased sales in North America were due to overall
declining demand in North America, as home centers in the United States and Canada enhanced
production and distribution of products under their own brand name and, as a result, Makitas sales
to home centers declined. In addition, a part of the decrease in sales was attributable to the
increase in competitive pressures resulting in enhanced sales incentives offered to professional
user customers. The decline in sales in North America was despite Makitas successful marketing
programs aimed at the professional user market in the United States and Canada, and Makitas
reorganization of its distribution networks in the United States. In the United States, sales in
dollar terms declined by 4.0%, as a result of weaker sales volume reflecting mainly the decrease in
sales to home centers, such as sales of drills, circular saws and sanders. Overall, net sales of
drills in North America decreased by 20.0% as compared to the amounts recorded in FY 2004.
Excluding the effect of fluctuations of the local currencies, consolidated net sales would have
decreased by 4.2%, or ¥1,752 million in FY 2005. 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 2005, sales of portable general purpose tools grew 7.7%, to ¥105,736
million, accounting for 54.3% of consolidated net sales. In Japan, sales of portable general
purpose tools increased 1.5%, to ¥14,129 million, accounting for 35.9% of total domestic sales.
Overseas sales of portable general purpose tools increased 8.7%, to ¥91,607 million, or 59.0% 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 2005, Makita recorded a 0.2%
increase in sales of portable woodworking tools, to ¥34,507 million, or 17.7% of consolidated net
sales. Domestic sales of portable woodworking tools decreased 4.8%, to ¥6,744 million, accounting
for 17.1% of total domestic sales. Makita posted a 1.5% increase in overseas sales of portable
woodworking tools, to ¥27,763 million, which accounted for
17.9% of total overseas sales in FY 2005. 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 2005 fell 8.1%, to
¥1,573 million, accounting for 0.8% of consolidated net sales. Domestic sales of stationary
woodworking machines dropped 8.4%, to ¥853 million, 18




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accounting for 2.2% of total domestic sales. Overseas sales of stationary woodworking machines were
¥720 million, a 6.5% 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 2005, sales of other products grew 11.3%, to
¥21,763 million, accounting for 11.2% of net sales. In Japan, Makita recorded a 3.8% rise in sales
of other products, to ¥8,473 million, accounting for 21.5% of total domestic sales. Overseas sales
of other products increased 16.7%, to ¥13,290 million, accounting for 8.6% of total overseas sales. Parts, Repairs and Accessories
Makitas after-sales services include the sale of parts and accessories and repairs. In FY 2005,
parts, repairs, and accessories sales edged up 5.5%, to ¥31,158 million, accounting for 16.0% of
consolidated net sales. Domestic sales of parts, repairs, and accessories increased 10.3% to ¥9,180
million and contributed 23.3% of total domestic sales. Overseas sales of parts, repairs, and
accessories advanced 3.7%, to ¥21,978 million, accounting for 14.1% of total overseas sales. Cost of sales
Cost of sales increased 2.7%, or ¥3,001 million, to ¥113,323 million, and the ratio of cost of
sales to net sales decreased by 1.7 %, falling from 59.9% to 58.2%. The ratio of cost of sales to
net sales improved mainly due to Makitas strategy to expand production in China and to further
develop high value-added products. As a result of this strategy, productivity in Makitas factories
in China and Japan improved, accounting for 1.3% out of the 1.7% improvement in the ratio of cost
of sales to net sales. 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 2005 increased 10.3%, to ¥81,414 million. The ratio of gross profit to
net sales improved 1.7 percentage points, from 40.1% to 41.8%. Selling, general and administrative expenses
Selling, general and administrative (SG&A) expenses dropped 2.0%, or ¥1,052 million, to ¥52,646
million, in FY 2005, principally as a result of a decrease in pension cost due to an amendment and
the transfer to the government of the substitutional portion of domestic pension plan, and
depreciation expenses. In addition, the ratio of SG&A expenses to net sales decreased 2.1
percentage point, from 29.2% to 27.1%, principally as a result of reduced personnel expenses due to
restructuring in the U.S.A. with the aim to reduce personnel expenses and depreciation expenses to
net sales. Loss/Gain on disposal or sales of property, plant and equipment
In FY2005, there was a loss of ¥1,234 million, versus a gain of ¥2,379 million in FY2004.
In FY2004, the Company sold a portion of land and structures at its head office premises in Anjo,
Aichi Prefecture in Japan. This gain is recorded in the Japan segment. In FY2005, Makitas
factories disposed of or sold some equipment, and the Company sold a portion of land in Sapporo,
Hokkaido in Japan. These dispositions and sales were recorded as a loss in the Japan segment. Most
of the dispositions and sales resulting in the loss were in connection with Makitas ordinary course
of business. 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s related undiscounted future cash
flows is less than the 19




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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. Makita made a decision to discontinue the use of a certain information technology facility located
in zoning area in Japan during FY 2005. In accordance with FASB No. 144, Makita recorded a ¥577
million impairment loss on this facility in the Japan segment. The estimated fair value of ¥196
million represents the fair value of the land as determined by a third party appraiser considering
the estimated net cash flows from effecting the sale to a third party purchaser. Current zoning
regulations require that a buyer utilize the Facility on substantially the same basis. Therefore,
the combination of the limitations imposed by the zoning rules and the fact that the Facility is
located in a rural, non industrial section of Japan has caused management to determine that the
recoverable value on an as is basis will be most likely limited to the estimated fair value of the
land. Transfer to the government of the substitutional portion of pension plan
Until June, 2004, Makita had an employee pension fund in Japan, which was a defined benefit pension
fund established under the Japanese pension law. This domestic contributory plan was composed of a
corporate defined benefit portion established by the Company and a substitutional portion based on
benefits prescribed by the Japanese government. The Company was 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 were invested and managed as a
single portfolio for the entire domestic contributory plan and were not separately attributed to
the substitutional and corporate portions. 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. Makita has
accounted 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 has been 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. The aggregate effect of this
separation was determined based on the Companys pension benefit obligation as of the date the
transfer was completed and the amount of plan assets required to be transferred. The 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 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 ¥9,128
million in FY2005. In addition, the Company recognized 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. The resulting net gain of ¥4,441 million was
recorded as a transfer to the government of the substitutional portion of pension plan in the
accompanying consolidated income statement in FY 2005. Operating income
As a result of the factors indicated above, operating income grew 113.6%, to ¥31,398 million, in FY
2005, and the ratio of operating income to net sales rose 8.1 percentage points, from 8.0% to
16.1%. Other income (expenses)
Other income dropped 17.2%, or ¥254 million, to ¥1,220 million, in FY 2005. This decrease
reflects a decrease in realized gains on securities and other income by 56.5%, or ¥798 million, to
¥614 million, in FY 2005. The foregoing decrease was partially offset by the following factors.
(1) Interest and dividend income increased 33.1%, or ¥288 million, to ¥1,157 million, in FY 2005.
This resulted from the increase in the amount of cash equivalents with foreign subsidiaries and the
average balance of Securities. (2)As a result of decreases of weighted average interest rates on
borrowings, interest expense decreased by 2.8%, or ¥17 million, to ¥588 million, in FY 2005.
(3)The balance of foreign exchange gains and losses improved by ¥239 million to a ¥37 million gain in
FY2005 from a ¥202 million loss 20




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in FY2004. This reflects the Euro appreciating against the Japanese yen and the U.S. dollar
depreciating against the Japanese yen in this period. Income before income taxes
Income before income taxes in FY 2005 increased by 101.7%, or ¥16,448 million, to ¥32,618 million, and
the ratio of operating income to net sales rose 7.9 percentage points, from 8.8% in FY 2004 to
16.7% in FY 2005. Provision for income taxes
Total provision for income taxes increased by 23.6% as compared with FY2004 and amounted to
¥10,482 million in FY 2005, mainly because of a rise in the taxable income of Makita. The effective income tax rate was 32.1%, compared with the statutory income tax rate of 40.3%.
The difference between these rates was mainly attributed to the effect of tax treaties, through
which Japanese corporations can claim a tax credit against Japanese income taxes on income earned
in certain countries, even through 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. Net income
As a result of the foregoing, net income for FY 2005 increased 187.8% or ¥14,445 million, to
¥22,136 million. Earnings per share
Basic net income per share of common stock amounted to ¥153.9, compared with ¥53.2 in FY 2004.
Diluted net income per share amounted to ¥148.8, compared with ¥51.9 in FY 2004. Regional Segments
Segment information described below is determined by the location of the Company and its relevant
subsidiaries. Japan Segment
In FY 2005, sales in the Japan segment grew 10.9%, to ¥98,741 million. Sales to outside customers
advanced 5.3% to ¥50,955 million, which accounted for 26.2% of consolidated net sales. The increase
reflects a 0.6% rise in sales in the domestic market as well as a 24.9% surge in export sales
mainly to Asia. Segment operating income climbed 11.0 times, to ¥15,915 million, owing to a 5.4%
fall in operation expenses to ¥82,826 million. The decrease in operating expenses resulted from a
gain of ¥4,441 million in connection with the return of the substitutional portion of the Companys
Employee Pension Fund to the government in FY2005, versus an impairment loss of ¥5,996 million
related to its golf course subsidiary in FY2004, and due to improved productivity in the Japanese
factory and the Chinese factories. North America Segment
In FY 2005, sales in the North America segment dropped 7.6%, to ¥42,190 million. Sales to outside
customers fell 7.4% to ¥38,607 million, which accounted for 19.8% of consolidated net sales. This
decline in sales to outside customers mainly due to overall declining demand in North America, as
home centers in the United States and Canada enhanced production and distribution of products under
their own brand name and, as a result, Makitas sales to home centers declined. Segment operating
income surged 123.9% to ¥1,610 million, principally owing to a 9.7% fall in operating expenses to
¥40,580 million. The decrease in operating expenses reflected lower expenses due to restructuring
measures that reduced personnel expenses and due to improved productivity in the Chinese factories. Europe Segment
In FY 2005, sales in the Europe segment grew 13.7% to ¥81,666 million. Sales to outside customers
advanced 13.0%, to ¥75,864 million, which accounted for 39.0% of consolidated net sales. Segment
operating income surged 35.4%, to ¥10,125 million, principally owing to a rise in net sales on a
local currency basis as well as to a rise in 21




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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 2005, sales in the Asia segment increased 46.0% to ¥42,315 million. Sales to outside
customers advanced 11.6%, to ¥7,378 million, which accounted for 3.8% of consolidated net sales.
Segment operating income grew 68.2%, to ¥4,926 million in FY 2005. The decrease in operating
expenses reflected improved productivity in the Chinese factories. Other Segment
In FY 2005, sales in the other segment increased 8.3% to ¥22,101 million. Sales to outside
customers increased by 8.1%, to ¥21,933 million, which accounted for 11.3% of consolidated net sales.
Segment operating income fell 29.0%, to ¥955 million in FY 2005. Fiscal Year (FY) 2004 compared to FY2003 Net sales Makitas consolidated net sales for FY 2004 amounted to ¥184,117 million, an increase of 4.8%, or ¥
8,514 million, from FY 2003. In FY 2004, the average yen-dollar exchange rate was ¥113.2 for
$1.00, representing a 7.2% appreciation of the yen compared with the average level in FY 2003. The
average level of the yen-euro exchange rate in FY 2004 was ¥132.7 for 1.00 euro, representing a
9.7% depreciation of the yen compared with the average level in FY 2003. Excluding the effect of
the appreciation of the euro and the depreciation of the U.S. dollar, consolidated net sales would
have increased by 3.8% in FY 2004. While Makitas consolidated net sales increased 4.8% in FY 2004, the overall number of units of
products sold increased significantly in FY 2004, and excluding the effect of the decrease in
prices of products, would have increased Makitas consolidated net sales by 5.6%, or by ¥ 9,834
million. The significant increase in the quantity of goods sold in FY 2004 primarily reflected
strong sales of Makitas portable general purpose tools, such as hammer drills, grinders and
cordless driver-drills. Among others, Makitas new line-up of 2kg rotary hammers were popular,
especially in Europe, over Makitas competitors, in part reflecting the lower sales price resulting
from the strength of the euro in FY 2004. The increase was partially offset by a decrease in sales
in the North American market, as the North American home centers, as customers of Makita, enhanced
their production and distribution of products under their own brand name. Among others, the number
of table saws sold in the North American market declined significantly in FY 2004. The average price of Makitas products declined in FY 2004, and excluding the effect of the
increase in the number of units sold, the drop of prices would have decreased Makitas net sales by
1.8%, or by ¥ 3,400 million. The reduction in price was primarily a result of reduced cost of
production, reflecting primarily the transfer of a part of Makitas production from Japan to the
Peoples Republic of China, where the overall costs of production, including labor, parts and
equipment, are significantly less expensive than in Japan. A second factor contributing to the
decrease in Makitas prices of goods was the increased sales volume of MAKTEC, Makitas lower end
brand, which sold particularly well in Asia. Finally, a portion of the downward price pressure on
Makitas products is attributable to enhanced competition, particularly in Thailand, the Peoples
Republic of China and Singapore, for products such as portable cut-off saws, grinders and hammer
drills, resulting in price cuts and enhanced offers of sales incentives. 22




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Sales of new products comprised 9.4% of consolidated net sales of Makita in FY 2004, or ¥ 17,374
million. Among others, new models of cordless driver-drills, circular saws and hammer drills were
introduced during FY 2004 in most of Makitas markets world-wide and contributed significantly to
the increase of Makitas net sales in FY 2004. In particular, in overseas markets, especially in
Europe, Makitas new products such as its new line-up of 2kg rotary hammers proved very popular, in
part because of the features and design and in part because of lower product prices reflecting the
lower cost of production. In Japan, Makitas new circular saws and new cordless impact drivers
sold well, responding to the increasing demand of renovation-related products in the market. In terms of product type, there was an increase in the sales of portable general-purpose tools and
income from parts, repairs and accessories by 6.5% or ¥ 6,032 million and 5.1% or ¥ 1,474 million,
respectively. In particular, sales increased significantly in cordless impact drivers, circular
saws and hammer drills. The increased sales of such products were offset in part by an 11.1% or ¥
213 million decrease in sales of stationary woodworking machines. Sales by region The increase in consolidated net sales in FY 2004 can be attributed primarily to sales in Europe
increasing 15.1%, or ¥8,721 million, to ¥66,369 million, to increased sales in other regions
including Australia, Latin America and Middle East increasing 13.5% or ¥2,681 million, to ¥22,508
million and, to a lesser extent, sales in Asia (excluding Japan) increasing 3.4%, or ¥471 million,
to ¥14,245 million and sales in Japan increasing 0.9%, or ¥361 million, to ¥39,142 million. The
increase was offset partially by sales in North America falling 8.2%, or ¥3,720 million, to ¥41,853
million. The increased sales in Europe in FY 2004 primarily reflected the appreciation of the euro against
the yen. In addition, the increased number of units sold in Europe, particularly with respect to
portable general purpose tools, in especially Russia, Eastern European countries, the United
Kingdom, Germany and France contributed to increased sales in Europe, partially offset by the
decreased price per product resulting from reduced cost of production. Net sales, denominated in
local currency, increased in Russia by 27.6%, in Eastern Europe by 22.0%, in the United Kingdom by
8.4%, in Germany by 14.9% and in France by 20.5% over amounts recorded in FY 2003. Among others,
Makitas products such as cordless driver-drills and 2 kg rotary hammers were particularly popular
in countries such as Germany and the United Kingdom, partly reflecting the lower sales price
resulting from the strength of the euro in FY 2004. Cordless driver-drills and hammer drills
increased by 19.4% and 11.8% respectively. In addition, the introduction of new products
contributed significantly to the increase of sales in Europe, in particular new models of cordless
driver-drills, circular saws and hammer drills. Excluding the effect of fluctuations of the local
currencies, consolidated net sales would have increased by 7.2% in FY 2004. The increased sales in other
regions including Australia, Latin America and the Middle East in FY 2004
primarily reflected the increased number of units sold in other regions, particularly with respect
to portable general purpose tools such as cordless driver-drills and hammer drills sold in the
Middle East, Africa and Australia. Net sales, denominated in local currency, increased in
Australia by 18.1%, in UAE by 23.5% and in New Zealand by 27.6% over amounts recorded in FY 2003.
Among others, in FY 2004 Makita saw significant success in its sales efforts to new markets in the
Middle East and Africa. The increased number of Makita products sold in other regions was partially
offset by the decreased price per product resulting from the reduced cost of production, especially
in cordless driver-drills. Overall, net sales of cordless driver-drills increased by 24.7% over
amounts recorded in FY 2003. In addition, the introduction of new products contributed
significantly to the increase of sales in other regions, in particular new models of cordless
driver-drills, table saws and circular saws. Excluding the effect of fluctuations of the local
currencies, consolidated net sales would have increased by 12.5% in FY 2004. 23




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The increased sales in Asia (excluding Japan) in FY 2004 primarily reflected the increased number
of units sold in Asia, particularly with respect to portable general purpose tools, especially hand
drills and grinders. The increased quantity of units sold were mostly offset by the decreased
price per product, resulting from the increased popularity of Makitas lower end brand, MAKTEC and,
to a lesser extent, Makitas reduced cost of production. Net sales, denominated in local currency,
increased in Taiwan by 5.1% and in Singapore by 3.8% over amounts recorded in FY 2003. In
addition, the introduction of new products contributed significantly to the increase of sales in
Asia, in particular new models of hammer drills, cordless driver-drills and grinders. Excluding
the effect of fluctuations of the local currencies, consolidated net sales would have increased by
6.6% in FY 2004. The increased sales in Japan in FY 2004 primarily reflected the increased number of units sold with
respect to its portable general purpose tools such as Makitas mainstay impact driver products and
portable woodworking tools, partially offset by the decline in the number of units sold in
stationary woodworking machines and parts, repairs and accessories. Overall, net sales of cordless
driver-drills including impact drivers increased by 4.9% over the amounts recorded in FY 2003. On
the other hand, continuing low levels of housing construction in Japan restrained the growth of
demand for Makitas products and increased overall competition resulted in price pressure. In
addition, the introduction of new products contributed significantly to the increase of sales in
Japan, in particular new models of renovation-related products such as cordless impact drivers and
circular saws. The decrease in sales in North America in FY 2004 was primarily due to the depreciation of the
dollar against the yen. To a lesser extent, the decrease in sales in North America was due to
overall declining demand, as home centers in the United States and Canada enhanced production and
distribution of products under their own brand name and, as a result, Makitas sales to home
centers declined. In addition, a part of the decrease in sales was attributable to the increase in
competitive pressures resulting in enhanced sales incentives offered to professional user
customers. The decline in sales in North America was despite Makitas successful marketing
programs aimed at the professional user market in the United States and Canada, and Makitas
reorganization of its distribution networks in the United States. In the United States, sales in
dollar terms declined by 3.2%, as a result of weaker sales volume reflecting mainly the decrease in
sales to home centers, such as sales of table saws. Overall, net sales of table saws in North
America decreased by 30.8% as compared to the amounts recorded in FY 2003. In Canada, sales in
Canadian dollar terms declined by 3.2%, as a result of weaker sales volume, also reflecting mainly
the decrease in sales to home centers. 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 24




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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 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 points, 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 a loss of ¥1,330 million in FY2003. 25




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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
In accordance with FASB Statement No. 144, Makita wrote down
¥7,780 million of 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 an 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, Makita recorded a ¥1,541 million impairment loss on the subject long-lived asset in the Japan
segment. In addition, Makita 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. 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 Makita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 Makita. 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 a 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 a 100% valuation allowance established
on the impairment loss on long-lived assets of a subsidiary that operates a golf course in Japan. 26




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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
Segment information described below is determined by the location of the Company and its relevant
subsidiaries. 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 a 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 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 Makita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. Other Segment
In FY 2004, sales in the other segment increased 8.3% to ¥20,406 million. Sales to outside
customers advanced 8.1%, to ¥20,283 million, which accounted for 11.1% of consolidated net sales.
Segment operating income grew 204.4%, to ¥1,345 million in FY 2005. CRITICAL ACCOUNTING POLICIES
As disclosed in Note 3 of the Notes to the accompanying consolidated financial statements, the
preparation of Makitas consolidated financial statements in accordance with U.S generally accepted
accounting principles 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 27




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Revenue Recognition
            Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousand)For the year ended March 31,2003
    
    
    2004
    
    
    2005
    
    
    2005Volume-based rebates:Actual payment for the year
    
    
    (4,200
    )
    
    
    (3,934
    )
    
    
    (4,450
    )
    
    
    (41,589
    )Income statement impact for the year
    
    
    3,764
    
    
    
    3,903
    
    
    
    4,333
    
    
    
    40,495Accrued expenses (BS) as of March 31,
    
    
    1,309
    
    
    
    1,278
    
    
    
    1,161
    
    
    
    10,850Cooperative advertisings:Actual payment for the year
    
    
    (1,841
    )
    
    
    (2,076
    )
    
    
    (1,900
    )
    
    
    (17,757
    )Income statement impact for the year
    
    
    1,827
    
    
    
    2,147
    
    
    
    1,812
    
    
    
    16,935Accrued expenses (BS) as of March 31,
    
    
    525
    
    
    
    596
    
    
    
    508
    
    
    
    4,748Cash discounts:Actual payment for the year
    
    
    (3,691
    )
    
    
    (3,680
    )
    
    
    (3,712
    )
    
