##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
  Form 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) THE SECURITIES
EXCHANGE ACT OF 1934
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) THE SECURITIES
EXCHANGE ACT OF 1934
  KABUSHIKI KAISHA MAKITA
  MAKITA CORPORATION
  Japan
 3-11-8, Sumiyoshi-cho, Anjo City, Aichi Prefecture, Japan
  Title of Each Class
    
    Name of each exchange on which registered* American Depositary Shares
    
    Nasdaq Global Market** Common Stock
 *
    
    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.  Title of each class
    
    Name of each exchange on which registeredNone
    
    None
     Outstanding as ofMarch 31, 2007
    
    
    March 31, 2007Title of Class
    
    (Tokyo time)
    
    
    (New York time)Common Stock,
excluding 307,481
shares of Treasury
Stock
    
    
    143,701,279American Depositary
Shares, each
representing one
share of Common
Stock
    
    
    
    
    
    
    2,485,634
  þ o
  o þ
   þ o
  þ o o
  o þ
  o þ




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Table of Contents
 PageCautionary Statement with Respect to Forward-Looking Statements
    
    
    1PART IItem 1. Identity of Directors, Senior Management and Advisers
    
    
    3Item 2. Offer Statistics and Expected Timetable
    
    
    3Item 3. Key Information
    
    
    3A. Selected financial data
    
    
    3B. Capitalization and indebtedness
    
    
    4C. Reasons 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 4A. Unresolved Staff Comments
    
    
    15Item 5. Operating and Financial Review and Prospects
    
    
    16A. Operating results
    
    
    16B. Liquidity and capital resources
    
    
    31C. Research and development, patents and licenses, etc.
    
    
    35D. Trend information
    
    
    36E. Off-balance sheet arrangements
    
    
    37F. Tabular disclosure of contractual obligations
    
    
    37G. Safe harbor
    
    
    37Item 6. Directors, Senior Management and Employees
    
    
    37A. Directors and senior management
    
    
    37B. Compensation
    
    
    41C. Board practices
    
    
    42D. Employees
    
    
    44E. Share ownership
    
    
    44Item 7. Major Shareholders and Related Party Transactions
    
    
    45A. Major shareholders
    
    
    45B. Related party transactions
    
    
    47C. Interest of experts and counsel
    
    
    47Item 8. Financial Information
    
    
    47A. Consolidated Financial statements and other financial information
    
    
    47B. Significant changes
    
    
    48Item 9. The Offer and Listing
    
    
    48A. Offer and listing details
    
    
    48B. Plan of distribution
    
    
    49C. Markets
    
    
    49D. Selling shareholders
    
    
    49E. Dilution
    
    
    49F. Expenses of the issue
    
    
    49Item 10. Additional Information
    
    
    50A. Share capital
    
    
    50B. Memorandum and articles of association
    
    
    50C. Material contracts
    
    
    59D. Exchange controls
    
    
    59E. Taxation
    
    
    60F. Dividends and paying agents
    
    
    66G. Statement by experts
    
    
    66




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PageH. Documents on display
    
    
    66I. Subsidiary information
    
    
    66Item 11. Quantitative and Qualitative Disclosures about Market Risk
    
    
    66Item 12. Description of Securities Other than Equity Securities
    
    
    69PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    69Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    69Item 15. Controls and Procedures
    
    
    69Item 16A. Audit Committee Financial Expert
    
    
    70Item 16B. Code of ethics
    
    
    70Item 16C. Principal Accountant Fees and Services
    
    
    70Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    72Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchases
    
    
    72PART IIIItem 17. Financial Statements
    
    
    72Item 18. Financial Statements
    
    
    73Item 19. Exhibits
    
    
    73EX-12.1 302 Certification of President and Representative DirectorEX-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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Cautionary Statement with Respect to Forward-Looking Statements
   
    
    The levels of construction activities and capital investments in its markets
    
    Fluctuations in currency exchange rates
    
    Intense competition in global power tools market for professional use
    
    Makitas ability to develop attractive products
    
    Geographic concentration of Makitas main facilities
    
    Makitas overseas activities and entry into overseas markets
    
    Failure to maintain cooperative relationship with significant customers
    
    Failure to deliver materials or parts required for production as scheduled
    
    Procurement of raw materials or their escalating prices
    
    Product liability litigation or recalls
    
    Fluctuations in stock market prices
    
    Failure to protect intellectual property right or infringing the intellectual property of third parties
    
    Environmental or other government regulations
    
    Failure to protect intellectual property rights unintentional infringements of the intellectual
property of third parties
    
    The effects of attestation on internal control over financial reporting expressed by the
Companys auditors
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2




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PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 
 A. Selected financial data
  Yen
    
    
    U.S. Dollars(millions )
    
    
    (thousands)Fiscal year ended March 31,Income Statement Data:
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2007Net sales
    
    ¥
    175,603
    
    
    ¥
    184,117
    
    
    ¥
    194,737
    
    
    ¥
    229,075
    
    
    ¥
    279,933
    
    
    $
    2,372,314Operating income
    
    
    12,468
    
    
    
    14,696
    
    
    
    31,398
    
    
    
    45,778
    
    
    
    48,176
    
    
    
    408,271Net income
    
    
    6,723
    
    
    
    7,691
    
    
    
    22,136
    
    
    
    40,411
    
    
    
    36,971
    
    
    
    313,314
 Net income per share of Common stock and per
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S.ADS:
    
    Yen
    
    
    DollarsBasic
    
    
    45.3
    
    
    
    53.2
    
    
    
    153.9
    
    
    
    281.1
    
    
    
    257.3
    
    
    
    2.18Diluted
    
    
    44.2
    
    
    
    51.9
    
    
    
    148.8
    
    
    
    281.1
    
    
    
    257.3
    
    
    
    2.18
 Yen
    
    
    U.S. Dollars(millions )
    
    
    (thousands)Fiscal year ended March 31,Balance Sheet Data:
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2007Total assets
    
    ¥
    278,600
    
    
    ¥
    278,116
    
    
    ¥
    289,904
    
    
    ¥
    326,038
    
    
    ¥
    368,494
    
    
    $
    3,122,831Cash and cash
equivalents, time
deposits and
marketable securities
    
    
    64,083
    
    
    
    92,616
    
    
    
    91,189
    
    
    
    88,672
    
    
    
    102,211
    
    
    
    866,195Net working capital
    
    
    141,759
    
    
    
    147,822
    
    
    
    149,666
    
    
    
    181,808
    
    
    
    212,183
    
    
    
    1,798,161Short-term borrowings
    
    
    2,892
    
    
    
    14,128
    
    
    
    9;060
    
    
    
    1,728
    
    
    
    1,892
    
    
    
    16,034Long-term indebtedness
    
    
    19,843
    
    
    
    7,364
    
    
    
    88
    
    
    
    104
    
    
    
    53
    
    
    
    449Common stock
    
    
    23,803
    
    
    
    23,803
    
    
    
    23,805
    
    
    
    23,805
    
    
    
    23,805
    
    
    
    201,737Treasury stock
    
    
    (5,110
    )
    
    
    (3,316
    )
    
    
    (3,517
    )
    
    
    (258
    )
    
    
    (298
    )
    