    
    (34,692
    )Income statement impact for the year
    
    
    3,669
    
    
    
    3,661
    
    
    
    3,684
    
    
    
    34,430Accrued expenses (BS) as of March 31,
    
    
    271
    
    
    
    252
    
    
    
    224
    
    
    
    2,093
 28




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Inventory valuation and reserve  Unrealized Losses on Securities  Allowance for Doubtful Receivables  29




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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 could significantly affect its operating results and financial condition. 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 a significant decline in market value of an asset, current period operating cash
outflows losses 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 a 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 and in turn affect
Makitas consolidated results of operations and financial condition. 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. 30




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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
U.S generally accepted accounting principles , actual results that differ from the assumptions are
accumulated and amortized over the future periods and therefore, generally affect Makitas results
of operations 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 2.2% for the year ended March 31, 2005. Raising the discount rate for the pension plan by 0.5%
would have decreased the projected benefit obligation by approximately ¥2.3 billion at the end of
fiscal 2005, while reducing the discount rate by 0.5% would have resulted in increased projected
benefit obligation by approximately ¥2.5 billion. See Note 9 to the accompanying consolidated
financial statements. 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 gross deferred
income tax assets. We have recorded a valuation allowance of ¥8,211 million as of March 31, 2005
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 the 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 Makitas principal sources of liquidity are cash on hand, cash provided by operating activities and
borrowings within credit lines. As of March 31, 2005, Makita held cash and cash equivalents
amounting to ¥25,384 million and the Companys subsidiaries have credit lines up to ¥23,477
million. As of March 31, 2005, ¥1,968 million of its credit lines was used by overseas subsidiaries
and ¥21,509 million was unused. As of March 31, 2005, Makita had ¥9,060 million in short-term
borrowing, which included bank and insurance company borrowings and capital lease obligations.
Borrowings of the Companys financial subsidiary amount to ¥6,000 million, and will become due in
September and November 2005. Makita is scheduled to repay this debt from its current holdings of
securities, and highly liquid assets. For further information regarding our short-term borrowings,
including the average interest rates see Note 10 to our accompanying consolidated financial
statements. 31




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Makita made the decision to withdraw from golf course operations, and on September 8, 2004,
petitioned the Nagoya District Court for the commencement of civil
rehabilitation proceedings for
its wholly owned subsidiary Joyama Kaihatsu, Ltd. On April 11, 2005, the court decided to approve
the plan for rehabilitation. Going forward, after making final confirmation of the rehabilitation
plan, Makita plans to settle obligations related to the rehabilitation and then plans to transfer
its ownership interests of the company to a third party, Tokyo Tatemono Co., Ltd., towards the end of May
2005. As a result of this approval, Makita is scheduled to pay obligations of this subsidiary in
the amount of ¥6,375 million, in respect of the ¥12,836 million of club members deposits as
of March 31, 2005, from its current holdings of securities, and highly liquid assets. As of March 31, 2005, Makitas total short-term borrowings and long-term indebtedness amounted to
¥9,148 million, representing a decrease from the ¥21,492 million reported for the previous fiscal
year-end. Makitas ratio of indebtedness to shareholders equity declined 6.9%, to 4.2%. 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
Makita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
2006. Makita expects to continue to incur additional debt 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 ¥25,384 million as of March 31, 2005, 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 2006 and
thereafter. Makita requires operating capital mainly to purchase materials required for production, to conduct
research and development, to respond to cash flow fluctuations related to changes in inventory
levels and to cover the payment cycle of receivables from wholesalers. Makita further requires
funds for capital expenditures, mainly to expand production facilities and purchase metal molds.
Makita also requires funds for financial expenditures, primarily to pay dividends and to repurchase
treasury stock. Maintaining the level of Makitas production and marketing activities requires
capital investments of approximately ¥5 billion to
¥7 billion annually. Please see  Fiscal Year
2005  Capital Expenditures below in this section for a description of our principal capital
expenditures for fiscal 2005 and the main planned expenditures for fiscal 2006. At the Regular
General Meeting of Shareholders held in June 2005, the Companys shareholders approved a cash
dividend of ¥36 yen per share. The total scheduled cash dividend payments amount to ¥5,176 million,
which the Company paid in June 2005. Makita believes it will
continue to be able to access the capital markets on terms and for amounts
that will be satisfactory to it and as necessary to support the business and to engage in hedging
transactions on commercially acceptable terms. Makita is rated at A+ by Standard & Poors at March 31, 2005. Fiscal year 2005 Cash Flows
Net cash provided by operating activities in FY 2005 decreased by ¥12,099 million to ¥16,842
million from ¥28,941 million in the previous fiscal year. The cash inflow is primarily
composed of cash received from customers, and the cash outflow is primarily composed of payments by
Makita for parts and materials, selling, general and administrative
expenses, and income taxes.
 
For FY 2005, cash inflow from cash received from customers increased, as a result of an increase in
net sales. This increase in cash inflow was within the range of the increase in net sales, as there
were no significant changes in 32




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Makitas collection rates. Cash inflow in operating activities increased by 5.6%, to ¥192,742
million, and cash outflow in operating activities increased by 14.5%, to ¥175,900 million. Cash outflow for payments for parts and- materials increased as a result of increased
production. This increase was greater than the increase in net sales. Cash outflow for income taxes
payments increased due to an increase in taxable income. Net cash inflow from investing activities was ¥154 million, compared with a ¥17,262 million cash
outflow in the previous year. The increase in net cash inflow resulted mainly from the ¥13,510
million of proceeds from maturities of held to maturity securities. Net cash inflow from sales and
maturities of securities of purchase of securities for FY 2005 was ¥7,172 million, compared with
¥16,762 million of net securities purchase to accumulate funds in preparation for the payments
needed to redeem our outstanding convertible bonds maturing in March 2005. In addition, Makita
spent less cash on time deposits, at ¥38 million for FY 2005 compared with ¥1,162 million for FY
2004. The foregoing was partially offset by reduced proceeds from sales of property, plants and
equipment at ¥320 million for FY 2005 compared with ¥5,154 million for FY 2004, and the increase in
cash used for capital expenditure by ¥2,161 million, to ¥6,655 million. Net cash used in financing activities amounted to ¥16,177 million, compared with ¥6,596 million in
the previous fiscal year. This included ¥12,990 million used to redeem our outstanding convertible
bond and ¥3,453 million used to pay cash dividends. In FY 2005, net cash outflow from financing
activities increased by ¥9,581 million to ¥16,177 million mainly due to an increase in redemption
of convertible bond, and an increase in payment of cash dividends. As a result of these activities as well as the effects of exchange rate changes, our cash and cash
equivalents as of March 31, 2005 amounted to ¥25,384 million, up ¥808 million from the end of
fiscal 2004. Capital Expenditures
Makita has continued to allocate sizable amounts of funds for capital expenditures, which Makita
believes is crucial for sustaining long-term growth. In the light of the severity of its current
market competition however, Makita has focused its capital investments on expanding its plant in
China and purchasing metal molds for new products to be manufactured in Japan and China and in
certain other areas, which required Makita to increase the amount of its capital expenditures in FY
2005 compared to FY 2004. Total capital expenditures amounted to ¥5,691 million, ¥4,494 million and
¥6,655 million for FY 2003, 2004 and 2005, respectively. Capital expenditures in FY 2005 were
mainly for the purchase of molds for new products, acquisition of production equipment in the
Chinese plant and the construction of a headquarters building for Makita (Australia) Pty. Ltd. Capital investments of the
Company amounted to approximately ¥2.0 billion, while the capital
investments of overseas subsidiaries including manufacturing subsidiaries in such countries as
Germany, China, and the United States amounted to approximately ¥4.7 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, and the acquisition of production equipment by Makita (China) Co., Ltd. and Makita (Kunshan)
Co., Ltd. All of Makitas capital expenditures in FY 2005 were funded through internal sources. Under its investment plans for FY 2006, the Makita Group is scheduled to make capital investments
totaling ¥11.0 billion, 65% higher than for FY 2005, which is scheduled to be funded through
internal sources. Of this total, the Company plans to make direct investments of ¥7.0 billion and
its consolidated subsidiaries will invest ¥4.0 billion. Fiscal year 2004 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, and decrease in accounts
payable and accrued expenses partially offset by a decrease in trade receivables. 33




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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 of 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 a decrease in 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. Financial Position  This increase was partially offset by a decrease in marketable securities. Property, plant and equipment, at cost less accumulated depreciation, decreased 0.3%, to ¥52,824
million. Investments and other assets decreased 4.9%, to ¥29,188 million. Total current liabilities
increased 24.9%, to ¥58,226 million mainly due to the reclassification of club members deposits
from long-term liabilities to current liabilities.
 
This increase was partially transferred by a decrease in convertible bond. Long-term liabilities dropped 71.2%, to ¥10,639 million, mainly because of the shift of club
membership and other liabilities of Joyama Kaihatsu, Ltd. and a decrease in accrued retirement and
termination benefits due to the transfer to the government of the substitutional portion of the
domestic pension plan. Working capital amounted to ¥149,666 million at the end of fiscal 2005. The
current ratio was 3.6 times, compared with 4.2 at the previous year-end. Shareholders equity grew
13.6%, to ¥219,640 million, because of the rise in net income as well as the decrease in the
minimum pension liability adjustment due to the transfer to the government of the substitutional
portion of the domestic pension plan, the recovery in stock markets, which increased the value of
net unrealized holding gains on available-for-sale securities, and a decrease in foreign currency
translation adjustments within total accumulated other comprehensive loss. As a result, the
shareholders equity ratio rose to 75.8%, from 69.5% at the previous fiscal year-end. 34




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##### Table of Contents



C. Research and development, patents and licenses, etc. Approximately 440 of Makitas employees are engaged in research and development activities and
product design. Makita also employs approximately 100 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 rest are
engaged in the research and development of electric, electronic and other applications. Makita places a high priority on R&D and believes that strong capability in R&D is crucial to its
continuing development of high-quality, reliable products that meet users needs. In FY 2005,
Makita allocated ¥4,085 million to R&D. Approximately 2.1% of net sales. In FY 2004, Makita
allocated ¥4,086 million for R&D, up 6.0% from the ¥3,856 million allocation in FY 2003. The ratio
of R&D expenses to net sales in both FY 2004 and FY2003 was approximately 2.2%. Makita is placing higher priority on designing power tools that are smaller and lighter, featuring
electronic controls, and that have internal power sources allowing a 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. In order to respond quickly to customers needs,
Makita is also placing emphasis on shortening the time needed for new product development. To
strengthen initiatives that reduce costs, Makita 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 2005 included a rechargeable impact driver, an interior, right-angle circular saw
and other products. In addition, Makita expanded its development program for the MAKTEC series. Parts for this series
are mostly procured locally in China. In addition, the MAKTEC series focuses on performance in
practical work settings and limits 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. In fiscal 2005, Makita implemented initiatives to develop products that meet the European
standards (WEEE, RoHS) for eliminating harmful substances. Makita developed a battery recharging
system that employs digital communication functions to provide information on the state of battery
charging. Through the use of this new system, the total volume of work can be increased
substantially by enabling batteries to be used up to their capacity. In addition, Makita recently
adopted lithium ion batteries, which doubles the total volume of work in comparison with Makitas
batteries that must be inserted. Makita also developed an original battery checker system using the
previously mentioned digital communication functions. Using this system, customers can check on the
state of charging of their batteries and Makita can provide customers with information on how to
make their batteries last longer. 
 D. Trend information Despite expectations for a global trend toward modest economic recovery, sharp rises in oil prices
and increased prices of other basic materials continue to make the corporate operating environment
uncertain. Regarding the previously announced plan to acquire the nailer business of Kanematsu-NNK Corp. on
April 1, 2005, at the request of Kanematsu-NNK Corp., Makita postponed the acquisition on February
22, 2005. Makita is scheduled to announce further details regarding this acquisition when they have
been decided. Corporate reorganization procedures related to Makitas golf course management subsidiary,
including the transfer of ownership interest, were completed by the end of May 2005. Makita will continue working to improve its performance by expanding its share of the
professional-use tool market, and it will seek to accomplish this by bolstering its marketing and
service networks and developing high-value-added products. The outlook for the year ending March
31, 2006 is as follows:  (1)
    
    Competition is expected to intensify in Japan, the U.S. and other markets for power
tools.(2)
    
    In the European market, Makita is expected to achieve stable performance while
maintaining its competitiveness. 
 E. Off-balance sheet arrangements Makita did not have any off-balance sheet arrangements as of March 31, 2005. 35




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##### Table of Contents



F. Tabular disclosure of contractual obligations Yen (millions)Expected payment date, year ending March 31,Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterJapanese yen loans from banks and insurance
companies
    
    
    6,205
    
    
    ¥
    6,205
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    Japanese yen loans from Japanese companies (1)
    
    
    150
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Club members deposits (2)
    
    
    6,375
    
    
    
    6,375
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital lease
    
    
    175
    
    
    
    87
    
    
    
    41
    
    
    
    14
    
    
    
    8
    
    
    
    8
    
    
    
    17Operating lease
    
    
    1,343
    
    
    
    480
    
    
    
    316
    
    
    
    185
    
    
    
    127
    
    
    
    65
    
    
    
    170Purchase Obligation
    
    
    5,639
    
    
    
    5,639
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    ¥
    19,877
    
    
    ¥
    18,936
    
    
    ¥
    357
    
    
    ¥
    199
    
    
    ¥
    135
    
    
    ¥
    73
    
    
    ¥
    187
 U.S. Dollars (thousands)Expected payment date, year ending March 31,Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterJapanese yen loans from
banks and insurance companies
    
    
    57,991
    
    
    $
    57,991
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Japanese yen
loans from Japanese companies (1)
    
    
    1,402
    
    
    
    1,402
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Club members deposits (2)
    
    
    59,580
    
    
    
    59,580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital lease
    
    
    1,635
    
    
    
    812
    
    
    
    383
    
    
    
    131
    
    
    
    75
    
    
    
    75
    
    
    
    159Operating lease
    
    
    12,551
    
    
    
    4,486
    
    
    
    2,953
    
    
    
    1,729
    
    
    
    1,187
    
    
    
    607
    
    
    
    1,589Purchase Obligation
    
    
    52,701
    
    
    
    52,701
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    185,860
    
    
    $
    176,972
    
    
    $
    3,336
    
    
    $
    1,860
    
    
    $
    1,262
    
    
    $
    682
    
    
    $
    1,748
  Note:  (1)
    
    Of the ¥800 million in Japanese yen loans from Japanese companies outstanding as of
March 31, 2005, Makita was released from ¥650 million ($6,074 thousand), as a result of
Makita paying ¥150 million ($1,402 thousand) in full
settlement of the amounts due to
Japanese companies on May 31, 2005 following the confirmation of the civil rehabilitation
plan for Joyama Kaihatsu, Ltd. on May 7, 2005.(2)
    
    Makitas club members deposits consist of deposits from individuals or corporations
who became members of Castle Hill Country Club, owned and operated by Joyama Kaihatsu
Ltd., a subsidiary of the Company until May 31, 2005. On September 8, 2004, Joyama
Kaihatsu, Ltd. petitioned the Nagoya District Court for the
commencement of a civil
rehabilitation plan. On April 11, 2005, the Nagoya District Court approved the civil
rehabilitation plan for Joyama Kaihatsu, Ltd. and, because the creditors and club members
did not object to the plan within the court designated deadline, the Nagoya District
Court confirmed the plan on May 7, 2005. Upon confirmation of the civil rehabilitation
plan, Makita was released from payment obligations in respect of the club members deposits of
¥6,461 ($60,383 thousand) and repaid of ¥6,375 million
($59,580 thousand) on May 31, 2005 to fully settled the amounts
outstanding. 
 36




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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, 2005 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 Kenichiro 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 37




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##### Table of Contents



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 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 38




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##### Table of Contents



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 Motohiko Yokoyama
Current Position: Director, since June 2005
Date of Birth: May 13, 1944
Director since: June 2005
Business Experience:
June 2004: President and Representative Director of Toyoda Machine Works, Ltd. 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 39




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##### Table of Contents



The term of each director listed above expired in June 2005. The terms of Mr. Akio Kondo and Mr.
Hiromichi Murase as Standing Statutory Auditors and Mr. Shoichi Hase as Statutory Auditor expire 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, 2005 to all Directors and Statutory Auditors,
who served during the fiscal year ended March 31, 2005, totaled ¥ 152 million. Remuneration 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, total ¥ 133 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. 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 ¥369 million as of March 31, 2004 and was increased to ¥477
million as of March 31, 2005. 
 C. Board practices The Companys Articles of Incorporation provide for a Board of Directors of 15 or less Directors
and three to five 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 two years after their assumption of office, and in the case of Statutory Auditors, within
four years after their assumption of office; however, Directors and Statutory Auditors may serve
any number of consecutive terms. With respect to each expiration date 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 corporation must be appointed by a
general meeting 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 40




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##### Table of Contents



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, the method of examination by Statutory Auditors of the
Companys affairs, and the financial position and other matters concerning the performance of the
Statutory Auditors duties. For names of the Statutory Auditors that constituent the Board of
Statutory Auditors, see Item 6. A. 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. 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, 41




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##### Table of Contents



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 (or when the
New Company Law (as defined in B. Memorandum and articles of association  Directors in Item 10)
becomes effective, the New Company Law) 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:  (1)
    
    acquisition of its own shares from specific persons;(2)
    
    consolidation of shares;(3)
    
    any offering of new shares at a specially favorable price (or any offering of stock
acquisition rights to subscribe for or acquire shares of capital stock, or bonds with stock
acquisition rights at specially favorable conditions) to any persons other than
shareholders;(4)
    
    the removal of a Director or Statutory Auditor (when the New Company Law becomes effective,
the removal of a Director who is elected by cumulative voting);(5)
    
    the exemption of liability of a Director or Statutory Auditor with certain exceptions;(6)
    
    a reduction of stated capital (when the New Company Law becomes effective, with certain
exceptions in which a shareholders resolution is not required);(7)
    
    (when the New Company Law becomes effective ) a distribution of surplus other than dividends
which meets certain requirements;(8)
    
    dissolution, merger, or consolidation with certain exceptions in which a shareholders
resolution is not required;(9)
    
    the transfer of the whole or a material part of the business;(10)
    
    the taking over of the whole of the business of any other corporation with certain exceptions
in which a shareholders resolution is not required;(11)
    
    share exchange or share transfer for the purpose of establishing 100 percent
parent-subsidiary relationships with certain exceptions in which a shareholders resolution is
not required,(12)
    
    separating of the corporation into two or more corporations with certain exceptions in which
a shareholders resolution is not required, 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 (or, when the New Company Law becomes effective and in
the event that the Companys Articles of Incorporation provide for a percentage more than
two-thirds, such percentage) of the voting rights of all the shareholders represented at the
meeting is required (in addition, when the New Company Law becomes effective and in the event
that the Companys Articles of Incorporation provide that the approval by certain number of
shareholders is required, such approval is also required). 
 D. Employees The following table sets forth information about number of employees: As of March 31,2003
    
    
    2004
    
    
    2005Categorized by Geographic AreasJapan
    
    
    3,057
    
    
    
    3,041
    
    
    
    2,996Overseas
    
    
    5,287
    
    
    
    5,392
    
    
    
    5,564Total
    
    
    8,344
    
    
    
    8,433
    
    
    
    8,560
 During the fiscal year ended March 31, 2005, the Company hired on average approximately 750
temporary employees in China, and approximately 90 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. 42




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##### Table of Contents



Makitas employees are members of a labor union formed on September 13, 1947 that comprise,
starting February 9, 1989, the Japanese Electrical Electronic
& Information Union. As of March 31, 2005,
there are 2,684 members of the union and Makita considers its relationship with the labor union to
be good. 
 E. Share ownership The total number of shares of the Companys Common Stock owned by the Directors and Statutory
Auditors as a group as of March 31, 2005 is as follows: Identity of
    
    Number of
    
    
   Percentage ofPerson or Group
    
    Shares Owned
    
    
    voting rightDirectors and
Statutory Auditors
    
    
    
    2,097,463
    
    
    
    
    1.42 %
 The following table lists the number of shares owned by the Directors and Statutory Auditors of the
Company as of March 31, 2005. Name
    
    Position
    
    Number of sharesMasahiko Goto
    
    President, Representative Director
    
    
    1,971,943Masami Tsuruta
    
    Managing Director
    
    
    14,722Yasuhiko Kanzaki
    
    Director
    
    
    10,469Kenichiro Nakai
    
    Director
    
    
    11,270Tadayoshi Torii
    
    Director
    
    
    12,000Tomoyasu Kato
    
    Director
    
    
    11,672Kazuya 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
    
    
    6,000Hiromichi Murase
    
    Standing Statutory Auditor
    
    
    4,210Keiichi Usui
    
    Outside Statutory Auditor
    
    
    7,200Shoichi Hase
    
    Outside Statutory Auditor
    
    
    16,000
 The shareholders listed above do not have voting rights that are different from other shareholders
of the Company. 
 Item 7.      Major Shareholders and Related Party Transactions 
 A. Major Shareholders The following table sets
forth holders of 5% or more of the Companys outstanding common stock as
included in the list of shareholders as of March 31, 2005. Identity of
    
    Number of
    
    Percentage ofPerson or Group
    
    Shares Owned
    
    voting rightThe Chase Manhattan Bank , N. A. London
    
    
    8,468,882
    
    
    
    5.72
    %
 Except for Masahiko Goto holding 1.33% of the Companys outstanding common stock as of March 31,
2005, none of the Companys Directors and Statutory Auditors owns more than one percent of the
Companys Common Stock. 43




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##### Table of Contents



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, 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
    
    
    8,959,000
    
    
    
    6.05
    %Goldman Sachs International
    
    
    8,899,979
    
    
    
    6.01
    %Barclays Global Investors, N.A.
    