    
    (2,525
    )Shareholders equity
    
    
    182,400
    
    
    
    193,348
    
    
    
    219,640
    
    
    
    266,584
    
    
    
    302,675
    
    
    
    2,565,042Total number of
shares outstanding
    
    
    145,967,876
    
    
    
    143,893,191
    
    
    
    143,777,607
    
    
    
    143,711,766
    
    
    
    143,701,279
    
    
    
    143,701,279
 3




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(Japanese Yen per U.S. $1.00)Fiscal year ended March 31,
    
    High
    
    
    Low
    
    
    Average
    
    
    Year-end2003
    
    
    115.71
    
    
    
    133.40
    
    
    
    121.94
    
    
    
    118.072004
    
    
    104.18
    
    
    
    120.55
    
    
    
    113.07
    
    
    
    104.182005
    
    
    102.26
    
    
    
    114.30
    
    
    
    107.47
    
    
    
    107.222006
    
    
    104.41
    
    
    
    120.93
    
    
    
    113.15
    
    
    
    117.482007
    
    
    110.07
    
    
    
    121.81
    
    
    
    116.92
    
    
    
    117.562008
(through September 24, 2007)
    
    
    113.43
    
    
    
    124.09
    
    
    
    119.40
    
    
    
    114.92
 (Japanese Yen per U.S. $1.00)2007
    
    April
    
    
    May
    
    
    June
    
    

July
    
    

August
    
    

September(until
24)High
    
    
    117.69
    
    
    
    119.77
    
    
    
    121.08
    
    
    
    118.41
    
    
    
    113.81
    
    
    
    113.43Low
    
    
    119.84
    
    
    
    121.79
    
    
    
    124.09
    
    
    
    123.34
    
    
    
    119.76
    
    
    
    116.21
   Yen
    
    
    U.S. DollarsFiscal year ended March 31,
    
    Interim
    
    
    Year-end
    
    
    Interim
    
    
    Year-end2003
    
    
    9.0
    
    
    
    9.0
    
    
    
    0.07
    
    
    
    0.072004
    
    
    9.0
    
    
    
    13.0
    
    
    
    0.09
    
    
    
    0.112005
    
    
    11.0
    
    
    
    36.0
    
    
    
    0.10
    
    
    
    0.342006
    
    
    19.0
    
    
    
    38.0
    
    
    
    0.16
    
    
    
    0.322007
    
    
    19.0
    
    
    
    55.0
    
    
    
    0.16
    
    
    
    0.47
  Note:
    
    Cash dividends in U.S. dollars are based on the exchange rates as of
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
  
 C. Reasons for the offer and use of proceeds
  4




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D. Risk factors
  Makitas sales are affected by the levels of construction activities and capital investments in
its markets.
  Currency exchange rate fluctuations may adversely affect Makitas financial results.
  Makita faces intense competition in the global market for its power tools for professional
use.
  If Makita is not able to develop attractive products, Makitas sales activities may be
adversely affected.
  5




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Geographic concentration of Makitas main facilities may have adverse effects on Makitas
business activities.
  Makitas overseas activities and entry into overseas markets entail risks, which may have a
material adverse effect on Makitas business activities.
  (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.
 If Makita fails to maintain cooperative relationships with significant customers, Makitas
sales may be seriously affected.
  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.
  6




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When the procurement of raw materials used by Makita becomes difficult or prices of these raw
materials rise sharply, this may have an adverse impact on performance.
  Product liability litigation or recalls may harm Makitas financial statements and
reputation.
  Fluctuations in stock market prices may adversely affect Makitas financial statements.
  Makita may be unable to protect its intellectual property rights and could suffer significant
liabilities, litigation costs or licensing expenses or be prevented from selling its products if it
is infringing the intellectual property of third parties.
  Environmental or other government regulations may have a material adverse impact on Makitas
business activities.
  7




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Investor confidence and the value of Makitas ADRs and ordinary shares may be adversely
impacted if Makitas management concludes that Makitas internal control over financial reporting
is not effective or if Makitas independent registered public accounting firm is unable to provide
adequate attestation over the adequacy of the internal control over Makitas financial reporting as
required by Section 404 of the Sarbanes-Oxley Act of 2002
  
 Item 4. Information on the Company
 
 A. History and development of the Company
      8




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B. Business overview
   Products
    9




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(millions of yen, except for percentage amounts)
    
    
    U.S. DollarsConsolidated Net Sales by Product Categories
    
    
    (thousands)Fiscal year ended March 31,2005
    
    
    2006
    
    
    2007
    
    
    2007Power Tools
    
    ¥
    142,477
    
    
    
    73.2
    %
    
    ¥
    171,376
    
    
    
    74.8
    %
    
    ¥
    210,894
    
    
    
    75.3
    %
    
    
    1,787,237Gardening and
Household Products
    
    
    21,102
    
    
    
    10.8
    %
    
    
    23,434
    
    
    
    10.2
    %
    
    
    28,123
    
    
    
    10.0
    %
    
    
    238,331Parts, repairs and
accessories
    
    
    31,158
    
    
    
    16.0
    %
    
    
    34,265
    
    
    
    15.0
    %
    
    
    40,916
    
    
    
    14.7
    %
    
    
    346,746Total
    
    
    194,737
    
    
    
    100.0
    %
    
    
    229,075
    
    
    
    100.0
    %
    
    
    279,933
    
    
    
    100.0
    %
    
    
    2,372,314
 Power Tools
        10




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Gardening and Household Products
  Parts, repairs and accessories
  Principal Markets, Distribution and After-Sale Services
  (Millions of yen, except percentage amount)
    
    
    U.S. DollarsConsolidated Net Sales by Geographic Area
    
    
    (thousands)Fiscal year ended March 31,2005
    
    
    2006
    
    
    2007
    
    
    2007Japan
    
    ¥
    39,379
    
    
    
    20.2
    %
    
    ¥
    41,600
    
    
    
    18.2
    %
    
    ¥
    46,860
    
    
    
    16.7
    %
    
    $
    397,119Europe
    
    
    75,263
    
    
    
    38.6
    
    
    
    90,504
    
    
    
    39.5
    
    
    
    124,020
    
    
    
    44.3
    
    
    
    1,051,017North America
    
    
    38,490
    
    
    
    19.8
    
    
    
    47,673
    
    
    
    20.8
    
    
    
    51,472
    
    
    
    18.4
    
    
    
    436,203Asia (excluding Japan)
    
    
    16,341
    
    
    
    8.4
    
    
    
    16,993
    
    
    
    7.4
    
    
    
    19,469
    
    
    
    7.0
    
    
    
    164,992Other
    
    
    25,264
    
    
    
    13.0
    
    
    
    32,305
    
    
    
    14.1
    
    
    
    38,112
    
    
    
    13.6
    
    
    
    322,983Total
    
    ¥
    194,737
    
    
    
    100.0
    %
    
    ¥
    229,075
    
    
    
    100.0
    %
    
    ¥
    279,933
    
    
    
    100.0
    %
    
    $
    2,372,314
 Japan
  11




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Overseas
    Seasonality
  Competition
   12




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Raw Materials and Sources of Supply
     Government Regulations
   Intellectual Property Rights
  Legal
Proceedings
  
 C. Organizational structure
  13




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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 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
    
    
    100.0S.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 Oy
    
    Finland
    
    
    100.0Makita (China) Co., Ltd.
    