    
    7,783,444
    
    
    
    5.26
    %
 Based on information made publicly available on or after April 1, 2002, 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. 44




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##### Table of Contents



Shares Owned
    
    
    
    
    
    Number of
    
    Shares OwnedDate of
    
    Prior to
    
    
    
    
    
    Shares
    
    After theName of Shareholder
    
    Transaction
    
    Transaction
    
    Percentage
    
    Changed
    
    Transaction
    
    PercentageSilchester 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
    %Silchester International Investors Limited
    
    September 29, 2004
    
    
    9,267,000
    
    
    
    6.06
    %
    
    
    1,212,000
    
    
    
    10,479,000
    
    
    
    7.08
    %Goldman Sachs International
    
    September 30, 2004
    
    
    6,332,900
    
    
    
    4.14
    %
    
    
    2,567,079
    
    
    
    8,899,979
    
    
    
    6.01
    %Barclays Global Investors, N.A.
    
    December 31, 2004
    
    
    7,855,003
    
    
    
    5.31
    %
    
    
    (2,93,559
    )
    
    
    7,561,444
    
    
    
    5.11
    %Nippon Life Insurance Company
    
    January 31, 2005
    
    
    7,601,503
    
    
    
    5.14
    %
    
    
    (3,503,000
    )
    
    
    4,098,503
    
    
    
    2.77
    %Silchester International Investors Limited
    
    February 15, 2005
    
    
    10,479,000
    
    
    
    7.08
    %
    
    
    
    
    
    
    8,959,000
    
    
    
    6.05
    %Barclays Global Investors, N.A.
    
    March 31, 2005
    
    
    7,561,444
    
    
    
    5.11
    %
    
    
    222,000
    
    
    
    7,783,444
    
    
    
    5.26
    %
 As of March 31, 2005, the Company had 143,777,607 outstanding shares of common stock. According to
the Bank of New York, depositary for the Companys ADSs, as of March 31, 2005, 6,923,200 shares of
the Companys common stock were held in the form of ADRs and there were 48 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, 2005, there were 10,200 holders of common stock of record worldwide and the
number of record holders in the United States was 66. 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 19 to the consolidated financial statements. 
 C. Interest of experts and counsel Not applicable 45




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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s basic policy on the distribution of profits is to maintain a dividend payout ratio of 30%
or greater, with a lower limit on annual cash dividends of 18 yen per share. However, in the event
special circumstances arise, computation of the amount of dividends will be based on consolidated
net income after certain adjustments. In addition, Makita aims to implement a flexible capital
policy, augment the efficiency of its capital employment, and thereby boost shareholder profit.
Makita continues 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. 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 interim cash dividends in fiscal 2005 of ¥11.0 per
share and ADS. The Company has declared a cash dividend of ¥36.0 per share and ADS, including a special
dividend of ¥25 per share, and a special commemorative 90th
anniversary dividend per share of ¥4, all of
which were approved by the shareholders meeting held on June 29, 2005. 46




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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. DollarsFiscal year ended March 31
    
    Interim
    
    
    Year-end
    
    
    Interim
    
    
    Year-end2001
    
    
    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
    
    
    
    0.112005
    
    
    11.0
    
    
    
    36.0
    
    
    
    0.10
    
    
    
    0.34
 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 On April 11, 2005, the Nagoya District Court approved the civil rehabilitation plan for the
Companys subsidiary, Joyama Kaihatsu, Ltd., including its payment obligation of the club members
deposits and such plan was confirmed on May 7, 2005. The Company has paid its obligations under
the civil rehabilitation plan of Joyama Kaihatsu, Ltd., and sold Joyama Kaihatsu, Ltd., to a third
party, Tokyo Tatemono Co. Ltd., on May 31, 2005. As a result of this sale, Makita no longer has any contractual obligations to refund club members
deposits to members of the Castle Hill Country Club, owned and operated by Joyama Kaihatsu, Ltd. 
 Item 9.      The Offer and Listing 
 A. Offer and listing details The shares of common stock of the Company were listed on the First Section of the Tokyo Stock
Exchange, the Osaka Securities Exchange and the Nagoya Stock Exchange in 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 delisted from that exchange at the end of February 2003.
The shares of common stock of the Company were listed on the Amsterdam Stock Exchange (Euronext
Amsterdam) in 1973, initially in the form of Continental Depositary Receipts. The Company decided
to discontinue its listing on the Euronext Amsterdam Stock Exchange due to the extremely low level
of trading volume in its shares on that exchange, and it was delisted from that exchange at the end
of January 2005. The Companys American Depositary Shares, each representing one share (prior to April 1, 1991, five
shares) 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. 47




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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
    
    
    Low2001
    
    
    1,100
    
    
    
    711
    
    
    
    9.88
    
    
    
    5.942002
    
    
    871
    
    
    
    615
    
    
    
    6.85
    
    
    
    4.882003
    
    
    909
    
    
    
    654
    
    
    
    7.55
    
    
    
    5.352004
    
    
    1,343
    
    
    
    834
    
    
    
    15.45
    
    
    
    10.002005
    
    
    2,115
    
    
    
    1,315
    
    
    
    20.27
    
    
    
    12.00QuarterlyFiscal 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
    
    
    
    10.00Fiscal year 20051st quarter ended June 30, 2004
    
    
    1,686
    
    
    
    1,315
    
    
    
    15.34
    
    
    
    12.002nd quarter ended September 30, 2004
    
    
    1,675
    
    
    
    1,463
    
    
    
    15.45
    
    
    
    13.203rd quarter ended December 31, 2004
    
    
    1,874
    
    
    
    1,379
    
    
    
    17.75
    
    
    
    13.174th quarter ended March 31, 2005
    
    
    2,115
    
    
    
    1,705
    
    
    
    20.27
    
    
    
    16.56MonthlyJanuary 2005
    
    
    1,889
    
    
    
    1,705
    
    
    
    18.21
    
    
    
    16.56February 2005
    
    
    2,010
    
    
    
    1,815
    
    
    
    19.34
    
    
    
    17.56March 2005
    
    
    2,115
    
    
    
    1,889
    
    
    
    20.27
    
    
    
    17.66April 2005
    
    
    1,965
    
    
    
    2,010
    
    
    
    19.00
    
    
    
    16.15May 2005
    
    
    1,980
    
    
    
    2,200
    
    
    
    19.97
    
    
    
    18.22June 2005(through June 15)
    
    
    2,245
    
    
    
    2,075
    
    
    
    20.69
    
    
    
    19.33
 
 B. Plan of distribution Not applicable. 
 C. Markets See Item 9. A 
 D. Selling shareholders Not applicable. 48




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##### Table of Contents



E. Dilution Not applicable. 
 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. 49




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##### Table of Contents



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);
    
    the Directors or Statutory Auditors 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 and operational regulations thereunder 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 Except as otherwise stated, 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. A bill to modernize and make overall amendments to the Commercial Code by replacing the current
provisions with regard to corporations with a new company law (the New Company Law) was
submitted to the Diet on March 22, 2005. The New Company Law was
enacted on June 29, 2005 and will come into effect within one year and half after its promulgation;
currently, it is expected that it will take effect in April 2006. 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
(or electronically), 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 a 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 are aggregated for 50




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##### Table of Contents



these purposes. Beneficial shareholders may at any time withdraw their shares from deposit and
receive share certificates. A new law to establish a new central clearing system for shares of listed companies and to
eliminate the issuance and use of certificates for such shares was promulgated in June 2004 and the
relevant part of the law will come into effect within five years of the date of the promulgation.
On the effective date, a new central clearing system will be established and the shares of all
Japanese companies listed on any Japanese stock exchange, including the shares of Common Stock of
the Company, will be subject to the new central clearing system. On the same day, all existing
share certificates will become null and void; the companies are not required to withdraw those
share certificates from shareholders. The transfer of such shares will be effected through entry in
the books maintained under the new central clearing system. 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 500,000,000 shares. As of March 31,2005, 148,008,760 shares of Common Stock were in issue. All shares of Common Stock of the Company have no par value. Dividends Dividends  General The Articles of Incorporation of the Company provide that the accounts shall be closed on March 31
of each year and that year-end cash 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. Under the New Company Law, subject to certain limitations on the distributable surplus as described
below, dividends, if any, may be paid to shareholders, beneficial shareholders, and pledgees of
record as of a record date as set forth by the Articles of Incorporation of the Company or as
determined by the Board of Directors from time to time. Dividends shall be paid by way of
distribution of surplus. Dividends may be distributed in cash or in
kind. In distributing dividends the Company may determine the kind of assets to be distributed, the book
value of such assets, matters regarding allocation of such assets, and the effective date of such
dividends, by a resolution of a general meeting of shareholders. However, the Company may generally
determine such matters by a resolution of the Board of Directors if (a) the Articles of
Incorporation of the Company so provide, (b) the term of its Directors is set to be until the
conclusion of the ordinary general meeting of shareholders held with respect to the last closing of
accounts within one year after such Directors assumption of office, and (c) certain requirements
regarding the financial statements and certain documents of the Company as set forth in an
ordinance of the Ministry of Justice are met; provided, however, that when the Company is to make
in-kind dividends without giving shareholders the right to request payment of cash dividends in
lieu of in-kind dividends, it shall determine such matters by a special shareholders resolution (as
defined in Voting Rights). When the Company makes payment of dividends, it shall allocate such
dividends in proportion to the number of shares of any specific class held by each shareholder. Dividends  Interim cash dividends In addition to year-end cash 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 51




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and pledgees of record as of the end of September 30 of each year, without shareholders approval,
but subject to the limitations described below. Under the New Company Law, as described above, notwithstanding the necessity of obtaining approval
of a general meeting of shareholders, the Company is allowed to make payment of interim dividends
during a fiscal year by way of distribution of surplus by resolution of the Board of Directors;
provided, however, that such payment of interim dividends shall be limited to cash dividends and
also limited to once per any fiscal year. Dividends  Legal reserve 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. The New Company Law provides that when a stock company like the Company makes a distribution of
surplus, it shall set aside in its legal reserve an amount equal to 10 percent of the amount of the
surplus to be decreased as a result of such distribution of surplus in accordance with the
provisions set forth in an ordinance of the Ministry of Justice. Dividends  Distributable amount 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. 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, 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 the New Company Law, the Company is permitted to make a distribution of surplus to the extent
that the aggregate book value of the assets to be distributed to shareholders does not exceed the
Distributable Amount (as defined below) as at the effective date of such distribution of surplus. Under the New Company Law, the Distributable Amount would include amounts incurred as a result of
certain events occurring after the end of the Companys last fiscal year. In addition, under the
New Company Law, the Company will be permitted to prepare extraordinary financial statements (the
Extraordinary Financial Statements) as of a certain date during the fiscal year immediately after
the Companys last fiscal year (the Extraordinary Account Settlement Date) which must be audited
by Statutory Auditors and accounting auditors and approved by the Companys Board of Directors and,
in certain cases, the general meeting of shareholders of the Company. Once the Extraordinary
Financial Statements are so audited and approved, the Company can make adjustments to the
Distributable Amount by adding net income or by deducting loss for the period after the end of the
Companys last fiscal year until the Extraordinary Account Settlement Date. The amount of surplus at any given time shall be the amount of the Companys assets and the book
value of the Companys treasury stock after subtracting the amounts of the following items (1)
through (4) as they appear on the Companys non-consolidated balance sheet as at the end of the
Companys last fiscal year, and after reflecting the changes in the Companys surplus after the end
of the Companys last fiscal year, by adding the amounts of the following items (5), (6) and (7)
and/or subtracting the amounts of the following items (8), (9) and (10): 52




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(1)
    
    its liabilities;(2)
    
    its stated capital;(3)
    
    its additional paid-in capital and accumulated legal reserve;(4)
    
    other amounts as provided for by an ordinance of the Ministry of Justice;(5)
    
    (if the Company transferred its treasury stock after the end of the last fiscal year) the
transfer price of its treasury stock after subtracting the book value thereof;(6)
    
    (if the Company decreased its stated capital after the end of the last fiscal year) the
amount of decrease in its stated capital (excluding the amount transferred to the additional
paid-in capital or legal reserve);(7)
    
    (if the Company decreased its additional paid-in capital or legal reserve after the end of
the last fiscal year) the amount of decrease in its additional paid-in capital or legal
reserve (excluding the amount transferred to the stated capital);(8)
    
    (if the Company cancelled its treasury stock after the end of the last fiscal year) the book
value of its treasury stock so cancelled;(9)
    
    (if the Company distributed surplus to shareholders after the end of the last fiscal year)
the assets distributed to shareholders by way of such distribution of surplus; and(10)
    
    other amounts as provided for by an ordinance of the Ministry of Justice. The Distributable Amount of the Company at any given time shall be the aggregate amount of (a) the
surplus, (b) (if the Company prepares Extraordinary Financial
Statements) the amount of profit as recorded for the period after the end of the Companys last
fiscal year until Extraordinary Account Settlement Date as provided for in an
ordinance of the Ministry of Justice and (c) (if the Company prepares Extraordinary Financial
Statements) the transfer price of its treasury stock in the same
period, after subtracting the amounts of the following items:  (1)
    
    the book value of its treasury stock;(2)
    
    (if the Company transferred its treasury stock after the end of the last fiscal year) the
transfer price of its treasury stock;(3)
    
    (if the Company prepares Extraordinary Financial
Statements) the losses as recorded for the period after the end of the
Companys last fiscal year until Extraordinary Account
Settlement Date as provided for in an ordinance of
the Ministry of Justice; and(4)
    
    other amounts as provided for by an ordinance of the Ministry of Justice. Dividends  Ex-dividend date and prescription In Japan, the ex-dividend date and the record date for dividends precede the date of
determination of the amount of the dividend to be paid. 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. Dividends  Liabilities Under the Commercial Code, if the Company makes interim dividends and at the end of the fiscal year
there is no excess of net assets over the aggregate of the amounts referred to in (i) through (v)
in Dividends  Distributable amount above, Directors who have made such interim dividends shall
be jointly and severally liable to the Company for the smaller of the amount of such deficit or
such dividends unless such Directors prove that they did not fail to exercise due care in
determining such interim dividends. Under the New Company Law, in cases where the distribution of surplus was made, if the aggregate
amount of the following items (1), (2) and (3) as at the end of the relevant fiscal year exceeds
the amount of surplus, the Directors who have distributed such dividends, shall be liable to the
Company for the smaller of such amount in excess or the amount of money or book value of such
distributed surplus unless such Directors prove that they did not fail to exercise due care in
determining such distribution:  (1)
    
    the book value of the Companys treasury stock;(2)
    
    (if the Company transferred its treasury stock after the end of the last fiscal year) the
transfer price of its treasury stock after the end of the Companys last fiscal year; and 53




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(3)
    
    other amounts as provided for by an ordinance of the Ministry of Justice. However, the Directors shall not be liable to the Company for the distributions of surplus
made pursuant to the resolution of the ordinary general meeting of shareholders. 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. After the New Company Law becomes
effective, no such notice to each shareholder is required. Consolidation of Shares The Company may at any time consolidate shares in issue into a smaller number of shares by a
special shareholders resolution (as defined in Voting Rights). When a consolidation of shares is
to be made, the Company must give public notice and notice to each shareholder that, within a
period of not less than one month specified in the notice, share certificates must be submitted to
the Company for exchange. The Company must disclose the reason for the consolidation of shares at
the general meeting of shareholders. 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 (or, when the New Company Law
becomes effective and in the event that the Companys Articles of Incorporation provide for a
percentage lower than 3 percent, such percentage) of the total number of voting rights for a period
of 6 months (or, when the New Company Law becomes effective and in the event that the Companys
Articles of Incorporation provide for a period shorter than 6 months, such period) 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 (or, when the New Company Law becomes effective and in the event that the
Companys Articles of Incorporation provide for a period shorter than 8 weeks, such period) 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 (or, when the New Company Law becomes effective and in the event that the Companys
Articles of Incorporation provide for a number less than 300, such 54




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number) voting rights or 1 percent (or, when the New Company Law becomes effective and in the event
that the Companys Articles of Incorporation provide for a percentage lower than one percent, such
percentage) of the total number of voting rights for a period of 6 months (or, when the New Company
Law becomes effective and in the event that the Companys Articles of Incorporation provide for a
period shorter than 6 months, such period) or more may propose a matter to be considered at a
general meeting of shareholders by submitting a written request to a Representative Director at
least 8 weeks (or, when the New Company Law becomes effective and in the event that the Companys
Articles of Incorporation provide for a period shorter than 8 weeks, such period) 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 (or when the New Company Law becomes effective, management of which is being controlled in substance by the Company as
provided for by an ordinance of the Ministry of Justice) 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 (or when the New Company Law becomes
effective, the New Company Law) 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 (or when the New Company Law becomes effective, the New Company Law) 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:  (1)

acquisition of its own shares from specific persons;(2)

consolidation of shares;(3)

any offering of new shares at a specially favorable price (or any offering of stock acquisition rights to subscribe for or acquire shares of capital stock, or bonds with stock acquisition rights at specially favorable conditions) to any persons other than shareholders;(4)

the removal of a Director or Statutory Auditor (when the New Company Law becomes effective, the removal of a Director who is elected by cumulative voting);(5)

the exemption of liability of a Director or Statutory Auditor with certain exceptions;(6)

a reduction of stated capital (when the New Company Law becomes effective, with certain exceptions in which a shareholders resolution is not required);(7)

(when the New Company Law becomes effective ) a distribution of surplus other than dividends which meets certain requirements;(8)

dissolution, merger, or consolidation with certain exceptions in which a shareholders resolution is not required;(9)

the transfer of the whole or a material part of the business;(10)

the taking over of the whole of the business of any other corporation with certain exceptions in which a shareholders resolution is not required; 55




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(11) share exchange or share transfer for the purpose of establishing 100 percent parent-subsidiary
relationships with certain exceptions in which a shareholders resolution is not required; or
(12) separating of the corporation into two or more corporations with certain exceptions in which a
shareholders resolution is not required, the quorum shall be one-third of the total voting rights of all the shareholders and the approval
by at least two-thirds (or, when the New Company Law becomes effective and in the event that the
Companys Articles of Incorporation provide for a percentage more than two-thirds, such percentage)
of the voting rights of all the shareholders represented at the meeting is required (in addition,
when the New Company Law becomes effective and in the event that the Companys Articles of
Incorporation provide that the approval by certain number of shareholders is required, such
approval is also 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 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. In cases where a particular issue of new shares or stock acquisition rights (i) violates laws and
regulations or the Companys Articles of Incorporation, or (ii) will be performed in a manner
materially unfair, and shareholders may suffer disadvantages therefrom, such shareholder may file
an injunction to enjoin such issue with a court. 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 units of shares in the Companys registers of shareholders
and/or beneficial shareholders in writing or digitally (or
electronically) 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-dividend 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. 56




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Acquisition by the Company of Common Stock The Company may acquire shares of Common Stock: (a) 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) or 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); (b) 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 (c) by purchase from a subsidiary of
the Company (pursuant to a resolution of the Board of Directors). Under the New Company Law, not
only ordinary general meetings of shareholders but also extraordinary general meetings of
shareholders will be able to approve the acquisition by the Company of its own shares in the cases
of (a) and (b) above. 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. However, under the New Company Law, the acquisition of its own
shares at a price not exceeding the then market price to be provided under an ordinance of the
Ministry of Justice will not trigger the right of any shareholder to include him/her as the seller
of his/her shares in such 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) in Dividends 
Distributable amount above, the Company may not acquire such shares. Under the New Company Law,
the restriction on the source of funds for the acquisition by the Company of its own shares will be
integrated into those for the distribution of surplus to the shareholders. See Dividends. 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 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. 57




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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. 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, by a resolution of the Board of Directors, sell or otherwise dispose of
the shareholders shares at the then market price of shares of Common Stock 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 the 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 58




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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. 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 In connection with the civil rehabilitation process of Makitas consolidated subsidiary, Joyama
Kaihatsu, Ltd. (Joyama), Makita entered into a Sponsorship Agreement (the Sponsorship
Agreement) dated January 17, 2005 with Tokyo Tatemono, Ltd. (Tokyo Tatemono) and Joyama, in
order to rehabilitate Joyamas golf club. Under the Sponsorship Agreement, Joyama is to satisfy at
least 50% of the outstanding debt obligations in connection with its rehabilitation, Joyama will
retire and extinguish all Joyama shares held by Makita for no consideration to Makita, and, as a
result of issuing new Joyama shares to Tokyo Tatemono, Makita will transfer its management of
Joyama to Tokyo Tatemono. In addition, in order to execute the Joyama rehabilitation plan, a
memorandum of understanding regarding the Sponsorship Agreement was executed on May 26, 2005. Makita entered into a share purchase agreement with Kanematsu-NNK Corp. (Kanematsu) on December
24, 2004. The agreement sets forth the transfer of Kanematsus nailer business to Makita
Fastening, Ltd., and Makitas purchase of shares of common stock of Makita Fastening, Ltd. then
held by Kanematsu. As a result, Makita acquired Kanematsus nailer business. The closing date was
set for April 1, 2005, with a purchase price of 3.2 billion yen (subject to adjustment).
Subsequently, the issue of Kanematsus forgery of the Ministry of Land Infrastructure and Transport
of Japans certificate of performance of its screws came to light, and as a result, Makita
cancelled the planned purchase and on February 22, 2005, executed a cancellation agreement with
Kanematsu. 
 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; 59




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
    
    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 nonresident 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) 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. 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. 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. This summary also does not cover any state or local, or
non-U.S. non-Japanese tax considerations. 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 and
regulations of the United States and Japan, judicial decisions, published rulings and 60




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administrative pronouncements, all as in effect on the date hereof, as well as on the current
income tax convention between the United States and Japan (the Treaty), all of which are subject
to change (possibly with retroactive effect), and/or to differing interpretations. 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; or4.
    
    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 Treaty;2.
    
    does not maintain a permanent establishment in Japan (a) with which shares of Common Stock or
ADSs are effectively connected and (b) of which shares of Common Stock or ADSs form part of
the business property; and3.
    
    is eligible for benefits under the Treaty, 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 Treaty and for U.S.
federal income and Japanese income 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 non 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
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. 61




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Under the 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 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 nonresident 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 or semi-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 Treaty. 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). 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. 62




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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 percent. 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 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. 63




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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 percent 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 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). 64




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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 percent) 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
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 65




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H. Documents on display Makita files its annual report on Form 20-F and press releases or reports for shareholders or
investors 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 in the
market prices of the securities. The maturities and fair values of such marketable securities and
investment securities at March 31, 2004 and 2005 were as follows: Yen (millions)
    
    U.S. Dollars (thousands)2004
    
    2005
    
    2005Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueDue within one year
    
    ¥
    58,523
    
    
    ¥
    58,530
    
    
    ¥
    53,581
    
    
    ¥
    53,581
    
    
    $
    500,757
    
    
    $
    500,757Due after one year
through five years
    
    
    2,268
    
    
    
    2,267
    
    
    
    2,610
    
    
    
    2,615
    
    
    
    24,393
    
    
    
    24,439Due after five years
    
    
    3,182
    
    
    
    3,180
    
    
    
    2,150
    
    
    
    2,144
    
    
    
    20,092
    
    
    
    20,037Indefinite periods
    
    
    1,600
    
    
    
    1,600
    
    
    
    1,614
    
    
    
    1,614
    
    
    
    15,084
    
    
    
    15,084Equity securities
    
    
    20,556
    
    
    
    20,556
    
    
    
    20,433
    
    
    
    20,433
    
    
    
    190,963
    
    
    
    190,963¥
    86,129
    
    
    ¥
    86,134
    
    
    ¥
    80,388
    
    
    ¥
    80,387
    
    
    $
    751,289
    
    
    $
    751,280
 66




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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, 2004 and
March 31, 2005. Figures are translated into yen at the rates prevailing at March 31, 2004 and March
31, 2005, together with the relevant weighted average contractual exchange rates at March 31, 2005.
All of the foreign exchange contracts listed in the following table have contractual maturities in
FY 2005 and 2006. Yen (millions) (except average contractual rates)
    
    U.S. Dollars (thousands)2004
    2005
    
    2005Average
    
    
    
    
    
    
    
    
    
    
    AverageContract
    
    
    
    
    
    
    contractual
    
    
    Contract
    
    
    
    
    
    
    contractual
    
    
    Contractamounts
    
    
    Fair Value
    
    
    rates
    
    
    amounts
    
    
    Fair Value
    
    
    rates
    
    
    amounts
    
    
    Fair ValueForeign currency contracts;U.S.$/Yen
    
    ¥
    3,656
    
    
    ¥
    69
    
    
    ¥
    107.21
    
    
    ¥
    3,934
    
    
    ¥
    (112
    )
    
    ¥
    104.09
    
    
    $
    36,766
    
    
    $
    (1,047
    )Euro/Yen
    
    
    3,035
    
    
    
    112
    
    
    
    133.59
    
    
    
    3,166
    
    
    
    (36
    )
    
    
    137.05
    
    
    
    29,589
    
    
    
    (336
    )A$/Yen
    
    
    567
    
    
    
    12
    
    
    
    81.02
    
    
    
    329
    
    
    
    (9
    )
    
    
    80.12
    
    
    
    3,075
    
    
    
    (84
    )STG/Yen
    
    
    48
    
    
    
    
    
    
    
    190.17
    
    
    
    129
    
    
    
    (2
    )
    
    
    197.94
    
    
    
    1,206
    
    
    
    (19
    )Euro/STG
    
    
    1,374
    
    
    
    63
    
    
    
    
    
    
    
    1,413
    
    
    
    16
    
    
    
    
    
    
    
    13,206
    
    
    
    150Other
    
    
    770
    
    
    
    17
    
    
    
    
    
    
    
    1,299
    
    
    
    6
    
    
    
    
    
    
    
    12,140
    
    
    
    55Total
    
    ¥
    9,450
    
    
    ¥
    273
    
    
    
    
    
    
    ¥
    10,270
    
    
    ¥
    (137
    )
    
    
    
    
    
    $
    95,982
    
    
    $
    (1,281
    )Foreign currency swaps:U.S.$/Yen
    
    ¥
    240
    
    
    ¥
    27
    
    
    ¥
    119.99
    
    
    ¥
    749
    
    
    ¥
    
    
    
    ¥
    107.02
    
    
    $
    7,000
    
    
    $
    Euro/Yen
    
    
    2,537
    
    
    
    77
    
    
    
    133.52
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CAN$/Yen
    
    
    321
    
    
    
    (2
    )
    
    
    80.29
    
    
    
    424
    
    
    
    (19
    )
    
    
    84.74
    
    
    
    3,963
    
    
    
    (178
    )A$/Yen
    
    
    1,984
    
    
    
    (11
    )
    
    
    79.35
    
    
    
    3,144
    
    
    
    (187
    )
    
    
    78.60
    
    
    
    29,383
    
    
    
    (1,748
    )NZ$/Yen
    
    
    106
    
    
    
    1
    
    
    
    70.35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    SFr./Yen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    174
    
    
    
    (5
    )
    
    
    86.99
    
    
    
    1,626
    
    
    
    (47
    )Total
    
    ¥
    5,188
    
    
    ¥
    92
    
    
    
    
    
    
    ¥
    4,491
    
    
    ¥
    (211
    )
    
    
    
    
    
    $
    41,969
    
    
    $
    (1,973
    )Options purchased to sell foreign currencies:U.S.$/Yen
    
    ¥
    270
    
    
    ¥
    7
    
    
    ¥
    105.93
    
    
    ¥
    406
    
    
    ¥
    1
    
    
    ¥
    101.56
    
    
    $
    3,794
    
    
    $
    9Euro/Yen
    
    
    197
    
    
    
    5
    
    
    
    131.40
    
    
    
    298
    
    
    
    1
    
    
    
    135.51
    
    
    
    2,785
    
    
    
    9Other
    
    
    126
    
    
    
    2
    
    
    
    
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    589
    
    
    
    Total
    
    ¥
    593
    
    
    ¥
    14
    
    
    
    
    
    
    ¥
    767
    
    
    ¥
    2
    
    
    
    
    
    
    $
    7,168
    
    
    $
    18Options
written to buy foreign currencies:U.S.$/Yen
    
    ¥
    277
    
    
    ¥
    (2
    )
    
    ¥
    108.39
    
    
    ¥
    424
    
    
    ¥
    (8
    )
    
    ¥
    106.12
    
    
    $
    3,963
    
    
    $
    (75
    )Euro/Yen
    
    
    201
    
    
    
    (1
    )
    
    
    134.18
    
    
    
    305
    
    
    
    (3
    )
    
    
    138.84
    
    
    
    2,850
    
    
    
    (28
    )Other
    
    
    131
    
    
    
    (1
    )
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    626
    
    
    
    Total
    
    ¥
    609
    
    
    ¥
    (4
    )
    
    
    
    
    
    ¥
    796
    
    
    ¥
    (11
    )
    
    
    
    
    
    $
    7,439
    
    
    $
    (103
    )
 67




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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. Makita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, 2005, 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, 2005. Yen (millions)Average
    
    
    
    
    
    
    Year ending March 31,Interest rates
    
    
    Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterJapanese yen loans from banks
and insurance
companies
    
    
    3.3
    %
    
    
    6,205
    
    
    
    6,205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Japanese yen
loans from Japanese
companies
    
    
    0.6
    %
    
    
    800
    
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Japanese yenCapital lease
    
    
    1.9
    %
    
    
    175
    
    
    
    87
    
    
    
    41
    
    
    
    14
    
    
    
    8
    
    
    
    8
    
    
    
    17Total
    
    
    
    
    
    ¥
    7,180
    
    
    ¥
    7,092
    
    
    ¥
    41
    
    
    ¥
    14
    
    
    ¥
    8
    
    
    ¥
    8
    
    
    ¥
    17
 U.S. Dollars (thousands)Average
    
    
    
    
    
    
    Year ending March 31,Interest rates
    
    
    Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterJapanese yen
loans from banks
and insurance
companies
    
    
    3.3
    %
    
    
    57,991
    
    
    
    57,991
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Japanese yen
loans from Japanese
companies
    
    
    0.6
    %
    
    
    7,477
    
    
    
    7,477
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Japanese yenCapital lease
    
    
    1.9
    %
    
    
    1,635
    
    
    
    812
    
    
    
    383
    
    
    
    131
    
    
    
    75
    
    
    
    75
    
    
    
    159Total
    
    
    
    
    
    $
    67,103
    
    
    $
    66,280
    
    
    $
    383
    
    
    $
    131
    
    
    $
    75
    
    
    $
    75
    
    
    $
    159
 
 Item 12.     Description of Securities Other than Equity Securities Not applicable. 
 PART II 
 Item 13.     Defaults, Dividend Arrearages and Delinquencies None. 
 Item 14.     Material Modifications to the Rights of Security Holders and Use of Proceeds. None. 68




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##### Table of Contents



Item 15.     Controls and Procedures A. Evaluation of disclosure controls and procedures Makita performed an evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures as of the end of the fiscal 2005. Disclosure controls and procedures are
designed to ensure that the material financial and non-financial information required to be
disclosed in the reports that Makita files under the Exchange Act is accumulated and communicated
to its management including the chief executive officer and the principal accounting and
financial officer, to allow timely decisions regarding required disclosure. The Companys disclosure controls and procedures also ensure that the reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the
Commissions rules and forms. The evaluation was performed under the supervision of Masahiko
Goto, Makitas Chief Executive Officer, President and Representative Director and Kenichiro
Nakai, Makitas Principal Financial and Accounting Officer. Makitas disclosure and controls and
procedures are designed to provide reasonable assurance of achieving its objectives. Managerial
judgment was necessary to evaluate the cost-benefit relationship of possible controls and
procedures. Masahiko Goto and Kenichiro Nakai have concluded that Makitas disclosure controls
and procedures are effective at the reasonable assurance level. B. Changes in internal controls over financial reporting There have been no changes in Makitas internal control over financial reporting during fiscal 2005
that have materially affected, or are reasonably likely to materially affect, Makitas 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 is not independent, as that term is
defined in the listing standards applicable to the Company. 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 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. 
 Item 16B.Code of Ethics On May 20, 2003, Makita adopted a code of ethics. On March 17, 2004, Makita amended the code of
ethics to: (1) ensure the protection of individuals who report questionable behavior to our
Internal Audit Division and (ii) clarify that waivers to our code of ethics for employees must be
requested in writing to our 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 our website at www.makita.co.jp. If we make any substantive amendments to the code of ethics or grant any waivers, including any
implicit waiver, from a provision of this code to our directors and executive officers, including
our principal executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, we will disclose the nature of such amendment
or waiver on our website. 69




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##### Table of Contents



Item 16C.Principal Accountant Fees and Services KPMG AZSA & Co. have served as our independent public accountants for each of the financial years
in the three-year period ended March 31, 2005, 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, a Swiss
Cooperative to Makita in fiscal 2005 and fiscal 2004: Yen (millions)2004
    
    
    2005Audit Fees (1)
    
    ¥
    164
    
    
    ¥
    189Audit- related Fees (2)
    
    
    3
    
    
    
    14Tax Fees (3)
    
    
    74
    
    
    
    66All Other Fees (4)
    
    
    65
    
    
    
    83Total
    
    ¥
    306
    
    
    ¥
    352
  (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. 70




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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 Board of Statutory Auditors 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 Board of Statutory Auditors
administration of the engagement of the Independent Registered Public Accounting Firm. Accordingly, the Board of Statutory Auditors 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 the Independent Registered Public Accounting Firm
may be pre-approved. Under this policy, the Board of Statutory Auditors authorizes general
pre-approval of all such services, including 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 Board of Statutory Auditors 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 Board
of Statutory Auditors considers a different period and states otherwise in the relevant appendix.
The Board of Statutory Auditors 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 Board of Statutory Auditors, 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 Board of Statutory Auditors 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 Board of Statutory Auditors
responsibilities under the US Securities Exchange Act of 1934 to management. Nothing in this policy
shall be interpreted to be a delegation of the Board of Statutory Auditors responsibilities under
the Securities Exchange Act of 1934 to management of the Company. 
 Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table sets out by all Purchases of Common Stock of the Company by its
affiliates during the fiscal year ended March 31, 2005. The Company did not resolve any repurchase
plan or program by the board of directors or Annual General Meeting of Shareholders, therefore,
there is no publicly announced plan or program regarding repurchase of Common Stock. The reason for
these repurchases of Common Stock is the purchase requests of holders of shares of Common Stock
constituting less than one full unit in accordance with the provisions of the Share Handling
Regulations of the Company. 71




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##### Table of Contents



Total Number of
    
    
    
    Average Price PaidShares Purchased
    
    
    
    per SharePeriod
    
    

(shares)
    
    
    

(¥)From April 1, 2004 to April 30, 2004
    
    
    
    5,854
    
    
    
    
    1,440From May 1, 2004 to May 31, 2004
    
    
    
    3,644
    
    
    
    
    1,580From June 1, 2004 to June 30, 2004
    
    
    
    6,955
    
    
    
    
    1,569From July 1, 2004 to July 31, 2004
    
    
    
    10,844
    
    
    
    
    1,589From August 1, 2004 to August 31, 2004
    
    
    
    10,429
    
    
    
    
    1,576From September 1, 2004 to September 30, 2004
    
    
    
    7,318
    
    
    
    
    1,584From October 1, 2004 to October 30, 2004
    
    
    
    9,111
    
    
    
    
    1,476From November 1, 2004 to November 30, 2004
    
    
    
    9,616
    
    
    
    
    1,563From December 1, 2004 to December 31, 2004
    
    
    
    31,403
    
    
    
    
    1,677From January 1, 2004 to January 31, 2004
    
    
    
    11,597
    
    
    
    
    1,770From February 1, 2004 to February 28, 2004
    
    
    
    8,681
    
    
    
    
    1,897From March 1, 2004 to March 31, 2004
    
    
    
    10,250
    
    
    
    
    2,007Total
    
    
    
    125,702
    
    
    
    
    1,661
 72




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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 following financial statements are filed as part of this annual report on Form 20-F. 
 Item 19.     Exhibits  1.1
    
    Articles of Incorporation, as amended and effective as of June 29, 2005 (English
translation)4.1
    
    Summary translation of the Sponsorship agreement12.1
    
    302 Certification of President and Representative Directors12.2
    
    302 Certification of Director, General Manager of
Administration Headquarters13.1
    
    906 Certifications of President and Representative Director
and Director, General Manager of Administration Headquarters 73




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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 5, 2005 74




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##### Table of Contents



Makita Corporation and Consolidated Subsidiaries INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES Independent Auditors Report
    
    F-2Consolidated Balance Sheets as of March 31, 2004 and 2005
    
    F-3 and F-4Consolidated Statements of Income for the years ended March 31, 2003, 2004 and 2005
    
    F-5Consolidated Statements of Shareholders Equity for the years ended March 31, 2003, 2004 and 2005
    
    F-6Consolidated Statements of Cash Flows for the years ended March 31, 2003, 2004 and 2005
    
    F-7 and F-8Notes to Consolidated Financial Statements
    
    F-9 to F-45(Financial Statements of 50% or less owned persons accounted for by
the equity method have been omitted because they are not
applicable.)Schedules:I.
    
    Valuation and Qualifying Accounts and Reserves for the years ended March 31, 2003, 2004 and 2005
    
    F-46(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,
2004 and 2005, and the results of their operations and their cash flows for each of the years in
the three-year period ended March 31, 2005, in conformity with U.S. generally accepted accounting
principles. 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, 2005,
have been translated into United States dollars solely for the convenience of the reader. We have
audited 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, 2005, except as to note 20, which is as of May 31, 2005 F-2




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS MARCH 31, 2004 AND 2005 A S S E T S Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2005CURRENT ASSETS:Cash and cash equivalents
    
    ¥
    24,576
    
    
    ¥
    25,384
    
    
    $
    237,234Time deposits
    
    
    4,050
    
    
    
    7,867
    
    
    
    73,523Marketable securities
    
    
    63,990
    
    
    
    58,015
    
    
    
    542,196Trade receivables-Notes
    
    
    2,254
    
    
    
    1,687
    
    
    
    15,766Accounts
    
    
    34,787
    
    
    
    38,997
    
    
    
    364,458Less- Allowance for doubtful receivables
    
    
    (1,346
    )
    
    
    (1,178
    )
    
    
    (11,009
    )Inventories
    
    
    54,326
    
    
    
    66,003
    
    
    
    616,850Deferred income taxes
    
    
    3,691
    
    
    
    3,831
    
    
    
    35,804Prepaid expenses and other current assets
    
    
    8,117
    
    
    
    7,286
    
    
    
    68,094Total current assets
    
    
    194,445
    
    
    
    207,892
    
    
    
    1,942,916PROPERTY, PLANT AND EQUIPMENT, AT COST:Land
    
    
    18,326
    
    
    
    17,673
    
    
    
    165,168Buildings and improvements
    
    
    50,648
    
    
    
    51,085
    
    
    
    477,430Machinery and equipment
    
    
    73,000
    
    
    
    73,356
    
    
    
    685,570Construction in progress
    
    
    222
    
    
    
    790
    
    
    
    7,383142,196
    
    
    
    142,904
    
    
    
    1,335,551Less- Accumulated depreciation
    
    
    (89,231
    )
    
    
    (90,080
    )
    
    
    (841,869
    )52,965
    
    
    
    52,824
    
    
    
    493,682INVESTMENTS AND OTHER ASSETS:Investment securities
    
    
    22,139
    
    
    
    22,373
    
    
    
    209,093Deferred income taxes
    
    
    880
    
    
    
    390
    
    
    
    3,645Other assets
    
    
    7,687
    
    
    
    6,425
    
    
    
    60,04730,706
    
    
    
    29,188
    
    
    
    272,785¥
    278,116
    
    
    ¥
    289,904
    
    
    $
    2,709,383
 F-3




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2004 AND 2005 LIABILITIES AND SHAREHOLDERS EQUITY Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2005CURRENT LIABILITIES:Short-term borrowings
    
    ¥
    14,128
    
    
    ¥
    9,060
    
    
    $
    84,673Trade notes and accounts payable
    
    
    8,525
    
    
    
    10,574
    
    
    
    98,822Accrued payroll
    
    
    7,168
    
    
    
    7,695
    
    
    
    71,916Club members deposits
    
    
    
    
    
    
    12,836
    
    
    
    119,963Accrued expenses and other
    
    
    10,656
    
    
    
    12,248
    
    
    
    114,467Income taxes payable
    
    
    6,093
    
    
    
    5,695
    
    
    
    53,224Deferred income taxes
    
    
    53
    
    
    
    118
    
    
    
    1,103Total current liabilities
    
    
    46,623
    
    
    
    58,226
    
    
    
    544,168LONG-TERM LIABILITIES:Long-term indebtedness
    
    
    7,364
    
    
    
    88
    
    
    
    822Club members deposits
    
    
    13,045
    
    
    
    
    
    
    
    Accrued retirement and termination benefits
    
    
    15,536
    
    
    
    5,126
    
    
    
    47,907Deferred income taxes
    
    
    235
    
    
    
    4,538
    
    
    
    42,411Other liabilities
    
    
    711
    
    
    
    887
    
    
    
    8,29036,891
    
    
    
    10,639
    
    
    
    99,430MINORITY INTERESTS
    
    
    1,254
    
    
    
    1,399
    
    
    
    13,075COMMITMENTS AND CONTINGENT LIABILITIES
    
    
    
    
    
    
    
    
    
    
    SHAREHOLDERS EQUITY:Common stock,Authorized - 287,000,000 shares in 2004287,000,000 shares in 2005Issued and outstanding- 148,006,992 shares and 143,893,191 shares in 2004148,008,760 shares and 143,777,607 shares in 2005
    
    
    23,803
    
    
    
    23,805
    
    
    
    222,477Additional paid-in capital
    
    
    45,421
    
    
    
    45,430
    
    
    
    424,579Legal reserve
    
    
    5,669
    
    
    
    5,669
    
    
    
    52,981Retained earnings
    
    
    138,819
    
    
    
    157,502
    
    
    
    1,471,981Accumulated other comprehensive income (loss)
    
    
    (17,048
    )
    