    China
    
    
    100.0Makita (Kunshan) Co., Ltd.
    
    China
    
    
    100.0Makita (Australia) Pty. Ltd.
    
    Australia
    
    
    100.0Makita Gulf FZE
    
    U.A.E.
    
    
    100.0
 
 D. Property, plant and equipment
 
  
 Floor spaceLocation
    
    (Square meters)
    
    
    Principal products manufacturedIn Japan;Makita CorporationOkazaki Plants
    
    
    111,989
    
    
    Electric power  tools, etc.Makita Ichinomiya
Corporation
    
    
    5,387
    
    
    Stationary woodworking machinesOverseas;Makita Corporation of America
    
    
    24,053
    
    
    Electric power tools, etc.Makita (China) Co., Ltd.
    
    
    50,512
    
    
    Electric power tools, etc.Makita (Kunshan) Co., Ltd.
    
    
    17,969
    
    
    Electric power tools, etc.Makita Manufacturing Europe
Ltd.
    
    
    11,520
    
    
    Electric power tools, etc.Dolmar GmbH
    
    
    17,747
    
    
    Engine powered equipmentMakita EU S.R.L
    
    
    6,975
    
    
    Electric power tools, etc.. (Commencement of production: April 2007)
    14




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
    
    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.
    
 Item 4A. Unresolved Staff Comments
  15




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Item 5. Operating and Financial Review and Prospects
 
 A. Operating results
  U.S. Dollars (thousands,(Millions of yen, except for percentage amounts)
    
    except for percentage amounts)2005
    
    2006
    
    2007
    
    2007Change%
    
    
    
    
    
    %
    
    
    
    
    
    %
    
    
    
    
    
    %NET SALES
    
    ¥
    194,737
    
    
    
    100.0
    
    
    ¥
    229,075
    
    
    
    100.0
    
    
    ¥
    279,933
    
    
    
    100.0
    
    
    $
    2,372,314
    
    
    
    22.2Cost of sales
    
    
    113,323
    
    
    
    58.2
    
    
    
    132,897
    
    
    
    58.0
    
    
    
    163,909
    
    
    
    58.6
    
    
    
    1,389,060
    
    
    
    23.3GROSS PROFIT
    
    
    81,414
    
    
    
    41.8
    
    
    
    96,178
    
    
    
    42.0
    
    
    
    116,024
    
    
    
    41.4
    
    
    
    983,254
    
    
    
    20.6Selling, general and
administrative expenses
    
    
    52,646
    
    
    
    27.1
    
    
    
    58,726
    
    
    
    25.6
    
    
    
    66,802
    
    
    
    23.9
    
    
    
    566,118
    
    
    
    13.8Losses (Gains) on disposals or
sales of property, plant and
equipment, net
    
    
    1,234
    
    
    
    0.6
    
    
    
    (8,326
    )
    
    
    (3.6
    )
    
    
    (249
    )
    
    
    (0.1
    )
    
    
    (2,110
    )
    
    
    (97.0
    )Impairment of long-lived assets
    
    
    577
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    1,295
    
    
    
    0.4
    
    
    
    10,975
    
    
    
    Transfer to the government of
the substitutional portion of
pension plan
    
    
    (4,441
    )
    
    
    (2.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OPERATING INCOME
    
    
    31,398
    
    
    
    16.1
    
    
    
    45,778
    
    
    
    20.0
    
    
    
    48,176
    
    
    
    17.2
    
    
    
    408,271
    
    
    
    5.2OTHER INCOME(EXPENSES)Interest and dividend income
    
    
    1,157
    
    
    
    0.6
    
    
    
    1,301
    
    
    
    0.6
    
    
    
    1,364
    
    
    
    0.5
    
    
    
    11,559
    
    
    
    4.8Interest expense
    
    
    (588
    )
    
    
    (0.3
    )
    
    
    (364
    )
    
    
    (0.2
    )
    
    
    (316
    )
    
    
    (0.1
    )
    
    
    (2,678
    )
    
    
    (13.2
    )Exchange gains (losses) on
foreign currency transactions,
net
    
    
    37
    
    
    
    0.0
    
    
    
    (258
    )
    
    
    (0.1
    )
    
    
    (418
    )
    
    
    (0.2
    )
    
    
    (3,542
    )
    
    
    62.0Realized gains on securities, net
    
    
    453
    
    
    
    0.2
    
    
    
    2,918
    
    
    
    1.3
    
    
    
    918
    
    
    
    0.3
    
    
    
    7,780
    
    
    
    (68.5
    )Other, net
    
    
    161
    
    
    
    0.1
    
    
    
    (232
    )
    
    
    (0.1
    )
    
    
    (401
    )
    
    
    (0.1
    )
    
    
    (3,398
    )
    
    
    72.8Total
    
    
    1,220
    
    
    
    0.6
    
    
    
    3,365
    
    
    
    1.5
    
    
    
    1,147
    
    
    
    0.4
    
    
    
    9,721
    
    
    
    (65.9
    )INCOME BEFORE INCOME TAXES
    
    
    32,618
    
    
    
    16.7
    
    
    
    49,143
    
    
    
    21.5
    
    
    
    49,323
    
    
    
    17.6
    
    
    
    417,992
    
    
    
    0.4PROVISION FOR INCOME TAXES
    
    
    10,482
    
    
    
    5.3
    
    
    
    8,732
    
    
    
    3.8
    
    
    
    12,352
    
    
    
    4.4
    
    
    
    104,678
    
    
    
    41.5NET INCOME
    
    
    22,136
    
    
    
    11.4
    
    
    
    40,411
    
    
    
    17.6
    
    
    
    36,971
    
    
    
    13.2
    
    
    
    313,314
    
    
    
    (8.5
    )
 General Overview
   16




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##### Table of Contents



Fiscal Year 2007 compared to FY 2006
 Net sales
   17




---



##### Table of Contents



Sales by region
       18




---



##### Table of Contents



Review of Performance by Product Group
 Power Tools
 Gardening and Household Products
 Parts, Repairs and Accessories
 Cost of Sales
 Gross Profit  (¥
 Selling, General and Administrative Expenses
  19




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##### Table of Contents



Losses (Gains) on disposal or sales of property, plant and equipment
 Impairment of Long lived assets
 Operating Income
 Other Income (Expenses)
 (1) Realized gains on securities decreased by ¥2,000 million to¥918 million due to the gain on
securities, net, in the amount of ¥2,528 million resulting from the merger of UFJ Holdings
Co., Ltd., and Mitsubishi Tokyo Financial Group Co., Ltd., in FY 2006 that did not reoccur in
FY 2007.(2) The amount of foreign exchange losses increased by ¥160 million, to ¥418 million in FY 2007
due to foreign exchange losses in China caused by the appreciation of yuan against the U.S.
dollar.
 Income before income taxes
  Provision for income taxes
 20




---



##### Table of Contents



Net income
  Earnings per share
 Regional Segments
 Japan Segment
 Europe Segment
 North America Segment
 Asia Segment (excluding Japan)
 Other Segment
 21