    
    (9,249
    )
    
    
    (86,439
    )Treasury stock, at cost: - 4,113,801 shares in 20044,231,153 shares in 2005
    
    
    (3,316
    )
    
    
    (3,517
    )
    
    
    (32,869
    )193,348
    
    
    
    219,640
    
    
    
    2,052,710¥
    278,116
    
    
    ¥
    289,904
    
    
    $
    2,709,383
 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, 2003, 2004 AND 2005 Yen
    
    
    
    
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2003
    
    
    2004
    
    
    2005
    
    
    2005NET SALES
    
    ¥
    175,603
    
    
    ¥
    184,117
    
    
    ¥
    194,737
    
    
    $
    1,819,972Cost of sales
    
    
    110,226
    
    
    
    110,322
    
    
    
    113,323
    
    
    
    1,059,093GROSS PROFIT
    
    
    65,377
    
    
    
    73,795
    
    
    
    81,414
    
    
    
    760,879Selling, general and administrative expenses
    
    
    51,579
    
    
    
    53,698
    
    
    
    52,646
    
    
    
    492,019Loss (Gain) on disposals or sales of
property, plant and equipment
    
    
    1,330
    
    
    
    (2,379
    )
    
    
    1,234
    
    
    
    11,533Impairment of long-lived assets
    
    
    
    
    
    
    7,780
    
    
    
    577
    
    
    
    5,393Transfer to the government of the
substitutional portion of
pension plan
    
    
    
    
    
    
    
    
    
    
    (4,441
    )
    
    
    (41,505
    )OPERATING INCOME
    
    
    12,468
    
    
    
    14,696
    
    
    
    31,398
    
    
    
    293,439OTHER INCOME (EXPENSES):Interest and dividend income
    
    
    786
    
    
    
    869
    
    
    
    1,157
    
    
    
    10,813Interest expense
    
    
    (665
    )
    
    
    (605
    )
    
    
    (588
    )
    
    
    (5,495
    )Exchange gains (losses) on foreign
currency transactions, net
    
    
    (1,460
    )
    
    
    (202
    )
    
    
    37
    
    
    
    346Realized gains (losses) on securities, net
    
    
    (2,590
    )
    
    
    555
    
    
    
    453
    
    
    
    4,234Other, net
    
    
    753
    
    
    
    857
    
    
    
    161
    
    
    
    1,504Total
    
    
    (3,176
    )
    
    
    1,474
    
    
    
    1,220
    
    
    
    11,402INCOME BEFORE INCOME TAXES
    
    
    9,292
    
    
    
    16,170
    
    
    
    32,618
    
    
    
    304,841PROVISION FOR INCOME TAXES:Current
    
    
    2,294
    
    
    
    8,745
    
    
    
    10,071
    
    
    
    94,121Deferred
    
    
    275
    
    
    
    (266
    )
    
    
    411
    
    
    
    3,841Total
    
    
    2,569
    
    
    
    8,479
    
    
    
    10,482
    
    
    
    97,962NET INCOME
    
    ¥
    6,723
    
    
    ¥
    7,691
    
    
    ¥
    22,136
    
    
    $
    206,879Yen
    
    
    U.S. DollarsPER SHARE OF COMMON STOCK AND ADS:Net incomeBasic
    
    ¥
    45.3
    
    
    ¥
    53.2
    
    
    ¥
    153.9
    
    
    $
    1.44Diluted
    
    
    44.2
    
    
    
    51.9
    
    
    
    148.8
    
    
    
    1.39Cash dividends paid for the year
    
    
    18.0
    
    
    
    18.0
    
    
    
    24.0
    
    
    
    0.22
 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, 2003, 2004 AND 2005 Yen
    
    
    
    
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2003
    
    
    2004
    
    
    2005
    
    
    2005COMMON STOCK:Beginning balance
    
    ¥
    23,803
    
    
    ¥
    23,803
    
    
    ¥
    23,803
    
    
    $
    222,458Conversion of convertible bonds;
1,768 shares in 2005
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    19Ending balance
    
    ¥
    23,803
    
    
    ¥
    23,803
    
    
    ¥
    23,805
    
    
    $
    222,477ADDITIONAL PAID-IN CAPITAL:Beginning balance
    
    ¥
    45,419
    
    
    ¥
    45,419
    
    
    ¥
    45,421
    
    
    $
    424,495Conversion of convertible bonds
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    19Gain on sales of treasury stock
    
    
    
    
    
    
    2
    
    
    
    7
    
    
    
    65Ending balance
    
    ¥
    45,419
    
    
    ¥
    45,421
    
    
    ¥
    45,430
    
    
    $
    424,579LEGAL RESERVE:Beginning balance
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    $
    52,981Ending balance
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    $
    52,981RETAINED EARNINGS:Beginning balance
    
    ¥
    133,723
    
    
    ¥
    137,753
    
    
    ¥
    138,819
    
    
    $
    1,297,373Net income
    
    
    6,723
    
    
    
    7,691
    
    
    
    22,136
    
    
    
    206,879Cash dividends
    
    
    (2,693
    )
    
    
    (2,610
    )
    
    
    (3,453
    )
    
    
    (32,271
    )Retirement of treasury stock
    
    
    
    
    
    
    (4,015
    )
    
    
    
    
    
    
    Ending balance
    
    ¥
    137,753
    
    
    ¥
    138,819
    
    
    ¥
    157,502
    
    
    $
    1,471,981ACCUMULATED OTHER COMPREHENSIVE INCOME
(LOSS), NET OF TAX:Beginning balance
    
    ¥
    (16,446
    )
    
    ¥
    (25,134
    )
    
    ¥
    (17,048
    )
    
    $
    (159,327
    )Other comprehensive income (loss) for the year
    
    
    (8,688
    )
    
    
    8,086
    
    
    
    7,799
    
    
    
    72,888Ending balance
    
    ¥
    (25,134
    )
    
    ¥
    (17,048
    )
    
    ¥
    (9,249
    )
    
    $
    (86,439
    )TREASURY STOCK:Beginning balance
    
    ¥
    (2,229
    )
    
    ¥
    (5,110
    )
    
    ¥
    (3,316
    )
    
    $
    (30,990
    )Purchases
    
    
    (2,881
    )
    
    
    (2,227
    )
    
    
    (208
    )
    
    
    (1,944
    )Retirement and sales
    
    
    
    
    
    
    4,021
    
    
    
    7
    
    
    
    65Ending balance
    
    ¥
    (5,110
    )
    
    ¥
    (3,316
    )
    
    ¥
    (3,517
    )
    
    $
    (32,869
    )DISCLOSURE OF COMPREHENSIVE
INCOME (LOSS):Net income for the year
    
    ¥
    6,723
    
    
    ¥
    7,691
    
    
    ¥
    22,136
    
    
    $
    206,879Other comprehensive income (loss) for the year
    
    
    (8,688
    )
    
    
    8,086
    
    
    
    7,799
    
    
    
    72,888Total comprehensive income (loss) for the year
    
    ¥
    (1,965
    )
    
    ¥
    15,777
    
    
    ¥
    29,935
    
    
    $
    279,767
 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, 2003, 2004 AND 2005 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2003
    
    
    2004
    
    
    2005
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    ¥
    6,723
    
    
    ¥
    7,691
    
    
    ¥
    22,136
    
    
    $
    206,879Adjustments to reconcile net income to net cash
provided by operating activities-Depreciation and amortization
    
    
    9,740
    
    
    
    7,963
    
    
    
    5,381
    
    
    
    50,290Deferred income taxes
    
    
    275
    
    
    
    (266
    )
    
    
    411
    
    
    
    3,841Realized losses (gains) on securities, net
    
    
    2,590
    
    
    
    (555
    )
    
    
    (453
    )
    
    
    (4,234
    )Losses (Gains) on disposals or sales of
property, plant and equipment
    
    
    1,330
    
    
    
    (2,379
    )
    
    
    1,234
    
    
    
    11,533Impairment of long-lived assets
    
    
    
    
    
    
    7,780
    
    
    
    577
    
    
    
    5,393Changes in assets and liabilities-Trade receivables
    
    
    647
    
    
    
    (1,610
    )
    
    
    (1,995
    )
    
    
    (18,645
    )Inventories
    
    
    5,446
    
    
    
    6,193
    
    
    
    (9,203
    )
    
    
    (86,009
    )Payables and accrued expenses
    
    
    343
    
    
    
    3,175
    
    
    
    3,069
    
    
    
    28,682Income taxes payable
    
    
    33
    
    
    
    2,368
    
    
    
    (770
    )
    
    
    (7,196
    )Accrued retirement and termination benefits
    
    
    290
    
    
    
    (562
    )
    
    
    (4,900
    )
    
    
    (45,794
    )Other, net
    
    
    (276
    )
    
    
    (857
    )
    
    
    1,355
    
    
    
    12,662Net cash provided by operating activities
    
    
    27,141
    
    
    
    28,941
    
    
    
    16,842
    
    
    
    157,402CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (5,691
    )
    
    
    (4,494
    )
    
    
    (6,655
    )
    
    
    (62,196
    )Purchases of available for sale securities
    
    
    (22,559
    )
    
    
    (26,691
    )
    
    
    (20,091
    )
    
    
    (187,766
    )Purchases of held to maturity securities
    
    
    (5,497
    )
    
    
    (8,261
    )
    
    
    (1,753
    )
    
    
    (16,383
    )Proceeds from sales and maturities of available for
sale securities
    
    
    24,061
    
    
    
    18,190
    
    
    
    14,672
    
    
    
    137,121Proceeds from maturities of held to maturity
securities
    
    
    
    
    
    
    
    
    
    
    13,510
    
    
    
    126,262Proceeds from sales of property, plant and equipment
    
    
    488
    
    
    
    5,154
    
    
    
    320
    
    
    
    2,991Increase in time deposits
    
    
    (541
    )
    
    
    (1,162
    )
    
    
    (38
    )
    
    
    (355
    )Decrease in other assets, net
    
    
    80
    
    
    
    2
    
    
    
    189
    
    
    
    1,765Net cash provided by (used in) investing
activities
    
    
    (9,659
    )
    
    
    (17,262
    )
    
    
    154
    
    
    
    1,439CASH FLOWS FROM FINANCING ACTIVITIES:Decrease in short-term borrowings
    
    
    (4,254
    )
    
    
    (882
    )
    
    
    693
    
    
    
    6,477Redemption of bonds
    
    
    (1,610
    )
    
    
    
    
    
    
    (12,990
    )
    
    
    (121,402
    )Repayment of long-term indebtedness
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    Repayment of club members deposits
    
    
    (1,897
    )
    
    
    (860
    )
    
    
    (209
    )
    
    
    (1,953
    )Purchases of treasury stock, net
    
    
    (2,881
    )
    
    
    (2,220
    )
    
    
    (194
    )
    
    
    (1,813
    )Cash dividends paid
    
    
    (2,693
    )
    
    
    (2,610
    )
    
    
    (3,453
    )
    
    
    (32,271
    )Other, net
    
    
    (21
    )
    
    
    (24
    )
    
    
    (24
    )
    
    
    (225
    )Net cash used in financing activities
    
    
    (13,381
    )
    
    
    (6,596
    )
    
    
    (16,177
    )
    
    
    151,187
 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, 2003, 2004 AND 2005 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2003
    
    
    2004
    
    
    2005
    
    
    2005EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
    
    ¥
    539
    
    
    ¥
    (877
    )
    
    ¥
    (11
    )
    
    $
    (103
    )NET CHANGE IN CASH AND CASH
EQUIVALENTS
    
    
    4,640
    
    
    
    4,206
    
    
    
    808
    
    
    
    7,551CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
    
    
    15,730
    
    
    
    20,370
    
    
    
    24,576
    
    
    
    229,683CASH AND CASH EQUIVALENTS,
END OF YEAR
    
    ¥
    20,370
    
    
    ¥
    24,576
    
    
    ¥
    25,384
    
    
    $
    237,234SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:Cash paid during the year for-Interest
    
    ¥
    672
    
    
    ¥
    605
    
    
    ¥
    593
    
    
    $
    5,542Income taxes
    
    
    2,262
    
    
    
    6,377
    
    
    
    10,841
    
    
    
    101,318
 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, rotary hammers, grinders and slide compound saws. The
Company and its consolidated subsidiaries (collectively Makita) 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 79.8%
of consolidated net sales for the year ended March 31, 2005 were generated from customers outside
Japan, with 19.8% from North America, 38.6% from Europe and 21.4% from Asia and other area.Makitas 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
(two plants) 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 U.S.
generally accepted accounting principles (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 and those variable interest entities where the Company is the
primary beneficiary under FASB Interpretation No,46 (revised December 2003) (FIN 46R),
Consolidation of Variable Interest Entities. All significant inter-company balances and
transactions have been eliminated in consolidation. Makita currently does not have any
consolidated Variable Interest Entities as set out in FIN 46R.(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 F-9




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##### Table of Contents



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.Gains and losses resulting from all foreign currency transactions, including foreign
exchange contracts, and translation of receivables and payables denominated in foreign currencies
are included in other income (expenses).(c)
    
    Cash equivalentsFor purposes of the consolidated balance sheets and the consolidated statements of cash flows,
Makita 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 SecuritiesMakita accounts for marketable and investment securities in accordance with SFAS No.115
Accounting for Certain Investments in Debt and Equity Securities which requires all
investments in debt and equity securities to be classified as either trading, available-for-sale
securities or held-to maturity securities. Makita classifies investments in debt and equity
securities as available-for-sale, or held-to-maturity securities. Makita does not hold any
marketable and investment securities which are bought and held primarily for the purpose of sale
in the near term.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 and reviewed periodically for impairment. Held-to-maturity securities are
reported at amortized cost, adjusted for the amortization or accumulation of premiums or
discounts.A decline in fair value of any available-for-sale or held-to-maturity security below the
amortized cost basis that is deemed to be other-than-temporary results in a write-down of the
amortized cost basis to fair value as a new cost basis and the amount of the write-down is
included in earnings.Available-for-sale securities are periodically reviewed for other-than-temporary declines on
criteria that include the length and magnitude of decline, the financial condition and prospects
of the issuer, Makitas intent and ability to retain the investment for a period of time to
allow for recovery in market value and other relevant factors.Held-to-maturity securities are periodically evaluated for possible impairment by taking into
consideration of the financial condition, business prospects and credit worthiness of the issuer.
Impairment to be recognized is measured based on the amount by which the carrying amount of the
investment exceeds the fair value of the investment. Fair value is determined based on quoted
market prices or other valuation techniques as appropriate.Makita classifies 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. F-10




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##### Table of Contents



(e)
    
    Allowance for Doubtful ReceivablesAllowance for doubtful receivables represent the Makitas best estimate of the amount of probable
credit losses in its existing receivables. The allowance is determined based on, but is not
limited to, historical collection experience adjusted for the effects of current economic
environment, assessment of inherent risks, aging and financial performance. Account balances are
charged off against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote.(f)
    
    InventoriesInventory costs include raw materials, labor and manufacturing overheads. Inventories are
valued at the lower of cost or market price, with cost determined based on the average cost
method. Makita estimates the obsolescence of inventory based on the difference between the cost
of inventory and its estimated market value reflecting certain assumptions about anticipated
future demand. The carrying value of inventory is then reduced to account for such
obsolescence. Once inventory items are written-down or written-off, such items are not
written-up subsequently. All existing and anticipated modifications to product models are
evaluated against on-hand inventories, and are adjusted for potential obsolescence.(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. The cost and
accumulated depreciation and amortization applicable to assets retired are removed from the
accounts and any resulting gain or loss is recognized. Betterments, renewals extraordinary
repairs that extend the life of the assets are capitalized. Other maintenance and repair costs
are expensed as incurred.Depreciation expense for the years ended March 31, 2003,
2004 and 2005 mounted to ¥9,426 million,
¥7,692 million and ¥5,175 million, respectively, which included amortization of capitalized lease
equipment.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 amortization as of March 31, 2004 and 2005
was as follows: Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2005Aggregate cost
    
    ¥
    701
    
    
    ¥
    677
    
    
    $
    6,327Accumulated amortization
    
    
    470
    
    
    
    533
    
    
    
    4,981
 F-11




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(h)
    
    Goodwill and Other Intangible AssetsGoodwill and intangible assets with indefinite useful lives are not amortized, but instead
tested for impairment annually in accordance with the provisions of FASB Statement No. 142,
Goodwill and Other Intangible Assets.. Intangible assets with finite useful lives, consisting
primarily of software are amortized using straight-line method over the estimated useful lives
and reviewed for impairment in accordance with FASB Statement No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets".(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 ¥3,856 million, ¥ 4,086
million and ¥4,085 million ($38,178 thousand) for the years ended March 31, 2003, 2004 and 2005,
respectively.Advertising costs are also expensed as incurred and totaled ¥3,616 million, ¥3,797 million and
¥4,381 million ($40,944 thousand) for the years ended March 31, 2003, 2004 and 2005,
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 ¥4,003 million, ¥4,418 million and ¥5,305 million ($49,579 thousand) for
the years ended March 31, 2003, 2004 and 2005, respectively.(k)
    
    Income TaxesMakita accounts for income taxes in accordance with the provision of 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 costs 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 PlansMakita accounts for pension plans in accordance with the provision of 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 F-12




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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.(n)
    
    Earnings Per ShareBasic earnings per share is 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.(o)
    
    Impairment of Long-Lived AssetsMakita accounts for impairment of long lived assets with finite useful lives in accordance with
the provision of SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets,
Long-lived assets, such as property, plant and equipment, and certain intangible assets subject
to amortization, are reviewed for impairment whenever events or charges in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to its
estimated undiscounted future cash flow. An impairment charge is recognized in the amount by
which the carrying amount of the asset exceeds the fair value of the asset. Fair value is
determined by independent third party appraisal, projected discounted cash flow or other
valuation techniques as appropriate. Assets to be disposed of are separately presented in the
balance sheet and reported at the lower of the carrying amount or fair value less costs to sell,
and are no longer depreciated.(p)
    
    Derivative Financial InstrumentsMakita 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 Makita 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.Makita uses 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. Makita formally designates and
documents 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. F-13




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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.(q)
    
    Use of Estimates in the Preparation of Financial StatementsThe preparation of financial statements in conformity with U.S. generally accepted accounting
principles 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.Makita 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 of 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 valuation of inventories.(r)
    
    Revenue RecognitionMakita recognizes revenue when persuasive evidence of an arrangement exists, delivery has
occurred or services are rendered, the sales price is fixed and determinable and collectibility
is reasonably assured. Makita believes the foregoing conditions are satisfied upon the
shipment or delivery of the product depending on the terms of the sales arrangement.Makita sells it products outside of Japan directly to retail customers pursuant to sales
contracts and purchase orders. Within Japan, the Company mainly utilizes wholesalers, which in
turn, provide product to their associated retail customers. Arrangements with wholesalers are
subject to customary terms and conditions evidenced by signed contractual arrangements. The use
of wholesalers is a customary point of sale business practice in Japan for which many companies
across multiple industries participate.Makita recognizes revenue to its wholesale customers upon shipment. Makita believes recognition
of revenue at this point is appropriate because (i) title and risk of loss passes to the
wholesaler upon shipment of product to the wholesaler; (ii) Makita is not contractually
obligated nor has Makita accepted returns of product historically from the wholesaler other than
in the event of product defect; (iii) payment terms are established consistent with Makitas
normal payment terms for all other customers; (iv) payment terms are not linked contractually
nor practically to the payment of the wholesalers invoices by its retail customers and; (v)
sales incentives are offered directly to wholesalers under terms and conditions similar to
arrangements offered to other customers and are in no way established to provide relief in lieu
of returned product.Furthermore, Makita periodically reviews readily available financial statements and other market
data on certain of its wholesale customers in order to assess their overall financial viability
and for the purposes of establishing credit limits. The Company also requires on average, two
months worth of estimated be held in the form of cash collateral with an independent third party
or that the Company be granted a security interest in the wholesalers assets of equivalent
value.Makita offers sales incentives to qualifying customers through various incentive programs.
Sales incentives primarily involve volume-based rebates, cooperative advertising and cash
discounts, and are F-14




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accounted for in accordance with the Emerging Issues Task
Force Issue No. 01-9, (EITF 01-9), Accounting for Consideration by a Vendor to a Customer (including a Reseller of vendors
product).Volume-based rebates are provided to customers only if customers attain a pre-determined
cumulative level of revenue transactions within a specified period of a year or less.
Liabilities for volume-based rebates are recognized within a corresponding reduction to revenue
for the expected sales incentive at the time the related revenue is recognized, and is based on
the estimation of sales volume reflecting the historical performance of individual customers.Cooperative advertisings are provided to certain customers as contribution or sponsored fund for
advertisements. Under cooperative advertising programs, Makita does not receive an identifiable
benefit sufficiently separable from its customers. Accordingly, cooperative advertisings are
also accounted as a reduction of revenue.Cash discounts are provided as a certain percentage of the invoice price as predetermined by
spot contracts or based on contractually agreed upon amounts with customers. Cash discounts are
recognized as a reduction of revenue at the time the related revenue is recognized based on
Makitas ability to reliably estimate such future discounts to be taken. Cash discounts are
substantially all taken within 30 days following the date of sale. Estimates of expected cash
discounts are evaluated and adjusted periodically based on actual sales transactions and
historical trend.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.(s)
    
    New Accounting StandardsIn March 2004, the EITF reached a consensus on Issue No. 03-1 (EITF 03-1), The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF 03-1 provides
guidance on other-than-temporary impairment models for marketable debt and equity securities
accounted for under Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities (SFAS 115), and non-marketable equity
securities accounted for under the cost method. The EITF developed a basic three-step model to
evaluate whether an investment is other-than-temporarily impaired. The Financial Accounting
Standards Board (FASB) issued FASB Staff Position EITF 03-1-1 in September 2004, which delayed
the effective date of the recognition and measurement provisions of EITF 03-1. The adoption of
EITF 03-1 is not expected to have a material effect on Makitas consolidated results of
operations and financial position.In November 2004, the FASB issued SFAS No. 151, Inventory Costs  an amendment of ARB No. 43,
Chapter 4 (SFAS 151). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). Among other provisions, the new statement
requires that items such as idle facility expense, excessive spoilage, double freight, and
rehandling costs be recognized as current period charges regardless of whether they meet the
criterion of so abnormal as stated in ARB No. 43. Additionally, SFAS 151 requires that the
allocation of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. SFAS 151 is effective for the year ended March 31, 2006.
Makita is currently evaluating the effect that the adoption of SFAS 151 will have on its
consolidated results of operations and financial condition but does not expect SFAS 151 to have a
material impact.In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets  an
amendment of APB Opinion No. 29 (SFAS 153). SFAS 153 eliminates the exception from fair value
measurement for non-monetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No.29, Accounting for Non-monetary Transactions, and replaces it with an exception for
exchanges that do not have commercial substance. SFAS 153 specifies that a non-monetary exchange
has commercial substance if the future cash flows of the entity are expected to change
significantly as a F-15




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result of the exchange. SFAS 153 is effective for the fiscal periods beginning after June
15, 2005 and is required to be adopted by Makita, in the first year beginning April 1, 2006.
Makita is currently evaluating the effect that the adoption of SFAS 153 will have on its
consolidated results of operations and financial condition but does not expect it to have a
material impact.(t)
    
    ReclassificationsCertain reclassifications have been made to the prior years consolidated financial statements
to conform with the presentation used for the year ended March 31, 2005.  4.
    
    TRANSLATION OF FINANCIAL STATEMENTSSolely for the convenience of the reader, the accompanying consolidated financial statement amounts
for the year ended March 31, 2005, 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 ¥107 to US$1 at March 31, 2005. 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, 2004 and 2005 comprised the following: Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2005Finished goods
    
    ¥
    44,159
    
    
    ¥
    53,425
    
    
    $
    499,299Work in process
    
    
    1,858
    
    
    
    1,844
    
    
    
    17,233Raw materials
    
    
    8,309
    
    
    
    10,734
    
    
    
    100,318¥
    54,326
    
    
    ¥
    66,003
    
    
    $
    616,850
  6.
    
    IMPAIRMENT OF LONG LIVED ASSETSIn 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.During the year ended March 31, 2004, 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 Company, as a part of its facilities integration and cost cutting plans, decided
to vacate a certain research and development facility in Japan and a related administrative
facility during the year ended March 31, 2004, and a certain information technology facility
(collectively the Facility) during the year ended March 31, 2005. The Company
intends to continue to hold the Facility as is for the F-16




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foreseeable future considering the expected difficulty in identifying a buyer with operating plans
commensurate with the present zoning requirements. As discussed above, the Facility was
principally used as a research and development facility and provides training and information
technology services. Current zoning regulations require that a buyer utilize the Facility on
substantially the same basis. Therefore, the combination of the limitations imposed by the
zoning rules and the fact that the Facility is located in a rural, non industrial section of
Japan has caused management to determine that the recoverable value on an as is basis will be
most likely limited to the estimated fair value of the land.As a result of the decision to vacate the Facility, the Company performed an
impairment assessment pursuant to the provisions of SFAS 144 and recorded an impairment charge of
¥1,541 million and ¥577 million for the year ended March 31, 2004 and 2005, respectively. This
impairment charge reduced the carrying value of the administrative facility to its current
estimated fair value of ¥316 million in the year ended March 31, 2004 and the technology facility
to ¥196 million in the year ended March 31, 2005, respectively. The estimated fair value of ¥316
million and ¥196 million represents the fair value of the land as determined by a third party
appraiser considering the estimated net cash flows from effecting the sale to a third party
purchaser. The carrying value of the building has been reduced to zero on the basis that the
Company anticipates no future use from the facility and the expectation of realizing only the
value of the land upon sale. Presently, the Company has not decided how and when to dispose of
the Facility. In addition, the Company currently has no plans regarding the use of
the vacated Facility and as a result, the Company does not expect any future cash
flows from the Facility. F-17




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7.
    
    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, fair value and carrying amount for such
securities by major security type as of March 31, 2004 and 2005 were as follows: Yen (millions)Gross UnrealizedHoldingCarryingAs of March 31, 2004
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair value
    
    
    AmountAvailable-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
    
    
    ¥
    
    
    
    ¥
    10,374
    
    
    ¥
    10,367Japanese corporate debt
securities
    
    
    2,961
    
    
    
    
    
    
    
    
    
    
    
    2,961
    
    
    
    2,961¥
    13,328
    
    
    ¥
    7
    
    
    ¥
    
    
    
    ¥
    13,335
    
    
    ¥
    13,328Investment securities:Japanese corporate
debt securities
    
    ¥
    401
    
    
    ¥
    
    
    
    ¥
    2
    
    
    ¥
    399
    
    
    ¥
    401¥
    401
    
    
    ¥
    
    
    
    ¥
    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-18




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Yen (millions)Gross UnrealizedHoldingCarryingAs of March 31, 2005
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair value
    
    
    AmountAvailable-for-sale:Marketable securities:Japanese and foreign
government debt securities
    
    ¥
    100
    
    
    ¥
    1
    
    
    ¥
    
    
    
    ¥
    101
    
    
    ¥
    101Corporate and bank debt
securities
    
    
    5,580
    
    
    
    151
    
    
    
    1
    
    
    
    5,730
    
    
    
    5,730Investments in trusts
    
    
    48,468
    
    
    
    1,098
    
    
    
    14
    
    
    
    49,552
    
    
    
    49,552Marketable equity securities
    
    
    1,403
    
    
    
    1,129
    
    
    
    
    
    
    
    2,532
    
    
    
    2,532¥
    55,551
    
    
    ¥
    2,379
    
    
    ¥
    15
    
    
    ¥
    57,915
    
    
    ¥
    57,915Investment securities:Corporate and bank debt
securities
    
    ¥
    1,594
    
    
    ¥
    20
    
    
    ¥
    
    
    
    ¥
    1,614
    
    
    ¥
    1,614Investments in trusts
    
    
    912
    
    
    
    94
    
    
    
    
    
    
    
    1,006
    
    
    
    1,006Marketable equity securities
    
    
    7,837
    
    
    
    9,481
    
    
    
    7
    
    
    
    17,311
    
    
    
    17,311Non-marketable equity
securities (carried at
cost)
    
    
    590
    
    
    
    
    
    
    
    
    
    
    
    590
    
    
    
    590¥
    10,933
    
    
    ¥
    9,595
    
    
    ¥
    7
    
    
    ¥
    20,521
    
    
    ¥
    20,521Held-to-maturity:Marketable securities:Japanese corporate
debt securities
    
    ¥
    100
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    100
    
    
    ¥
    100¥
    100
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    100
    
    
    ¥
    100Investment securities:Japanese government
debt securities
    
    ¥
    300
    
    
    ¥
    2
    
    
    ¥
    
    
    
    ¥
    302
    
    
    ¥
    300Japanese corporate debt
securities
    
    
    1,552
    
    
    
    2
    
    
    
    5
    
    
    
    1,549
    
    
    
    1,552¥
    1,852
    
    
    ¥
    4
    
    
    ¥
    5
    
    
    ¥
    1,851
    
    
    ¥
    1,852Total marketable securities
    
    ¥
    55,651
    
    
    ¥
    2,379
    
    
    ¥
    15
    
    
    ¥
    58,015
    
    
    ¥
    58,015Total investment securities
    
    ¥
    12,785
    
    
    ¥
    9,599
    
    
    ¥
    12
    
    
    ¥
    22,372
    
    
    ¥
    22,373
 F-19




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U.S. Dollars (thousands)Gross UnrealizedHoldingCarryingAs of March 31, 2005
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair value
    
    
    AmountAvailable-for-sale:Marketable securities:Japanese and foreign
government debt securities
    
    $
    935
    
    
    $
    9
    
    
    $
    
    
    
    $
    944
    
    
    $
    944Corporate and bank debt
securities
    
    
    52,150
    
    
    
    1,411
    
    
    
    9
    
    
    
    53,552
    
    
    
    53,551Investments in trusts
    
    
    452,972
    
    
    
    10,262
    
    
    
    131
    
    
    
    463,103
    
    
    
    463,103Marketable equity securities
    
    
    13,112
    
    
    
    10,551
    
    
    
    
    
    
    
    23,663
    
    
    
    23,664$
    519,169
    
    
    $
    22,233
    
    
    $
    140
    
    
    $
    541,262
    
    
    $
    541,262Investment securities:Corporate and bank debt
securities
    
    $
    14,897
    
    
    $
    187
    
    
    $
    
    
    
    $
    15,084
    
    
    $
    15,084Investments in trusts
    
    
    8,523
    
    
    
    879
    
    
    
    
    
    
    
    9,402
    
    
    
    9,402Marketable equity securities
    
    
    73,243
    
    
    
    88,607
    
    
    
    65
    
    
    
    161,785
    
    
    
    161,785Non-marketable equity
securities (carried at
cost)
    
    
    5,514
    
    
    
    
    
    
    
    
    
    
    
    5,514
    
    
    
    5,514$
    102,177
    
    
    $
    89,673
    
    
    $
    65
    
    
    $
    191,785
    
    
    $
    191,785Held-to-maturity:Marketable securities:Japanese corporate
debt securities
    
    $
    934
    
    
    $
    
    
    
    $
    
    
    
    $
    934
    
    
    $
    934$
    934
    
    
    $
    
    
    
    $
    
    
    
    $
    934
    
    
    $
    934Investment securities:Japanese government
debt securities
    
    $
    2,804
    
    
    $
    19
    
    
    $
    
    
    
    $
    2,823
    
    
    $
    2,804Japanese corporate debt
securities
    
    
    14,504
    
    
    
    19
    
    
    
    47
    
    
    
    14,477
    
    
    
    14,504$
    17,308
    
    
    $
    38
    
    
    $
    47
    
    
    $
    17,300
    
    
    $
    17,308Total marketable securities
    
    $
    520,103
    
    
    $
    22,233
    
    
    $
    140
    
    
    $
    542,196
    
    
    $
    542,196Total investment securities
    
    $
    119,486
    
    
    $
    89,711
    
    
    $
    112
    
    
    $
    209,085
    
    
    $
    209,093
  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, 2004 and 2005, each fund
consisted of marketable equity securities and interest-bearing bonds. F-20




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##### Table of Contents



The following table shows our investments gross unrealized holding 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, 2005. Yen (millions)Less than 12 months
    
    
    12 months or moreGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    UnrealizedHolding
    
    
    
    
    
    
    HoldingAs of March 31, 2005
    
    Fair value
    
    
    Losses
    
    
    Fair value
    
    
    LossesAvailable-for-sale:Marketable securities:Corporate and bank debt securities
    
    ¥
    101
    
    
    ¥
    1
    
    
    ¥
    
    
    
    ¥
    Investments in trusts
    
    
    817
    
    
    
    14
    
    
    
    
    
    
    
    ¥
    918
    
    
    ¥
    15
    
    
    ¥
    
    
    
    ¥
    Available-for-sale:Investment securities:Marketable equity securities
    
    ¥
    122
    
    
    ¥
    7
    
    
    ¥
    
    
    
    ¥
    ¥
    122
    
    
    ¥
    7
    
    
    ¥
    
    
    
    ¥
    
 U.S. Dollars (thousands)Less than 12 months
    
    
    12 months or moreGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    UnrealizedHolding
    
    
    
    
    
    
    HoldingAs of March 31, 2005
    
    Fair value
    
    
    Losses
    
    
    Fair value
    
    
    LossesAvailable-for-sale:Marketable securities:Corporate and bank debt securities
    
    $
    944
    
    
    $
    9
    
    
    $
    
    
    
    $
    Investments in trusts
    
    
    7,635
    
    
    
    131
    
    
    
    
    
    
    
    $
    8,579
    
    
    $
    140
    
    
    $
    
    
    
    $
    Available-for-sale:Investment securities:Marketable equity securities
    
    $
    1,140
    
    
    $
    65
    
    
    $
    
    
    
    $
    $
    1,140
    
    
    $
    65
    
    
    $
    
    
    
    $
    
 F-21




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##### Table of Contents



Maturities of debt securities classified as available-for-sale and held-to-maturity as of
March 31, 2005, regardless of their balance sheet classification, were as follows:Maturities of debt securities based on Cost as of March 31, 2005 Yen (millions)
    
    
    U.S.Dollars (thousands)Available-
    
    
    Held-to-
    
    
    
    
    
    
    Available-
    
    
    Held-to-for-sale
    
    
    maturity
    
    
    Total
    
    
    for-sale
    
    
    maturity
    
    
    TotalDue within one year
    
    
    3,859
    
    
    
    100
    
    
    
    3,959
    
    
    
    36,065
    
    
    
    934
    
    
    
    36,999Due after one to
five years
    
    
    369
    
    
    
    1,202
    
    
    
    1,571
    
    
    
    3,449
    
    
    
    11,233
    
    
    
    14,682Due after five to
ten years
    
    
    100
    
    
    
    650
    
    
    
    750
    
    
    
    935
    
    
    
    6,075
    
    
    
    7,010Due after ten years
    
    
    1,352
    
    
    
    
    
    
    
    1,352
    
    
    
    12,636
    
    
    
    
    
    
    
    12,636Indefinite periods
    
    
    1,594
    
    
    
    
    
    
    
    1,594
    
    
    
    14,897
    
    
    
    
    
    
    
    14,897Total
    
    
    7,274
    
    
    
    1,952
    
    
    
    9,226
    
    
    
    67,982
    
    
    
    18,242
    
    
    
    86,224
  Maturities of debt securities based on Fair Value as of March 31, 2005 Yen (millions)
    
    
    U.S.Dollars (thousands)Available-
    
    
    Held-to-
    
    
    
    
    
    
    Available-
    
    
    Held-to-for-sale
    
    
    maturity
    
    
    Total
    
    
    for-sale
    
    
    maturity
    
    
    TotalDue within one year
    
    
    3,929
    
    
    
    100
    
    
    
    4,029
    
    
    
    36,720
    
    
    
    935
    
    
    
    37,655Due after one to
five years
    
    
    402
    
    
    
    1,207
    
    
    
    1,609
    
    
    
    3,757
    
    
    
    11,280
    
    
    
    15,037Due after five to
ten years
    
    
    101
    
    
    
    644
    
    
    
    745
    
    
    
    944
    
    
    
    6,019
    
    
    
    6,963Due after ten years
    
    
    1,399
    
    
    
    
    
    
    
    1,399
    
    
    
    13,075
    
    
    
    
    
    
    
    13,075Indefinite periods
    
    
    1,614
    
    
    
    
    
    
    
    1,614
    
    
    
    15,084
    
    
    
    
    
    
    
    15,084Total
    
    
    7,445
    
    
    
    1,951
    
    
    
    9,396
    
    
    
    69,580
    
    
    
    18,234
    
    
    
    87,814
  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.Gross realized gains on sales of marketable securities and investment securities for the years
ended March 31, 2003, 2004 and 2005 amounted to ¥337 million, ¥862 million and ¥543 million ($5,075
thousand), respectively, and gross realized losses, which include the gross realized losses
considered as other than temporary, during the years ended March 31, 2003, 2004 and 2005 amounted
to ¥2,927 million, ¥307 million and ¥90 million ($841 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 ¥2,630 million, ¥279 million and ¥82 million ($766
thousand) for the years ended March 31, 2003, 2004 and 2005, respectively. Proceeds from the sales
and maturities of available-for-sale securities were ¥24,061 million, ¥18,190 million and ¥14,672
million ($137,121 thousand) for the years ended March 31, 2003, 2004 and 2005, respectively.
Proceeds from the held-to-maturity securities were ¥13,510 million ($126,262 thousand) for the year
ended March 31, 2005. F-22




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##### Table of Contents



8.
    
    INCOME TAXESIncome before income taxes and the provision for income taxes for the years ended March 31, 2003,
2004 and 2005 were as follows: Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2003
    
    
    2004
    
    
    2005
    
    
    2005Income before income taxes:Domestic
    
    ¥
    2,355
    
    
    ¥
    3,237
    
    
    ¥
    15,837
    
    
    $
    145,860Foreign
    
    
    6,937
    
    
    
    12,933
    
    
    
    16,781
    
    
    
    158,981¥
    9,292
    
    
    ¥
    16,170
    
    
    ¥
    32,618
    
    
    $
    304,841Provision for income taxes:Current-Domestic
    
    ¥
    2,433
    
    
    ¥
    5,264
    
    
    ¥
    5,121
    
    
    $
    47,860Foreign
    
    
    (139
    )
    
    
    3,481
    
    
    
    4,950
    
    
    
    46,2612,294
    
    
    
    8,745
    
    
    
    10,071
    
    
    
    94,121Deferred-Domestic
    
    
    687
    
    
    
    26
    
    
    
    589
    
    
    
    5,505Foreign
    
    
    (412
    )
    
    
    (292
    )
    
    
    (178
    )
    
    
    (1,664
    )275
    
    
    
    (266
    )
    
    
    411
    
    
    
    3,841Consolidated provision for
income taxes
    
    ¥
    2,569
    
    
    ¥
    8,479
    
    
    ¥
    10,482
    
    
    $
    97,962
  Total income taxes were allocated as follows: Yen
    
    
    
    
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2003
    
    
    2004
    
    
    2005
    
    
    2005Provision for income taxes
    
    ¥
    2,569
    
    
    ¥
    8,479
    
    
    ¥
    10,482
    
    
    $
    97,962Shareholders equity:Foreign currency translation
adjustment
    
    
    (627
    )
    
    
    (458
    )
    
    
    945
    
    
    
    8,831Net unrealized holding gains
(losses) on available-for-sale
securities
    
    
    (599
    )
    
    
    4,168
    
    
    
    60
    
    
    
    561Minimum pension liability adjustment
    
    
    (3,899
    )
    
    
    4,392
    
    
    
    3,403
    
    
    
    31,804¥
    (2,556
    )
    
    ¥
    16,581
    
    
    ¥
    14,890
    
    
    $
    139,158
  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%
from the year ended March 31, 2004. The effect of this tax rate change for the years ended March
31, 2003 and 2004 was ¥312 million and ¥11 million ($106 thousand), respectively.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 7.9%, which
in the aggregate resulted in a combined statutory income tax rate of approximately 40.3% for the
years ended March 31, 2005. F-23




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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 31,2003
    
    
    2004
    
    
    2005Combined statutory income tax rate in Japan
    
    
    41.4
    %
    
    
    41.4
    %
    
    
    40.3
    %Non-deductible expenses
    
    
    1.0
    
    
    
    0.6
    
    
    
    0.6Non-taxable dividends received
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    (0.1
    )Change in valuation allowance
    
    
    4.7
    
    
    
    18.5
    
    
    
    (1.6
    )Impact of advance pricing agreement finalization
    
    
    (18.2
    )
    
    
    (1.3
    )
    
    
    Effect on change in enacted tax rate
    
    
    3.4
    
    
    
    0.1
    
    
    
    Tax sparing impact
    
    
    (3.3
    )
    
    
    (1.8
    )
    
    
    (5.5
    )Prior year income taxes
    
    
    (1.1
    )
    
    
    (3.6
    )
    
    
    1.3Effect of the foreign tax rate differential
    
    
    
    
    
    
    (1.3
    )
    
    
    (2.9
    )Effective income tax rate
    
    
    27.6
    %
    
    
    52.4
    %
    
    
    32.1
    %
  In 1997, Makita USA and the 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.In 2003, as a result of the APA settlement between NTA of Japan and IRS in the United States, The
Company received a tax refund from the NTA. A portion of the refund representing the gross amount
less a reduction through the offset of NOLs held by Makita U.S.A. Inc. was then repaid to the IRS.
Accordingly, Makita recognized the portion of the tax refund retained in the amount of
approximately ¥ 1,700 million as a reduction in consolidated income tax expense for the year ended
March 31, 2003. At the March 31, 2003, balance sheet date, Makita U.S.A. continued to maintain a
full valuation allowance against its NOLs due to concerns over future realizability reflecting the
more likely than not criteria of SFAS No. 109. Makita also recognized a valuation allowance
against certain NOLs incurred for the year ended March 31, 2003 for other consolidated subsidiaries
to the extent that the amounts were determined to be more likely than not, not realizable in
accordance with SFAS No. 109. The effect of the increase in valuation allowance against these NOLs
resulted in a ¥437 million tax increase for Makita for the year ended March 31, 2003 and an
increase in its effective tax for the year ended March 31, 2003 by 4.7%.On a net basis, the receipt of the APA tax refund combined with the recognition of additional
valuation allowances by certain other consolidated subsidiaries and other miscellaneous immaterial
adjustments had the affect of decreasing Makitas effective tax rate by 13.8% to the effective rate
of 27.6% from the statutory tax rate of 41.4% for the year ended March 31, 2003.The net change in the total valuation allowances for 2004 was an increase of ¥2,991 million, which
was mainly caused by 100% valuation allowance against deferred income tax assets on impairment loss
on long-lived assets of a subsidiary that operates a golf course in Japan. This increase in
valuation and other miscellaneous adjustments had the affect of increasing Makitas effective tax
rate by 11.3% to the effective rate of 52.4% from the statutory tax rate of 41.1% for the year
ended March 31, 2004. F-24