---



##### Table of Contents



Fiscal Year 2006 Compared to FY 2005
 Net sales
     Sales by region
  22




---



##### Table of Contents



Review of Performance by Product Group
 Power Tools
 Gardening and household products
  Parts, Repairs and Accessories
  23




---



##### Table of Contents



Cost of Sales
 Gross Profit  (¥
 Selling, General and Administrative Expenses
  Losses (Gains) on disposal or sales of property, plant and equipment
 Transfer to the government of a substitutional portion of pension plan
 Operating
Income
   24




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##### Table of Contents



Other Income (Expenses)
      Income before income taxes
  Provision for income taxes
  Net income
 Earnings per share
 Regional Segments
 25




---



##### Table of Contents



Japan Segment
 North America Segment
 Europe Segment
 Asia Segment (excluding Japan)
 Other Segment
 CRITICAL ACCOUNTING POLICIES
 26




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##### Table of Contents



Revenue Recognition
       Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)For the year ended March 31,2005
    
    
    2006
    
    
    2007
    
    
    2007Volume-based rebates:Actual payment for the year
    
    
    (3,836
    )
    
    
    (5,104
    )
    
    
    (6,342
    )
    
    
    (53,476
    )Income statement impact for the year
    
    
    4,333
    
    
    
    5,726
    
    
    
    7,477
    
    
    
    63,364Accrued expenses or deduction of account receivables (BS)
as of March 31,
    
    
    2,102
    
    
    
    2,724
    
    
    
    3,859
    
    
    
    32,703Cooperative advertisings:Actual payment for the year
    
    
    (1,900
    )
    
    
    (2,127
    )
    
    
    (2,646
    )
    
    
    (22,424
    )Income statement impact for the year
    
    
    1,812
    
    
    
    2,196
    
    
    
    3,026
    
    
    
    25,644Accrued expenses or deduction of account receivables (BS)
as of March 31,
    
    
    508
    
    
    
    577
    
    
    
    957
    
    
    
    8,110
 27




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##### Table of Contents



Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)For the year ended March 31,2005
    
    
    2006
    
    
    2007
    
    
    2007Cash discounts:Actual payment for the year
    
    
    (3,682
    )
    
    
    (4,311
    )
    
    
    (5,061
    )
    
    
    (42,890
    )Income statement impact for the year
    
    
    3,684
    
    
    
    4,371
    
    
    
    5,315
    
    
    
    45,042Accrued expenses or deduction of account receivables (BS)
as of March 31,
    
    
    431
    
    
    
    491
    
    
    
    745
    
    
    
    6,314
 Inventory valuation and reserve
 Impairment Losses on Securities
 Allowance for Doubtful Receivables
 Impairment of Long-Lived Assets
 28




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Accrued Retirement and Termination Benefits
     29




---



##### Table of Contents



Change in
    
    Change inprojected benefit
    
    pre-tax pensionChange in assumption
    
    obligation
    
    expensesYen (millions)50 basis point increase / decrease in discount rate
    
    
    -2,200 / +2,500
    
    
    
    -5 / +450 basis point increase / decrease in expected return on assets
    
    
    
    
    
    
    -150 / +150
  Realizability of Deferred Income Tax Assets
  New
Accounting Standards
  30




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##### Table of Contents



B. Liquidity and capital resources
      31




---



##### Table of Contents



Fiscal year 2007
 Cash Flows
      
    
    Rebuilding of Okazaki factory,
    
    Improvements to the Headquarter buildings,
    
    Construction of Makita Romania factory,
    
    Purchases of machine and equipment for Makita China factory,
    
    Purchases of metal molds used for new-production, and
    
    Payments of the outstanding acquisition costs (¥649 million) of Kanematsu-NNK Corp.
    
    To fund its investing activities, Makita realized proceeds of ¥18,611 million from sales and maturities of securities.
In FY 2007, net cash inflow from sales and maturities of securities decreased by ¥15,739 million from ¥34,350 million.
 
 32




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##### Table of Contents



Capital Expenditures
     Fiscal year 2006
 Cash Flows
     33




---



##### Table of Contents



Capital Expenditures
    34




---



##### Table of Contents



Financial Position
        
 C. Research and development, patents and licenses, etc.
    35




---



##### Table of Contents



D. Trend information
    
    
    Competition between companies in the European market will increase even though the market
environment will continue to be steady.
    
    There will be a slowdown in demand in the Eastern Europe and Russian markets in reaction to
stronger growth resulting from the warm winter a year earlier.
    
    In the United States, competition will be heightened between mass-market retailers, which
have increased their share of sales.
    
    Competition will intensify primarily in the Asian markets since Chinese power tools
manufacturers will work to expand their positions.
    
    In emerging markets such as those of Latin America, demand will grow.
    
    In industrially advanced nations, demand is expected to be firm for high value-added products.
 36




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##### Table of Contents



E. Off-balance sheet arrangements
  
 F. Tabular disclosure of contractual obligations
 Yen (millions)Expected payment date, year ending March 31,Total
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    ThereafterCapital lease
    
    
    129
    
    
    
    76
    
    
    
    32
    
    
    
    17
    
    
    
    3
    
    
    
    1
    
    
    
    Interest expenses
on Capital lease
    
    
    12
    
    
    
    5
    
    
    
    4
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Operating lease
    
    
    2,003
    
    
    
    603
    
    
    
    468
    
    
    
    294
    
    
    
    203
    
    
    
    138
    
    
    
    297Contributions to
defined benefit
plan
    
    
    3,173
    
    
    
    3,173
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Derivative
financial
instruments
    
    
    19,603
    
    
    
    19,603
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligation
    
    
    12,383
    
    
    
    12,047
    
    
    
    336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    ¥
    37,303
    
    
    ¥
    35,507
    
    
    ¥
    840
    
    
    ¥
    314
    
    
    ¥
    206
    
    
    ¥
    139
    
    
    ¥
    297
 U.S. Dollars (thousands)Expected payment date, year ending March 31,Total
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    ThereafterCapital lease
    
    
    1,093
    
    
    
    644
    
    
    
    271
    
    
    
    144
    
    
    
    26
    
    
    
    8
    
    
    
    Interest expenses
on Capital lease
    
    
    102
    
    
    
    43
    
    
    
    34
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    Operating lease
    
    
    16,975
    
    
    
    5,111
    
    
    
    3,966
    
    
    
    2,492
    
    
    
    1,720
    
    
    
    1,169
    
    
    
    2,517Contributions to
defined benefit
plan
    
    
    26,890
    
    
    
    26,890
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Derivative
financial
instruments
    
    
    166,127
    
    
    
    166,127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligation
    
    
    104,941
    
    
    
    102,094
    
    
    