---



##### Table of Contents



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. The effect of the tax sparing resulted in decrease of tax expense by
¥1,790 million or 5.5% for the year ended March 31, 2005.Significant components of deferred income tax assets and liabilities as of March 31, 2004 and 2005
were as follows: Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2005Deferred income tax assets:Marketable securities and investment securities
    
    ¥
    2,462
    
    
    ¥
    2,432
    
    
    $
    22,729Accrued retirement and termination benefits
and other accrued expenses
    
    
    2,666
    
    
    
    407
    
    
    
    3,804Pension liability
    
    
    4,429
    
    
    
    1,193
    
    
    
    11,150Inventories
    
    
    1,221
    
    
    
    1,331
    
    
    
    12,439Property, plant and equipment
    
    
    6,754
    
    
    
    7,647
    
    
    
    71,467Accrued payroll
    
    
    1,811
    
    
    
    1,951
    
    
    
    18,234Net operating loss carryforwards
    
    
    2,085
    
    
    
    854
    
    
    
    7,981Other
    
    
    764
    
    
    
    949
    
    
    
    8,869Total gross deferred income tax assets
    
    
    22,192
    
    
    
    16,764
    
    
    
    156,673Valuation allowance
    
    
    (8,828
    )
    
    
    (8,211
    )
    
    
    (76,738
    )¥
    13,364
    
    
    ¥
    8,553
    
    
    $
    79,935Deferred income tax liabilities:Undistributed earnings of overseas subsidiaries
    
    ¥
    (2,849
    )
    
    ¥
    (3,128
    )
    
    $
    (29,234
    )Unrealized gain on securities
    
    
    (4,756
    )
    
    
    (4,817
    )
    
    
    (45,019
    )Inventories
    
    
    (435
    )
    
    
    
    
    
    
    Property, plant and equipment
    
    
    (964
    )
    
    
    (942
    )
    
    
    (8,804
    )Other
    
    
    (77
    )
    
    
    (101
    )
    
    
    (943
    )(9,081
    )
    
    
    (8,988
    )
    
    
    (84,000
    )Net deferred income tax assets
    
    ¥
    4,283
    
    
    ¥
    (435
    )
    
    $
    (4,065
    )
  Net deferred income tax assets are recorded in the consolidated balance sheets as follows: Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2004Deferred income tax assetsCurrent assets
    
    ¥
    3,691
    
    
    ¥
    3,831
    
    
    $
    35,804Investment and other assets
    
    
    880
    
    
    
    390
    
    
    
    3,645Current liabilities
    
    
    (53
    )
    
    
    (118
    )
    
    
    (1,103
    )Long-term liabilities
    
    
    (235
    )
    
    
    (4,538
    )
    
    
    (42,411
    )¥
    4,283
    
    
    ¥
    (435
    )
    
    $
    (4,065
    )
  The valuation allowance was ¥ 9,050 million as of March 31,2002. The net change in the total
valuation allowance for the years ended March 31, 2003, 2004 and 2005 was an decrease of ¥2,356
million, an F-25




---



##### Table of Contents



increase of ¥2,134 million and a decrease of ¥617 million ($ 5,766 thousand), respectively. The
decrease of ¥617 million ($ 5,766 thousand) for the ended
March 31, 2005 was mainly due to reversal
of the deferred income tax asset on the net operating loss carryforwards of Makita USA.In assessing the realizability of deferred income tax assets, Makita 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 and net
operating loss carryforwards utilized. Makita 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, Makita believes it
is more likely than not that the benefits of these deductible differences and net operating loss
carryforwards, 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. Joyama Kaihatsu, Ltd.,
a wholly-owned subsidiary of the Company, applied for a civil rehabilitation plan during this year.
Joyama Kaihatsu, Ltd. has significant temporary differences for impairment losses on long-lived
assets and depreciation of properties which are not deductible for tax purposes as of March 31,
2005. Upon confirmation of the civil rehabilitation plan on May 7, 2005, such temporary difference
items have been changed to net operating loss carryforward and can be used to offset taxable income
in future period.As of March 31, 2005, certain subsidiaries have net operating loss carryforwards for income tax
purposes of ¥1,862 million ($17,401 thousand) which were available to reduce future income taxes.
The net operating losses will expire as follows: Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)Within 5 years
    
    ¥
    330
    
    
    $
    3,0846 to 20 years
    
    
    383
    
    
    
    3,579Indefinite periods
    
    
    1,149
    
    
    
    10,738¥
    1,862
    
    
    $
    17,401
  Income taxes have not been accrued on undistributed earnings of domestic subsidiaries as the
tax law provides a means by which the investment in a domestic subsidiary can be recovered tax
free.Makita has not recognized deferred tax liabilities for certain portions of undistributed earnings
of foreign subsidiaries of ¥27,085 million ($253,131 thousand) as of March 31, 2005 because Makita
considers these earnings to be permanently reinvested.9.
    
    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 covers substantially all of the employees of the
Company. F-26




---



##### Table of Contents



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.Until June, 2004, the domestic contributory plan was 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. 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 is required to make periodic contributions to the Japanese Pension Insurance
program, and the Japanese government is responsible for all benefit payments. The corporate
portion of the domestic contributory plan continues to exist exclusively as a corporate defined
benefit pension plan. The Company accounted 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 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. The
aggregate effect of this separation was determined based on the Companys pension benefit
obligation as of the date the transfer was completed based on the determination of plan assets
required to be transferred.The 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 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 ($ 85,308 thousand ) in the first fiscal quarter ended June 30, 2004. In addition, the
Company recognized 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
($43,804 thousand). This resulting net gain of ¥4,441 million has been included in operating
income for the year ended March 31, 2005.Effective April 1, 2004, the Companys employee pension plan was amended by a new defined benefit
plan that provides benefits based on length of service and other factors in a manner similar to the
predecessor defined benefit plan, however, at a reduced rate. The reduction in the pension benefit
obligation as of the effective date in the amount of ¥3,089 million has been accounted for as a
negative plan amendment and included in prior service cost and will be amortized into net periodic
pension costs over the weighted average remaining service period of the plan participants.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 prescribe employers disclosures about pension plans; they do not change the
measurement or recognition of those plans. The statement retains and revises the disclosure
requirements. In particular, the standard requires that companies provide more details about
their plan assets, benefit obligations, cash flows, net F-27




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##### Table of Contents



periodic benefit costs and other relevant quantitative and qualitative information. SFAS 132 (revised)
generally is effective for fiscal years ended after December 15, 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, 2003,
2004 and 2005 consisted of the following components: Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2003
    
    
    2004
    
    
    2005
    
    
    2005Service cost-benefit earned during the year
    
    ¥
    2,211
    
    
    ¥
    1,671
    
    
    ¥
    1,332
    
    
    $
    12,449Interest cost on projected benefit obligation
    
    
    1,302
    
    
    
    1,225
    
    
    
    852
    
    
    
    7,963Expected return on plan assets
    
    
    (764
    )
    
    
    (643
    )
    
    
    (590
    )
    
    
    (5,514
    )Amortization of prior service cost
    
    
    12
    
    
    
    14
    
    
    
    (176
    )
    
    
    (1,645
    )Recognized actuarial loss
    
    
    584
    
    
    
    975
    
    
    
    518
    
    
    
    4,840Net gain resulting from transfer to
government of the substitutional portion of
pension plan
    
    
    
    
    
    
    
    
    
    
    (4,441
    )
    
    
    (41,505
    )Net periodic pension costs
    
    ¥
    3,345
    
    
    ¥
    3,242
    
    
    ¥
    (2,505
    )
    
    $
    (23,412
    )
 F-28




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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)2004
    
    
    2005
    
    
    2005Change in benefit obligation:Benefit obligation at beginning of year
    
    ¥
    58,295
    
    
    ¥
    54,899
    
    
    $
    513,075Service cost
    
    
    1,671
    
    
    
    1,332
    
    
    
    12,449Interest cost
    
    
    1,225
    
    
    
    852
    
    
    
    7,963Employees contributions
    
    
    35
    
    
    
    25
    
    
    
    234Amendments
    
    
    
    
    
    
    (3,089
    )
    
    
    (28,869
    )Actuarial loss
    
    
    (5,217
    )
    
    
    (120
    )
    
    
    (1,121
    )Transfer to government of the substitutional
portion of pension plan
    
    
    
    
    
    
    (17,276
    )
    
    
    (161,458
    )Benefits paid
    
    
    (1,095
    )
    
    
    (938
    )
    
    
    (8,766
    )Foreign exchange impact
    
    
    (15
    )
    
    
    168
    
    
    
    1,568Benefit obligation at end of year
    
    
    54,899
    
    
    
    35,853
    
    
    
    335,075Change in plan assets:Fair value of plan assets at beginning of year
    
    
    26,201
    
    
    
    32,981
    
    
    
    308,234Actual return on plan assets
    
    
    4,194
    
    
    
    836
    
    
    
    7,813Employer contributions
    
    
    3,521
    
    
    
    2,354
    
    
    
    22,000Employees contributions
    
    
    35
    
    
    
    25
    
    
    
    234Transfer to government of the substitutional
portion of pension plan
    
    
    
    
    
    
    (7,082
    )
    
    
    (66,187
    )Benefits paid
    
    
    (968
    )
    
    
    (843
    )
    
    
    (7,879
    )Foreign exchange impact
    
    
    (2
    )
    
    
    18
    
    
    
    168Fair value of plan assets at end of year
    
    
    32,981
    
    
    
    28,289
    
    
    
    264,383Funded status
    
    
    (21,918
    )
    
    
    (7,564
    )
    
    
    (70,692
    )Unrecognized net actuarial loss
    
    
    17,759
    
    
    
    11,051
    
    
    
    103,280Prior service cost not yet recognized in net
periodic benefit cost
    
    
    (482
    )
    
    
    (3,357
    )
    
    
    (31,374
    )Unrecognized net transition obligation being
recognized over 19 years
    
    
    153
    
    
    
    139
    
    
    
    1,300Net amount recognized
    
    ¥
    (4,488
    )
    
    ¥
    269
    
    
    $
    2,514Amounts recognized in the consolidated balance sheets
consist of;Accrued benefit cost
    
    ¥
    (15,536
    )
    
    ¥
    (5,126
    )
    
    $
    (47,907
    )Prepaid benefit cost
    
    
    57
    
    
    
    2,399
    
    
    
    22,421Intangible assets
    
    
    
    
    
    
    23
    
    
    
    215Accumulated other comprehensive loss, gross of tax
    
    
    10,991
    
    
    
    2,973
    
    
    
    27,785Net amount recognized
    
    ¥
    (4,488
    )
    
    ¥
    269
    
    
    $
    2,514
  Measurement dateThe Company uses a December 31 measurement date for the majority of its plans. F-29




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##### Table of Contents



AssumptionsWeighted-average assumptions used to
determine benefit obligations at March 31,
2004 and 2005 were as follows: 2004
    
    
    2005Discount rate
    
    
    2.1
    %
    
    
    2.2
    %Assumed rate of increase in future compensation levels
    
    
    3.0
    %
    
    
    3.3
    %
  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: 2003
    
    
    2004
    
    
    2005Discount rate
    
    
    2.6
    %
    
    
    2.1
    %
    
    
    2.2
    %Assumed rate of increase in future compensation levels
    
    
    2.3
    %
    
    
    2.3
    %
    
    
    2.3
    %Expected long-term rate of return on plan assets
    
    
    2.5
    %
    
    
    2.0
    %
    
    
    2.1
    %
  Makita determined the expected long-term rate of return on plan assets based on the expected
long-term return of the various asset categories in which the plan invest considering the current
expectations for future returns and actual historical returns. 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.Plan AssetsThe benefit plan weighted-average asset allocations at March 31, 2004, and 2005, by asset category
are follows; Asset Category
    
    2004
    
    
    2005Equity securities
    
    
    44.5
    %
    
    
    43.9
    %Debt securities
    
    
    21.1
    
    
    
    41.1Life insurance company general accounts
    
    
    10.1
    
    
    
    11.8Other
    
    
    24.3
    
    
    
    3.2100.0
    %
    
    
    100.0
    %
  Makita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, Makita examines the divergence between the expected long-term income and the actual
income from the portfolio on an annual basis. Makita revises the portfolio when it is deemed
necessary to reach the expected long-term yield.Equity securities include common stock of Makita in an amount of ¥2 million ($19 thousand) at March
31, 2005. F-30




---



##### Table of Contents



Information for pension plans with an accumulated benefit obligation in excess of plan assets Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2005Projected benefit obligation
    
    ¥
    54,899
    
    
    ¥
    35,853
    
    
    $
    335,075Accumulated benefit obligation
    
    
    48,525
    
    
    
    31,016
    
    
    
    289,869Fair value of plan assets
    
    
    32,981
    
    
    
    28,289
    
    
    
    264,383
  Cash flowsContributionsMakita expects to contribute ¥2,293 million ($21,430 thousand) to its domestic and foreign defined
benefit plan in the year ending March 31, 2006.Estimated future benefit paymentsThe following benefits payments, which reflect expected future service, as appropriate, are
expected to be paid: Yen
    
    
    U.S. DollarsYear ending March 31,
    
    (millions)
    
    
    (thousands)2006
    
    ¥
    979
    
    
    $
    9,1502007
    
    
    1,258
    
    
    
    11,7572008
    
    
    1,796
    
    
    
    16,7852009
    
    
    1,757
    
    
    
    16,4212010
    
    
    1,701
    
    
    
    15,8972011-2015
    
    
    8,505
    
    
    
    79,486
  Certain foreign subsidiaries have defined contribution plans. The total expenses charged to
income under these plans were ¥256 million, ¥249 million and ¥227 million ($2,121 thousand) for the
years ended March 31, 2003, 2004 and 2005, respectively.The Company has an unfunded retirement allowances program for Directors and Statutory
Auditors. Under such program, the aggregate amount set aside as retirement allowances for Directors
and Statutory Auditors was ¥369 million and ¥477 million as of March 31, 2004 and 2005,
respectively and included in other liabilities in the accompanying balance sheets. The payment to
Directors and Statutory Auditors are subject to shareholders approval. F-31




---



##### Table of Contents



10.
    
    SHORT-TERM BORROWINGS AND LONG-TERM INDEBTEDNESSAs of March 31, 2004 and 2005, Short-term borrowings consisted of the following: Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2005Bank borrowings
    
    ¥
    1,044
    
    
    ¥
    1,968
    
    
    $
    18,393Current maturities of long-term indebtedness
    
    
    13,084
    
    
    
    7,092
    
    
    
    66,280Total
    
    
    14,128
    
    
    
    9,060
    
    
    
    84,673
  Short-term borrowings, excluding current maturities of long-term indebtedness, amounting to
¥1,044 million and ¥1,968 million ($18,393 thousand) as of March 31, 2004 and 2005, respectively
consisted primarily of bank borrowings denominated in foreign currencies by overseas subsidiaries.
As of March 31, 2004 and 2005, the weighted average interest rates on the borrowings were 6.3% and
6.1%, respectively.Certain subsidiaries of the Company had unused lines of credit available for immediate short-term
borrowings without restrictions amounting to ¥21,220 million and ¥21,509 million ($201,019
thousand) as of March 31, 2004 and 2005, respectively.As of March 31, 2004 and 2005, long-term indebtedness consisted of the following: Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    20051.5% unsecured convertible bonds,
payable in yen, due March 2005
    
    ¥
    12,994
    
    
    ¥
    
    
    
    $
    3.3% (weighted average rate)
unsecured loans from banks and insurance
companies in yen, due September and
November 2005
    
    
    6,391
    
    
    
    6,205
    
    
    
    57,9910.6% (weighted average rate) unsecured
loans from Japanese companies, due May
2005
    
    
    800
    
    
    
    800
    
    
    
    7,476Capital lease obligations (see Note 3(g))
    
    
    263
    
    
    
    175
    
    
    
    1,635Total
    
    
    20,448
    
    
    
    7,180
    
    
    
    67,102Less- Current maturities included in
short-term borrowings
    
    
    (13,084
    )
    
    
    (7,092
    )
    
    
    (66,280
    )¥
    7,364
    
    
    ¥
    88
    
    
    $
    822
  In accordance with SFAS No. 133, changes in fair values of fixed rate long-term indebtedness
amounting to ¥391 million and ¥205 million ($1,916 thousand) as of March 31, 2004 and 2005
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. F-32




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##### Table of Contents



The 1.5% convertible bonds due March 2005 were convertible into approximately 5,749,811 shares of
common stock at a fixed conversion price of ¥2,259.90. The conversion price was subject to
adjustment for stock splits and for shares issued at less than market value. In February and
March, 2005, 1,768 shares were converted and common stock and additional paid-in-capital increased
by ¥2 million, respectively. The remaining bond balance carrying value of ¥12,990 million was
redeemed for cash in March 2005.The aggregate annual maturities of long-term indebtedness subsequent to March 31, 2005 are as
summarized below: Yen
    
    
    U.S. DollarsYear ending March 31,
    
    (millions)
    
    
    (thousands)2006
    
    ¥
    7,092
    
    
    $
    66,2802007
    
    
    41
    
    
    
    3832008
    
    
    14
    
    
    
    1312009
    
    
    8
    
    
    
    752010
    
    
    8
    
    
    
    752011 and thereafter
    
    
    17
    
    
    
    158¥
    7,180
    
    
    $
    67,102
  11.
    
    CLUB MEMBERS DEPOSITSMakitas club members deposits as of March 31, 2005 consist of deposits from individuals
who became members of the Castle Hill Country Club, owned and operated by Joyama Kaihatsu Ltd., a
subsidiary of the Company. On September 8, 2004, Joyama Kaihatsu, Ltd., petitioned the Nagoya
District Court for the commencement of civil rehabilitation proceedings for Joyama Kaihatsu, Ltd.
In connection with the confirmation of the civil rehabilitation plan of Joyama Kaihatsu, Ltd., by
its creditors and club members and the transfer of the companys ownership interest in Joyama
Kaihatsu Ltd. deposits have been reclassified as current liabilities in the consolidated balance
sheet as of March 31, 2005 reflecting the repayment and release of such obligations. See note 20
Subsequent Events with respect to the subsequent sale of Joyama Kaihatsu, Ltd., and the resulting
disposition of Makitas club members deposits.12.
    
    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 shareholders at 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 divided the principal amount of bonds
converted into common stock equally into common stock and additional paid-in capital upon
resolution of the Board of Directors. See note 10.The Code allows the Company to purchase treasury stock for any reason at any time upon resolution
of the Board of Directors up to the limitation approved by the shareholders. See note 10. F-33




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##### Table of Contents



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. 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 during the year ended March 31,
2004. In addition, the Company purchased 80,540 odd shares at a cost of ¥85 million and sold 7,855
odd shares at a cost of ¥6 million during the year ended March 31, 2004. The Company retired
shares totaling 5,000,000 shares at a cost of ¥4,015 million 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 and ¥4,015 million during the year ended March 31, 2004.During the year ended March 31, 2005
On June 29, 2004, the shareholders of the Company resolved to amend the Companys Articles of
Incorporation to permit the Companys Board of Directors to authorize a repurchase of the Companys
shares of common stock. In connection with this amendment, the Company purchased 125,702 odd
shares at a cost of ¥208 million ($1,944 thousand) and sold 8,350 odd shares at a cost of ¥7
million ($65 thousand) during the year ended March 31, 2005.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 financial statements and equaled ¥113,919 million ($1,064,664
thousand) as of March 31, 2005. The Board of Directors has declared a cash dividend (¥36 per
share) totaling ¥5,176 million ($48,374 thousand) to be paid to the shareholders of record on March
31, 2005. As the dividend is subject to approval at the next annual general shareholders meeting
to be held on June 29, 2005, it has not been reflected in the accompanying consolidated financial
statements at March 31, 2005. F-34




---



##### Table of Contents



13.
    
    OTHER COMPREHENSIVE INCOME (LOSS)Accumulated other comprehensive income (loss) as of March 31, 2003, 2004, 2005 was as follows: Yen
    
    
    U.S.DollarsACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
    
    (millions)
    
    
    (thousands)2003
    
    
    2004
    
    
    2005
    
    
    2005Foreign currency translation adjustments:Beginning balance
    
    ¥
    (10,699
    )
    
    ¥
    (13,022
    )
    
    ¥
    (17,582
    )
    
    $
    (164,318
    )Adjustment for the year
    
    
    (2,323
    )
    
    
    (4,560
    )
    
    
    3,096
    
    
    
    28,935Ending balance
    
    ¥
    (13,022
    )
    
    ¥
    (17,582
    )
    
    ¥
    (14,486
    )
    
    $
    (135,383
    )Net unrealized holding gains on securitiesAvailable-for-sale:Beginning balance
    
    ¥
    1,325
    
    
    ¥
    478
    
    
    ¥
    6,592
    
    
    $
    61,608Adjustment for the year
    
    
    (847
    )
    
    
    6,114
    
    
    
    88
    
    
    
    822Ending balance
    
    ¥
    478
    
    
    ¥
    6,592
    
    
    ¥
    6,680
    
    
    $
    62,430Minimum pension liability adjustment:Beginning balance
    
    ¥
    (7,072
    )
    
    ¥
    (12,590
    )
    
    ¥
    (6,058
    )
    
    $
    (56,617
    )Adjustment for the year
    
    
    (5,518
    )
    
    
    6,532
    
    
    
    4,615
    
    
    
    43,131Ending balance
    
    ¥
    (12,590
    )
    
    ¥
    (6,058
    )
    
    ¥
    (1,443
    )
    
    $
    (13,486
    )Total accumulated comprehensive income (loss):Beginning balance
    
    ¥
    (16,446
    )
    
    ¥
    (25,134
    )
    
    ¥
    (17,048
    )
    
    $
    (159,327
    )Adjustment for the year
    
    
    (8,688
    )
    
    
    8,086
    
    
    
    7,799
    
    
    
    72,888Ending balance
    
    ¥
    (25,134
    )
    
    ¥
    (17,048
    )
    
    ¥
    (9,249
    )
    
    $
    (86,439
    )
 F-35




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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, 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
 Yen (millions)Tax benefit
    
    
    Net of taxPretax amount
    
    
    (expense)
    
    
    amountAs of March 31, 2005Foreign currency translation adjustment
    
    ¥
    4,041
    
    
    ¥
    (945
    )
    
    ¥
    3,096Unrealized gain (loss) on securities:Unrealized holding gains (losses)
arising during the year
    
    
    601
    
    
    
    (243
    )
    
    
    358Less- Reclassification adjustment
for (gains) losses realized in net
income
    
    
    (453
    )
    
    
    183
    
    
    
    (270
    )Net unrealized gains (losses)
    
    
    148
    
    
    
    (60
    )
    
    
    88Minimum pension liability adjustment
    
    
    8,018
    
    
    
    (3,403
    )
    
    
    4,615Other comprehensive income (loss)
    
    ¥
    12,207
    
    
    ¥
    (4,408
    )
    
    ¥
    7,799
 F-36




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##### Table of Contents



U.S. Dollars (thousands)Tax benefit
    
    
    Net of taxPretax amount
    
    
    (expense)
    
    
    amountAs of March 31, 2005Foreign currency translation adjustment
    
    $
    37,766
    
    
    $
    (8,831
    )
    
    $
    28,935Unrealized gain (loss) on securities:Unrealized holding gains (losses)
arising during the year
    
    
    5,617
    
    
    
    (2,272
    )
    
    
    3,345Less- Reclassification adjustment
for (gains) losses realized in net
income
    
    
    (4,234
    )
    
    
    1,711
    
    
    
    (2,523
    )Net unrealized gains (losses)
    
    
    1,383
    
    
    
    (561
    )
    
    
    822Minimum pension liability adjustment
    
    
    74,935
    
    
    
    (31,804
    )
    
    
    43,131Other comprehensive income (loss)
    
    $
    114,084
    
    
    $
    (41,196
    )
    
    $
    72,888
  14.
    
    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)2003
    
    
    2004
    
    
    2005
    
    
    2005Net income  Basic
    
    ¥
    6,723
    
    
    ¥
    7,691
    
    
    ¥
    22,136
    
    
    $
    206,879Effect of dilutive securities:1.6% unsecured
convertible bonds, due
2003
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    1.5% unsecured
convertible bonds, due
2005
    
    
    115
    
    
    
    119
    
    
    
    117
    
    
    
    1,093Net income  Diluted
    
    ¥
    6,851
    
    
    ¥
    7,810
    
    
    ¥
    22,253
    
    
    $
    207,972Denominator
    
    Number of sharesWeighted average common
shares outstanding  Basic
    
    
    148,444,219
    
    
    
    144,682,696
    
    
    
    143,844,383Dilutive effect of:1.6% unsecured
convertible bonds, due
2003
    
    
    828,134
    
    
    
    
    
    
    
    1.5% unsecured
convertible bonds, due
2005
    
    
    5,749,811
    
    
    
    5,749,811
    
    
    
    5,748,927Weighted average common
shares outstanding  Diluted
    
    
    155,022,164
    
    
    
    150,432,507
    
    
    
    149,593,310Yen
    
    
    U.S. DollarsEarnings per share:Basic
    
    ¥
    45.3
    
    
    ¥
    53.2
    
    
    ¥
    153.9
    
    
    $
    1.44Diluted
    
    
    44.2
    
    
    
    51.9
    
    
    
    148.8
    
    
    
    1.39
  1.6% unsecured convertible bonds and 1.5% unsecured convertible bonds were redeemed in
February 2003 and March 2005, respectively. F-37




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##### Table of Contents



15.
    
    COMMITMENTS AND CONTINGENT LIABILITIESFIN No. 45 Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others. 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 guarantees to third parties bank loans of its employees. The guarantees for the
employees are principally made for their housing and education loans totaling ¥19 million ($178
thousand) as of March 31, 2005. The fair value of the liabilities for the Companys obligations
under the guarantees described above as of March 31, 2005 was insignificant.Makita was contingently liable for recourse obligation regarding discounted notes with banks
of ¥396 million ($3,701 thousand) as of March 31, 2005 in case notes issuers are not able to
fulfill their payment obligation. The fair value of the liabilities for the Companys obligations
described above as of March 31, 2005 was insignificant.Makitas purchase obligations, mainly for raw materials, were ¥ 5,639 million ($52,701 thousand) as
of March 31, 2005.Makita 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 Makitas consolidated financial position, results of operations, or cash flows.Makita made rental payments of ¥1,737 million, ¥1,745 million and ¥1,796 million ($16,785 thousand)
under cancelable and noncancelable operating lease agreements for offices, warehouses, automobiles
and office equipment during the years ended March 31, 2003, 2004 and 2005, respectively. The
minimum rental payments required under noncancelable operating lease agreements as of March 31,
2005 were as follows: Yen
    
    
    U.S. DollarsYear ending March 31,
    
    (millions)
    
    
    (thousands)2006
    
    ¥
    480
    
    
    $
    4,4862007
    
    
    316
    
    
    
    2,9532008
    
    
    185
    
    
    
    1,7292009
    
    
    127
    
    
    
    1,1872010
    
    
    65
    
    
    
    6072011 and thereafter
    
    
    170
    
    
    
    1,589¥
    1,343
    
    
    $
    12,551
 F-38




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##### Table of Contents



Makita generally guarantees 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,
2005, is summarized as follows: Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2005Balance at beginning of year
    
    ¥
    693
    
    
    ¥
    667
    
    
    $
    6,234Addition
    
    
    529
    
    
    
    830
    
    
    
    7,757Utilization
    
    
    (532
    )
    
    
    (728
    )
    
    
    (6,804
    )Foreign exchange impact
    
    
    (23
    )
    
    
    35
    
    
    
    327Balance at end of year
    
    ¥
    667
    
    
    ¥
    804
    
    
    $
    7,514
  16.
    
    DERIVATIVES AND HEDGING ACTIVITIES  (a)
    
    Risk management policyMakita is 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 Makita and
certain of its consolidated subsidiaries to reduce these risks. Makita do not use derivative
instruments for trading or speculation purpose.Makita are also exposed to risk of credit-related losses in the event of nonperformance by
counter parties to the financial instrument contracts; 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 managementMakita operates internationally, giving rise to significant exposure to market risks from
changes in foreign exchange rates, and enters 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
values of these derivative instruments as of March 31, 2004 and 2005 were recorded as ¥396
million and ¥30 million ($281 thousand) in assets and ¥21 million and ¥387 million ($3,617
thousand) in liabilities, respectively and changes in their fair values as of March 31, 2004 and
2005 of a gain of ¥994 million and a loss of ¥732 million ($6,841 thousand), respectively were
recorded in exchange gain (losses) on foreign currency transactions.(c)
    
    Interest rate risk managementMakita executes financing and investing activities through the Company and its financial
subsidiary, Euro Makita Corporation B.V. (EMC). To manage the variability in the fair values
of fixed rate long-term indebtedness, time deposit and fixed rate debt securities caused by
fluctuations in interest rates, the Company and EMC enters into interest rate swaps as a fair
value hedge.As of March 31, 2004 and 2005, EMC had interest rate swaps with a fair value of ¥391 million and
¥205 million ($1,916 thousand), respectively which have been designated as fair value hedges of
underlying F-39




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##### Table of Contents



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, 2004 and 2005, as the critical terms of the interest
rate swaps match the terms of the hedged long-term indebtedness.As of March 31, 2004 and 2005, the Company and EMC had interest rate swaps with a fair value of
¥26 million and ¥7 million ($65 thousand), respectively which have been designated as fair value
hedges of underlying time deposit and 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 a gain of
¥14 million and an expense of ¥19 million ($117 thousand) were recorded in earnings and
classified in other income (expenses) for the years ended March 31, 2004 and 2005, respectively. F-40




---



##### Table of Contents



17.
    
    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 ExpensesThe carrying amount approximates fair value because of the short or undefined maturities of
those instruments.(b)
    
    Long-term Time DepositsThe fair value is estimated by discounting the future cash flows using the current rates that
Makita would be offered for deposits with similar terms and remaining maturities.(c)
    
    Marketable Securities and Investment SecuritiesThe fair value of marketable securities is estimated based on quoted market prices at March
31, 2004 and 2005. For other investments for which there are no quoted market prices, amounted
to ¥590 million ($5,514 thousand) a reasonable estimation of fair value could not be made
without incurring excessive cost.(d)
    
    Long-term IndebtednessThe 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 DepositsThe fair value of club members deposits is based on the latest actual transaction price or
the present value of future cash flows.(f)
    
    Interest Rate Swap AgreementsThe fair values of interest rate swap agreements are based on the estimated amount that
Makita would receive or pay to terminate the swap agreements which are based on quoted prices
obtained from brokers.(g)
    
    Other Derivative Financial InstrumentsThe 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-41




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##### Table of Contents



The estimated fair value of the financial instruments was as follows: Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2005Carrying
    
    
    
    
    
    
    Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueMarketable securities
    
    ¥
    63,990
    
    
    ¥
    63,997
    
    
    ¥
    58,015
    
    
    ¥
    58,015
    
    
    $
    542,196
    
    
    $
    542,196Investment securities
    
    
    22,139
    
    
    
    22,136
    
    
    
    22,373
    
    
    
    22,372
    
    
    
    209,093
    
    
    
    209,085Long-term time deposits
    
    
    5,901
    
    
    
    5,911
    
    
    
    2,322
    
    
    
    2,316
    
    
    
    21,701
    
    
    
    21,645Long-term indebtedness
    
    
    (20,448
    )
    
    
    (20,604
    )
    
    
    (7,180
    )
    
    
    (6,530
    )
    
    
    (67,102
    )
    
    
    (61,028
    )Club members deposits
    
    
    (13,045
    )
    
    
    (5,553
    )
    
    
    (12,836
    )
    
    
    (6,375
    )
    
    
    (119,963
    )
    
    
    (59,579
    )Interest rate swap agreements:Assets
    
    
    391
    
    
    
    391
    
    
    
    205
    
    
    
    205
    
    
    
    1,914
    
    
    
    1,914Interest rate swap agreements:Liabilities
    
    
    (26
    )
    
    
    (26
    )
    
    
    (7
    )
    
    
    (7
    )
    
    
    (64
    )
    
    
    (64
    )Foreign currency contracts:Assets
    
    
    275
    
    
    
    275
    
    
    
    23
    
    
    
    23
    
    
    
    215
    
    
    
    215Foreign currency contracts:Liabilities
    
    
    (2
    )
    
    
    (2
    )
    
    
    (160
    )
    
    
    (160
    )
    
    
    (1,496
    )
    
    
    (1,496
    )Currency swaps:Assets
    
    
    107
    
    
    
    107
    
    
    
    5
    
    
    
    5
    
    
    
    46
    
    
    
    46Currency swaps:Liabilities
    
    
    (15
    )
    
    
    (15
    )
    
    
    (216
    )
    
    
    (216
    )
    
    
    (2,019
    )
    
    
    (2,019
    )Currency option contracts:Assets
    
    
    14
    
    
    
    14
    
    
    
    2
    
    
    
    2
    
    
    
    18
    
    
    
    18Currency option contracts:Liabilities
    
    
    (4
    )
    
    
    (4
    )
    
    
    (11
    )
    
    
    (11
    )
    
    
    (103
    )
    
    
    (103
    )
  (h)
    
    LimitationFair 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.  18.
    
    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, 2003, 2004 and 2005, Makitas operating structure included
the following operating segments: Japan Group, North America Group, Europe Group, Asia Group, and
Other Group.Makita evaluates the performance of each operating segment based on U.S. generally accepted
accounting principles. F-42




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##### Table of Contents



Segment Products and Services
Makita is a manufacturer and wholesaler 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, 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-43




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##### Table of Contents



Year ended March 31, 2005 Yen(millions)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    America
    
    
    Europe
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    ¥
    50,955
    
    
    ¥
    38,607
    
    
    ¥
    75,864
    
    
    ¥
    7,378
    
    
    ¥
    21,933
    
    
    ¥
    194,737
    
    
    ¥
    
    
    
    ¥
    194,737Intersegment
    
    
    47,786
    
    
    
    3,583
    
    
    
    5,802
    
    
    
    34,937
    
    
    
    168
    
    
    
    92,276
    
    
    
    (92,276
    )
    
    
    Total
    
    ¥
    98,741
    
    
    ¥
    42,190
    
    
    ¥
    81,666
    
    
    ¥
    42,315
    
    
    ¥
    22,101
    
    
    ¥
    287,013
    
    
    ¥
    (92,276
    )
    
    ¥
    194,737Operating expenses
    
    ¥
    82,826
    
    
    ¥
    40,580
    
    
    ¥
    71,541
    
    
    ¥
    37,389
    
    
    ¥
    21,146
    
    
    ¥
    253,482
    
    
    ¥
    (90,143
    )
    
    ¥
    163,339Operating income
    
    
    15,915
    
    
    
    1,610
    
    
    
    10,125
    
    
    
    4,926
    
    
    
    955
    
    
    
    33,531
    
    
    
    (2,133
    )
    
    
    31,398Long-lived assets
    
    
    36,022
    
    
    
    3,664
    
    
    
    7,405
    
    
    
    7,361
    
    
    
    2,787
    
    
    
    57,239
    
    
    
    (644
    )
    
    
    56,595Identifiable assets
    
    
    224,099
    
    
    
    30,627
    
    
    
    79,309
    
    
    
    31,713
    
    
    
    19,141
    
    
    
    384,889
    
    
    
    (94,985
    )
    
    
    289,904Depreciation and
amortization
    
    
    2,729
    
    
    
    668
    
    
    
    1,057
    
    
    
    794
    
    
    
    186
    
    
    
    5,434
    
    
    
    (53
    )
    
    
    5,381Capital expenditures
    
    
    1,966
    
    
    
    589
    
    
    
    1,289
    
    
    
    1,483
    
    
    
    1,544
    
    
    
    6,871
    
    
    
    (216
    )
    
    
    6,655
  Year ended March 31, 2005 U.S. Dollars(thousands)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    America
    
    
    Europe
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    $
    476,215
    
    
    $
    360,813
    
    
    $
    709,009
    
    
    $
    68,953
    
    
    $
    204,982
    
    
    $
    1,819,972
    
    
    $
    
    
    
    $
    1,819,972Intersegment
    
    
    446,598
    
    
    
    33,486
    
    
    
    54,224
    
    
    
    326,514
    
    
    
    1,569
    
    
    
    862,391
    
    
    
    (862,391
    )
    
    
    Total
    
    $
    922,813
    
    
    $
    394,299
    
    
    $
    763,233
    
    
    $
    395,467
    
    
    $
    206,551
    
    
    $
    2,682,363
    
    
    $
    (862,391
    )
    
    $
    1,819,972Operating expenses
    
    $
    774,075
    
    
    $
    379,252
    
    
    $
    668,607
    
    
    $
    349,430
    
    
    $
    197,626
    
    
    $
    2,368,990
    
    
    $
    (842,457
    )
    
    $
    1,526,533Operating income
    
    
    148,738
    
    
    
    15,047
    
    
    
    94,626
    
    
    
    46,037
    
    
    
    8,925
    
    
    
    313,373
    
    
    
    (19,934
    )
    
    
    293,439Long-lived assets
    
    
    336,654
    
    
    
    34,243
    
    
    
    69,206
    
    
    
    68,794
    
    
    
    26,047
    
    
    
    534,944
    
    
    
    (6,019
    )
    
    
    528,925Identifiable assets
    
    
    2,094,383
    
    
    
    286,234
    
    
    
    741,206
    
    
    
    296,383
    
    
    
    178,888
    
    
    
    3,597,094
    
    
    
    (887,711
    )
    
    
    2,709,383Depreciation and
amortization
    
    
    25,505
    
    
    
    6,243
    
    
    
    9,879
    
    
    
    7,421
    
    
    
    1,738
    
    
    
    50,786
    
    
    
    (496
    )
    
    
    50,290Capital expenditures
    
    
    18,374
    
    
    
    5,505
    
    
    
    12,047
    
    
    
    13,860
    
    
    
    14,430
    
    
    
    64,216
    
    
    
    (2,020
    )
    
    
    62,196
  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 Makitas revenues for each of the years ended March 31, 2003, 2004 and
2005.Segment information is determined by the location of the Company and its relevant subsidiaries. F-44




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##### Table of Contents



Makitas current revenues from external customers by each group of products are set forth
below. (Yen millions, except for percentage amounts)
    
    
    
    
    
    
    U.S. DollarsConsolidated Net Sales by Product Categories
    
    
    
    
    
    
    (thousands)Year ended March 31,2003
    
    
    2004
    
    
    2005
    
    
    2005Portable
Woodworking Tools
    
    
    33,637
    
    
    
    19.1
    %
    
    
    34,452
    
    
    
    18.7
    %
    
    
    34,507
    
    
    
    17.7
    %
    
    
    322,495Portable General
Purpose Tools
    
    
    92,144
    
    
    
    52.5
    %
    
    
    98,176
    
    
    
    53.3
    %
    
    
    105,736
    
    
    
    54.3
    %
    
    
    988,187Stationary
Woodworking
Machines
    
    
    1,924
    
    
    
    1.1
    %
    
    
    1,711
    
    
    
    1.0
    %
    
    
    1,573
    
    
    
    0.8
    %
    
    
    14,701Other Products
    
    
    19,142
    
    
    
    10.9
    %
    
    
    19,548
    
    
    
    10.6
    %
    
    
    21,763
    
    
    
    11.2
    %
    
    
    203,393Parts, Repairs and
Accessories
    
    
    28,756
    
    
    
    16.4
    %
    
    
    30,230
    
    
    
    16.4
    %
    
    
    31,158
    
    
    
    16.0
    %
    
    
    291,196TOTAL
    
    
    175,603
    
    
    
    100.0
    %
    
    
    184,117
    
    
    
    100.0
    %
    
    
    194,737
    
    
    
    100.0
    %
    
    
    1,819,972
  19.
    
    RELATED PARTY TRANSACTIONSOne of the Companys consolidated subsidiaries 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, 2004, and March 31,
2005. In addition, transactions of Makita with Maruwa for the fiscal years ended March 31, 2004
and 2005, 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 ¥199 million
and ¥215 million, respectively, during the fiscal year ended March 31, 2004, and ¥55 million and
¥145 million, respectively, during the fiscal year ended March 31, 2005. Accounts payable by the
Company related to these transactions were ¥79 million as of March 31, 2004, and ¥19 million as of
March 31, 2005.20.
    
    SUBSEQUENT EVENTSOn April 11, 2005, the Nagoya District Court approved the civil rehabilitation plan for the
Companys subsidiary, Joyama Kaihatsu, Ltd., including its payment obligation of the club members
deposits and such plan was confirmed on May 7, 2005. On May 31, 2005, upon confirmation of the
civil rehabilitation plan, Makita transfer its ownership interests in Joyama Kaihatsu, Ltd., to a
third party, Tokyo Tatemono Co. Ltd. In connection with the ownership transfer, Makita was
released from its obligation for club member deposits of ¥6.5 billion ($60.7 million) and other
third party obligations of ¥2.0 billion ($18.7 million) and accordingly, recognized a gain of ¥8.5
billion ($79.4 million) in fiscal year 2006. F-45




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES 
 SCHEDULE I  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES  FOR THE YEARS ENDED MARCH 31, 2003, 2004 AND 2005
 Japanese Yen (millions)AdditionsBalance at
    
    
    Charged to
    
    
    Charged to
    
    
    Deductions
    
    
    
    
    
    
    Balance atbeginning
    
    
    costs and
    
    
    other
    
    
    from
    
    
    Translation
    
    
    end ofDescriptions
    
    of year
    
    
    expenses
    
    
    Accounts
    
    
    reserves
    
    
    adjustments
    
    
    year2003: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
    )
    
    
    8,8282005:Allowance for
doubtful
receivables
    
    
    1,346
    
    
    
    98
    
    
    
    
    
    
    
    (326
    )
    
    
    60
    
    
    
    1,178Deferred
income tax assets
valuation allowance
    
    
    8,828
    
    
    
    234
    
    
    
    
    
    
    
    (929
    )
    
    
    78
    
    
    
    8,211
 F-46