    2,847
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    316,128
    
    
    $
    300,909
    
    
    $
    7,118
    
    
    $
    2,661
    
    
    $
    1,746
    
    
    $
    1,177
    
    
    $
    2,517
  G. Safe harbor
 Item 6. Directors, Senior Management and Employees
 
 A. Directors and senior management
  
 37




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38




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##### Table of Contents



39




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##### Table of Contents



40




---



##### Table of Contents



B. Compensation
    41




---



##### Table of Contents



C. Board practices
     42




---



##### Table of Contents



Exemptions from certain NASDAQ Corporate Governance Rules
     (1)
    
    acquisition of its own shares from specific persons other than its subsidiaries;(2)
    
    consolidation of shares;(3)
    
    any offering of new shares or existing shares held by the Company as treasury stock at a specially favorable
price (or any offering of stock acquisition rights, or bonds with stock acquisition rights at specially
favorable conditions) to any persons other than shareholders;(4)
    
    the removal of a Statutory Auditor;(5)
    
    the exemption of liability of a Director, Statutory Auditor or Accounting Auditor with certain exceptions;(6)
    
    a reduction of stated capital with certain exceptions in which a special shareholders resolution is not required;(7)
    
    a distribution of surplus in kind other than dividends which meets certain requirements;
 43




---



##### Table of Contents



(8)
    
    dissolution, merger, consolidation or corporate split with certain exceptions in which a shareholders resolution
is not required;(9)
    
    the transfer of the whole or a material part of the business with certain exceptions in which a shareholders
resolution is not required;(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; or(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.
 
 D. Employees
  As of March 31,2005
    
    
    2006
    
    
    2007Categorized by Geographic AreasJapan
    
    
    2,996
    
    
    
    3,038
    
    
    
    3,007Overseas
    
    
    5,564
    
    
    
    5,591
    
    
    
    6,055Total
    
    
    8,560
    
    
    
    8,629
    
    
    
    9,062
    
 E. Share ownership
  Identity of
    
    Number of
    
    Percentage ofPerson or Group
    
    Shares Owned
    
    voting rightDirectors and Statutory Auditors
    
    
    2,121,016
    
    
    
    1.47 %
  Name
    
    Position
    
    Number of sharesMasahiko Goto
    
    President, Representative Director
    
    
    1,975,543Masami Tsuruta
    
    Managing Director
    
    
    16,722Yasuhiko Kanzaki
    
    Director
    
    
    11,869
 44




---



##### Table of Contents



Name
    
    Position
    
    Number of sharesKenichiro Nakai
    
    Director
    
    
    12,200Tadayoshi Torii
    
    Director
    
    
    13,300Tomoyasu Kato
    
    Director
    
    
    12,472Kazuya Nakamura
    
    Director
    
    
    7,800Masahiro Yamaguchi
    
    Director
    
    
    6,300Shiro Hori
    
    Director
    
    
    9,100Tadashi Asanuma
    
    Director
    
    
    5,300Hisayoshi Niwa
    
    Director
    
    
    6,500Zenji Mashiko
    
    Director
    
    
    6,300Akio Kondo
    
    Standing Statutory Auditor
    
    
    6,600Hiromichi Murase
    
    Standing Statutory Auditor
    
    
    4,810Keiichi Usui
    
    Outside Statutory Auditor
    
    
    8,100Shoichi Hase
    
    Outside Statutory Auditor
    
    
    18,100
  
 Item 7. Major Shareholders and Related Party Transactions
 
 A. Major Shareholders
    Name of Beneficial Owner
    
    Number of Shares
    
    PercentageJapan Trustee Services
Bank, Ltd. (Trust
account)
    
    
    11,275,300
    
    
    
    7.85%
 45




---



##### Table of Contents



Shares Owned
    
    
    
    
    
    Number of
    
    Shares OwnedDate of
    
    Prior to
    
    
    
    
    
    Shares
    
    After theName of Shareholder
    
    Transaction
    
    Transaction
    
    Percentage
    
    Changed
    
    Transaction
    
    PercentageNippon 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
    %
    
    
    (293,559
    )
    
    
    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
    %
    
    
    (1,520,000
    )
    
    
    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
    %Barclays Global Investors, N.A.
    
    June 30, 2005
    
    
    7,783,444
    
    
    
    5.26
    %
    
    
    (2,915,000
    )
    
    
    4,868,444
    
    
    
    3.29
    %Silchester International
Investors Limited
    
    September 23, 2005
    
    
    8,959,000
    
    
    
    6.05
    %
    
    
    (1,017,000
    )
    
    
    7,942,000
    
    
    
    5.37
    %Goldman Sachs International
    
    September 30, 2005
    
    
    8,899,979
    
    
    
    6.01
    %
    
    
    1,591,162
    
    
    
    10,491,141
    
    
    
    7.08
    %Mitsubishi UFJ Financial Group
    
    October 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,164,923
    
    
    
    5.52
    %Goldman Sachs International
    
    November 30, 2005
    
    
    10,491,141
    
    
    
    7.08
    %
    
    
    (3,909,960
    )
    
    
    6,581,181
    
    
    
    4.45
    %Silchester International
Investors Limited
    
    January 6, 2006
    
    
    7,942,000
    
    
    
    5.37
    %
    
    
    (588,400
    )
    
    
    7,353,600
    
    
    
    4.97
    %Mitsubishi UFJ Financial Group
    
    January 31, 2006
    
    
    8,164,923
    
    
    
    5.52
    %
    
    
    857,200
    
    
    
    9,022,123
    
    
    
    6.10
    %Barclays Global Investors, N.A.
    
    March 31, 2006
    
    
    4,868,444
    
    
    
    3.38
    %
    
    
    4,161,108
    
    
    
    9,029,552
    
    
    
    6.27
    %Mitsubishi UFJ Financial Group
    
    April 30, 2006
    
    
    9,022,123
    
    
    
    6.26
    %
    
    
    1,556,200
    
    
    
    10,578,323
    
    
    
    7.35
    %Barclays Global Investors, N.A.
    
    June 30, 2006
    
    
    9,029,552
    
    
    
    6.27
    %
    
    
    (905,026
    )
    
    
    8,124,526
    
    
    
    5.64
    %Mitsubishi UFJ Financial Group
    
    July 31, 2006
    
    
    10,578,323
    
    
    
    7.35
    %
    
    
    (625,100
    )
    
    
    9,953,223
    
    
    
    6.91
    %Barclays Global Investors, N.A.
    
    September 30, 2006
    
    
    8,124,526
    
    
    
    5.64
    %
    
    
    (2,089,460
    )
    
    
    6,035,066
    
    
    
    4.19
    %Nomura Asset Management
    
    January 15, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,528,400
    
    
    
    5.23
    %Mitsubishi UFJ Financial Group
    
    January 22, 2007
    
    
    9,953,223
    
    
    
    6.91
    %
    
    
    (1,408,800
    )
    
    
    8,544,423
    
    
    
    5.93
    %
     46




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##### Table of Contents



B. Related party transactions
    
 C. Interest of experts and counsel
  
 Item 8. Financial Information
 
 A. Consolidated Financial statements and other financial information
 1-3. Consolidated Financial Statements
   
 7. Legal or arbitration proceedings
 8. Dividend Policy
 47




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##### Table of Contents



In Yen
    
    
    In U.S. DollarsFiscal year ended March 31
    
    Interim
    
    
    Year-end
    
    
    Interim
    
    
    Year-end2002
    
    
    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
    
    
    
    0.342006
    
    
    19.0
    
    
    
    38.0
    
    
    
    0.16
    
    
    
    0.322007
    
    
    19.0
    
    
    
    55.0
    
    
    
    0.16
    
    
    
    0.47
  
 B. Significant changes
  
 Item 9. The Offer and Listing
 
 A. Offer and listing details
   48




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##### Table of Contents



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
    
    
    Low2003
    
    
    909
    
    
    
    654
    
    
    
    7.55
    
    
    
    5.352004
    
    
    1,343
    
    
    
    834
    
    
    
    15.45
    
    
    
    10.002005
    
    
    2,115
    
    
    
    1,315
    
    
    
    20.27
    
    
    
    12.002006
    
    
    3,820
    
    
    
    1,755
    
    
    
    34.19
    
    
    
    16.152007
    
    
    4,630
    
    
    
    2,995
    
    
    
    39.00
    
    
    
    26.03QuarterlyFiscal year 20061
st quarter ended June 30, 2005
    
    
    2,355
    
    
    
    1,755
    
    
    
    21.75
    
    
    
    16.152
nd quarter ended September 30, 2005
    
    
    2,540
    
    
    
    2,150
    
    
    
    21.59
    
    
    
    19.063
rd quarter ended December 31, 2005
    
    
    3,070
    
    
    
    2,255
    
    
    
    24.40
    
    
    
    19.554
th quarter ended March 31, 2006
    
    
    3,820
    
    
    
    2,830
    
    
    
    34.90
    
    
    
    24.22Fiscal year 20071
st quarter ended June 30, 2006
    
    
    3,830
    
    
    
    2,995
    
    
    
    34.34
    
    
    
    26.032
nd quarter ended September 30, 2006
    
    
    3,830
    
    
    
    3,210
    
    
    
    33.16
    
    
    
    27.563
rd quarter ended December 31, 2006
    
    
    3,730
    
    
    
    3,110
    
    
    
    31.49
    
    
    
    26.784
th quarter ended March 31, 2007
    
    
    4,630
    
    
    
    3,570
    
    
    
    39.00
    
    
    
    30.23Fiscal year 20081
st quarter ended June 30, 2007
    
    
    5,650
    
    
    
    4,210
    
    
    
    45.30
    
    
    
    35.64MonthlyMarch 2007
    
    
    4,570
    
    
    
    4,070
    
    
    
    39.00
    
    
    
    34.54April 2007
    
    
    4,600
    
    
    
    4,210
    
    
    
    38.44
    
    
    
    35.64May 2007
    
    
    5,060
    
    
    
    4,540
    
    
    
    41.99
    
    
    
    37.64June 2007
    
    
    5,650
    
    
    
    4,920
    
    
    
    45.30
    
    
    
    40.34July 2007
    
    
    5,820
    
    
    
    5,010
    
    
    
    46.20
    
    
    
    41.29August
    
    
    5,680
    
    
    
    4,030
    
    
    
    47.44
    
    
    
    35.20
 
 B. Plan of distribution
  
 C. Markets
  
 D. Selling shareholders
  
 E. Dilution
  
 F. Expenses of the issue
 49




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##### Table of Contents



Item 10. Additional Information
 
 A. Share capital
  
 B. Memorandum and articles of association
 Organization
 (kabushiki kaisha) (kaishaho) (shogyo tokibo)
 Objects and purposes
  
    
    Manufacture and sale of machine tools including electric power tools and 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 right, copyright and other
intellectual property right 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
   
    
    the Directors or Statutory Auditors power to vote in connection with their compensation;
    
    the borrowing power exercizable 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.
 50




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##### Table of Contents




    
    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;
    
    to establish, change or abolish material corporate organization such as a branch office;
    
    to determine material conditions concerning offering of corporate bonds; and
    
    to establish and maintain an internal control system.
  Common stock
 General
     51




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##### Table of Contents



Authorized capital
    Dividends from Surplus
 Dividends from Surplus  General
  (a)
    
    Articles of Incorporation of the Company so provide;(b)
    
    the normal term of office of the Directors is no longer than one year; and(c)
    
    its non-consolidated annual financial statements and certain documents
for the latest business year present fairly its assets and profit or
loss, a s required by ordinances of the Ministry of Justice.
    52




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Restriction on dividends from Surplus
     A =
    
    the total amount of other capital surplus and other retained
earnings, each such amount being that appearing on the
non-consolidated balance sheet as of the end of the last business
yearB =
    
    (if the Company has disposed of its treasury stock after the end of
the last business year) the amount of the consideration for such
treasury stock received by the Company less the book value thereofC =
    
    (if the Company has reduced its stated capital after the end of the
last business year) the amount of such reduction less the portion
thereof that has been transferred to additional paid-in capital or
legal reserve (if any)D =
    
    (if the Company has reduced its additional paid-in capital or legal
reserve after the end of the last business year) the amount of such
reduction less the portion thereof that has been transferred to
stated capital (if any)E =
    
    (if the Company has cancelled its treasury stock after the end of
the last business year) the book value of such treasury stockF =
    
    (if the Company has distributed Surplus to its shareholders after
the end of the last business year) the total book value of the
Surplus so distributedG =
    
    certain other amounts set forth in ordinances of the Ministry of
Justice, including (if the Company has reduced Surplus and increased
its stated capital, additional paid-in capital or legal reserve
after the end of the last business year) the amount of such
reduction and (if the Company has distributed surplus to the
shareholders after the end of the last business year) the amount set
aside in additional paid-in capital or legal reserve (if any) as
required by ordinances of the Ministry of Justice
  (a)
    
    the book value of its treasury stock;(b)
    
    the amount of consideration for any of the treasury stock disposed of
by the Company after the end of the last business year; and(c)
    
    certain other amounts set forth in ordinances of the Ministry of
Justice, including (if the sum of one-half of goodwill and the
deferred assets exceeds the total of stated capital, additional
paid-in capital and legal reserve, each such amount being that
appearing on the non-consolidated balance sheet as of the end of the
last business year) all or certain part of such exceeding amount as
calculated in accordance with the ordinances of the Ministry of
Justice.
 53




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renketsu haito kisei
tekiyo kaisha
  Stock splits
   Consolidation of shares
 Voting Rights
 General meeting of shareholders
   54




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##### Table of Contents



Voting rights
 Unit share system
  (1)
    
    Acquisition of its own shares from specific persons other than its subsidiaries;(2)
    
    consolidation of shares;(3)
    
    any offering of new shares or existing shares held by the Company as treasury stock at a specially favorable
price (or any offering of stock acquisition rights, or bonds with stock acquisition rights at specially
favorable conditions) to any persons other than shareholders;(4)
    
    the removal of a Statutory Auditor;(5)
    
    the exemption of liability of a Director, Statutory Auditor or Accounting Auditor with certain exceptions;(6)
    
    a reduction of stated capital with certain exceptions in which a special shareholders resolution is not required;(7)
    
    a distribution of surplus in kind other than dividends which meets certain requirements;(8)
    
    dissolution, merger, consolidation or corporate split with certain exceptions in which a shareholders resolution
is not required;
 55




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##### Table of Contents



Issue of additional shares and pre-emptive rights
 Voting rights
 Voting rights
  Liquidation rights
  Record date
  56




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Acquisition by the Company of Common Stock
   Issue of additional shares and pre-emptive rights
 Unit share system
     57




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Sale by the Company of shares held by shareholders whose location is unknown
   Reporting of substantial shareholdings
   58




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##### Table of Contents



C. Material contracts
  
 D. Exchange controls
   
    
    Individuals who do not reside in Japan; and
    
    corporations whose principal offices are located outside Japan.
   
    
    Individuals who are exchange non-residents;
    
    corporations that are organized under the laws of foreign countries or
whose principal offices are located outside of Japan;
    
    corporations of which 50 percent or more of their shares are held by
individuals who are exchange non-residents and/or corporations (1)
that are organized under the laws of foreign countries or (2) whose
principal offices are located outside of Japan; or
    
    corporations a majority of whose officers, or officers having the
power of representation, are individuals who are exchange
non-residents.
 59




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##### Table of Contents



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.
  60




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##### Table of Contents



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.
  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 through
which the U.S. holder carries on or has carried on business 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.
   Japanese Taxation
    61




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##### Table of Contents



U.S. Federal Income Taxation
 U.S. Holders
  62




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##### Table of Contents



Taxation of Dividends
       
    
    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,
 63




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##### Table of Contents



Taxation of Capital Gains and Losses
   Passive Foreign Investment Companies
  64




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##### Table of Contents



Non-U.S. Holders
    (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
   65




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##### Table of Contents



F. Dividends and paying agents
  
 G. Statement by experts
  
 H. Documents on display
  
 I. Subsidiary information
 
  Item 11. Quantitative and Qualitative Disclosures about Market Risk
 Market Risk Exposure
 Equity and Debt Securities Price Risk
 66




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##### Table of Contents



Yen (millions)
    
    U.S. Dollars (thousands)2006
    
    2007
    
    2007Carrying
    
    
    
    Carrying
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueDue within one year
    
    ¥
    4,492
    
    
    ¥
    4,493
    
    
    ¥
    6,323
    
    
    ¥
    6,322
    
    
    $
    53,585
    
    
    $
    53,576Due after one year through five years
    
    
    6,169
    
    
    
    6,150
    
    
    
    2,203
    
    
    
    2,195
    
    
    
    18,669
    
    
    
    18,602Due after five years
    
    
    5,600
    
    
    
    5,494
    
    
    
    5,921
    
    
    
    5,822
    
    
    
    50,178
    
    
    
    49,339Indefinite periods
    
    
    30,990
    
    
    
    30,989
    
    
    
    42,697
    
    
    
    42,697
    
    
    
    361,839
    
    
    
    361,839Equity securities
    
    
    30,961
    
    
    
    30,961
    
    
    
    28,352
    
    
    
    28,352
    
    
    
    240,271
    
    
    
    240,271¥
    78,212
    
    
    ¥
    78,087
    
    
    ¥
    85,496
    
    
    ¥
    85,388
    
    
    $
    724,542
    
    
    $
    723,627
 67




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##### Table of Contents



Foreign Exchange Risk
 Yen (millions) (except average contractual rates)
    
    
    U.S. Dollars (thousands)2006
    
    
    2007
    
    
    2007Average
    
    
    
    
    
    
    
    
    
    
    AverageContract
    
    
    
    
    
    
    contractual
    
    
    Contract
    
    
    
    
    
    
    contractual
    
    
    Contractamounts
    
    
    Fair Value
    
    
    rates
    
    
    amounts
    
    
    Fair Value
    
    
    rates
    
    
    Amounts
    
    
    Fair ValueForeign currency
contracts;U.S.$/Yen
    
    ¥
    4,368
    
    
    ¥
    (11
    )
    
    ¥
    116.49
    
    
    ¥
    3,107
    
    
    ¥
    2
    
    
    ¥
    117.50
    
    
    $
    26,331
    
    
    $
    17Euro/Yen
    
    
    4,148
    
    
    
    (67
    )
    
    
    140.14
    
    
    
    5,387
    
    
    
    (60
    )
    
    
    115.15
    
    
    
    45,653
    
    
    
    (508
    )A$/Yen
    
    
    344
    
    
    
    10
    
    
    
    85.91
    
    
    
    343
    
    
    
    (8
    )
    
    
    92.69
    
    
    
    2,907
    
    
    
    (68
    )STG/Yen
    
    
    8
    
    
    
    
    
    
    
    201.98
    
    
    
    58
    
    
    
    
    
    
    
    230.96
    
    
    
    492
    
    
    
    Euro/STG
    
    
    1,421
    
    
    
    (10
    )
    
    
    
    
    
    
    1,579
    
    
    
    (1
    )
    
    
    
    
    
    
    13,381
    
    
    
    (8
    )US$/EUR
    
    
    1,151
    
    
    
    (10
    )
    
    
    
    
    
    
    1,794
    
    
    
    (13
    )
    
    
    
    
    
    
    15,203
    
    
    
    (112
    )Other
    
    
    387
    
    
    
    18
    
    
    
    
    
    
    
    811
    
    
    
    (20
    )
    
    
    
    
    
    
    6,872
    
    
    
    (168
    )Total
    
    ¥
    11,827
    
    
    ¥
    (70
    )
    
    
    
    
    
    ¥
    13,079
    
    
    ¥
    (100
    )
    
    
    
    
    
    $
    110,839
    
    
    $
    (847
    )Foreign currency swaps:U.S.$/Yen
    
    ¥
    9,099
    
    
    ¥
    (88
    
    
    ¥
    116.65
    
    
    ¥
    2,853
    
    
    ¥
    (30
    )
    
    ¥
    177.53
    
    
    $
    24,178
    
    
    $
    (254
    )Euro/Yen
    
    
    1,133
    
    
    
    (12
    
    
    
    141.68
    
    
    
    3,289
    
    
    
    (20
    )
    
    
    156.64
    
    
    
    27,873
    
    
    
    (170
    )CAN$/Yen
    
    
    305
    
    
    
    
    
    
    
    101.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    A$/Yen
    
    
    1,661
    
    
    
    (32
    )
    
    
    83.06
    
    
    
    191
    
    
    
    
    
    
    
    95.25
    
    
    
    1,619
    
    
    
    SFr./Yen
    
    
    173
    
    
    
    (8
    )
    
    
    86.45
    
    
    
    191
    
    
    
    (3
    )
    
    
    95.56
    
    
    
    1,619
    
    
    
    (25
    )Total
    
    ¥
    12,371
    
    
    ¥
    (140
    )
    
    
    
    
    
    ¥
    6,524
    
    
    ¥
    (53
    )
    
    
    
    
    
    $
    55,289
    
    
    $
    (449
    )Options purchased to
sell foreign
currencies:U.S.$/Yen
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    233
    
    
    ¥
    2
    
    
    ¥
    116.38
    
    
    $
    1,975
    
    
    $
    17Euro/Yen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,518
    
    
    
    5
    
    
    
    151.80
    
    
    
    12,864
    
    
    
    42Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    ¥
    
    
    
    ¥
    
    
    
    
    
    
    
    ¥
    1,751
    
    
    ¥
    7
    
    
    
    
    
    
    $
    14,839
    
    
    $
    59Options written to buy
foreign currencies:U.S.$/Yen
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    239
    
    
    ¥
    (1
    )
    
    ¥
    119.15
    
    
    $
    2,025
    
    
    $
    (8
    )Euro/Yen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,569
    
    
    
    (18
    )
    
    
    156.92
    
    
    
    13,297
    
    
    
    (153
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    ¥
    
    
    
    ¥
    
    
    
    
    
    
    
    ¥
    1,808
    
    
    ¥
    (19
    )
    
    
    
    
    
    $
    15,322
    
    
    $
    (161
    )
 68




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##### Table of Contents



Item 12.
Description of Securities Other than Equity Securities
  
 PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15. Controls and Procedures
 A. Disclosure controls and procedures
   B. Managements annual report on internal control over financial reporting
  69




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##### Table of Contents



Internal Control-Integrated
Framework
   C. Attestation report of the registered public accounting firm
  D. Changes in internal control over financial reporting
  
 Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of ethics
    
 Item 16C. Principal Accountant Fees and Services
  70




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Yen (millions)2006
    
    
    2007Audit Fees (1)
    
    ¥
    248
    
    
    
    665Audit- related Fees (2)
    
    
    31
    
    
    
    6Tax Fees (3)
    
    
    74
    
    
    
    86All Other Fees (4)
    
    
    71
    
    
    
    25Total
    
    ¥
    424
    
    
    ¥
    782
 
 (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.
Audit fees for fiscal 2007 include the amount of 18 million yen for fiscal 2006. Audit fees for fiscal
2007 do not include 177 million yen billed by the Independent Registered Public Accounting Firm but
which Makita has not yet agreed to pay. Accordingly, the audit fees for fiscal 2007 may ultimately be
higher.(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 and transfer pricing documentation.(4)
    
    All Other Fees comprise fees for all other services not included in any of other categories noted above.     71




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Item 16D. Exemptions from the Listing Standards for Audit Committees
  
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  Total Number of
    
    
    Average Price PaidShares Purchased
    
    
    per SharePeriod
    
    (shares)
    
    
    (¥)From April 1, 2006 to April 30, 2006
    
    
    1,249
    
    
    
    3,585From May 1, 2006 to May 31, 2006
    
    
    417
    
    
    
    3,617From June 1, 2006 to June 30, 2006
    
    
    286
    
    
    
    3,494From July 1, 2006 to July 31, 2006
    
    
    990
    
    
    
    3,611From August 1, 2006 to August 31, 2006
    
    
    1,352
    
    
    
    3,630From September 1, 2006 to September 30, 2006
    
    
    489
    
    
    
    3,375From October 1, 200 6to October 30, 2006
    
    
    1,074
    
    
    
    3,613From November 1, 2006 to November 30, 2006
    
    
    1,293
    
    
    
    3,343From December 1, 2006 to December 31, 2006
    
    
    827
    
    
    
    3,468From January 1, 2007 to January 31, 2007
    
    
    839
    
    
    
    3,782From February 1, 2007 to February 28, 2007
    
    
    1,647
    
    
    
    4,307From March 1, 2007 to March 31, 2007
    
    
    466
    
    
    
    4,455Total Number of Shares Purchased and Average Price Paid per Share
    
    
    10,929
    
    
    
    3,709
 
 PART III
 
 Item 17. Financial Statements
  72




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Item 18. Financial Statements
  
 Item 19. Exhibits
 1.1
    
    Articles of Incorporation, as amended and effective as of June 29, 2006
(English translation), incorporated by reference from Makitas Annual Report
on Form 20-F (Commission file no. 0-12602) filed on June 7, 2006.1.2
    
    Regulations of Board of Directors, as amended and effective as of June 29,
2006 (English translation), incorporated by reference from Makitas Annual
Report on Form 20-F (Commission file no. 0-12602) filed on June 7, 2006.1.3
    
    The Share Handling Regulations, as amended and effective as of June 29, 2006
(English translation), incorporated by reference from Makitas Annual Report
on Form 20-F (Commission file no. 0-12602) filed on June 7, 2006.1.4
    
    Regulations of Board of Statutory
Auditors effective as of July 7, 2006 (English translation),
incorporated by reference from Makitas Annual Report on Form 20-F (Commission file no. 0-12602) filed on June 7, 2006.12.1
    
    302 Certification of President and Representative Director12.2
    
    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
  MAKITA CORPORATIONBy:
    /s/ Masahiko GotoName:
    Masahiko GotoTitle:
    President and Representative Director  74




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##### Table of Contents



Makita Corporation and Consolidated Subsidiaries
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
 Report of Independent Registered Public Accounting Firm
    
    F-2 to F-3Consolidated Balance Sheets as of March 31, 2006 and 2007
    
    F-4 to F-5Consolidated Statements of Income for the years ended March 31, 2005, 2006 and 2007
    
    
    F-6Consolidated Statements of Shareholders Equity for the years ended March 31, 2005, 2006 and 2007
    
    
    F-7Consolidated Statements of Cash Flows for the years ended March 31, 2005, 2006 and 2007
    
    F-8 to F-9Notes to Consolidated Financial Statements
    
    F-10 to F-43(Financial Statements of 50% or less owned persons accounted for by the equity method have been omitted
because they are not applicable.)Schedules:II. Valuation and Qualifying Accounts and Reserves for the years ended March 31, 2005, 2006 and
2007
    
    
    F-44
 
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
       
 F-2




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     .
   
 F-3




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 MARCH 31, 2006 AND 2007
 A S S E T S
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2006
    
    
    2007
    
    
    2007CURRENT ASSETS:Cash and cash equivalents
    
    ¥
    39,054
    
    
    ¥
    37,128
    
    
    $
    314,644Time deposits
    
    
    1,845
    
    
    
    6,866
    
    
    
    58,186Marketable securities
    
    
    47,773
    
    
    
    58,217
    
    
    
    493,364Trade receivables-Notes
    
    
    1,936
    
    
    
    3,125
    
    
    
    26,483Accounts
    
    
    46,074
    
    
    
    54,189
    
    
    
    459,229Less- Allowance for doubtful receivables
    
    
    (1,016
    )
    
    
    (869
    )
    
    
    (7,364
    )Inventories
    
    
    79,821
    
    
    
    92,800
    
    
    
    786,441Deferred income taxes
    
    
    3,661
    
    
    
    5,080
    
    
    
    43,051Prepaid expenses and other current assets
    
    
    8,621
    
    
    
    9,963
    
    
    
    84,432Total current assets
    
    
    227,769
    
    
    
    266,499
    
    
    
    2,258,466PROPERTY, PLANT AND EQUIPMENT, AT COST:Land
    
    
    17,737
    
    
    
    16,732
    
    
    
    141,797Buildings and improvements
    
    
    55,470
    
    
    
    57,242
    
    
    
    485,102Machinery and equipment
    
    
    74,501
    
    
    
    74,087
    
    
    
    627,856Construction in progress
    
    
    2,340
    
    
    
    5,576
    
    
    
    47,254150,048
    
    
    
    153,637
    
    
    
    1,302,009Less- Accumulated depreciation
    
    
    (90,845
    )
    
    
    (90,257
    )
    
    
    (764,890
    )59,203
    
    
    
    63,380
    
    
    
    537,119INVESTMENTS AND OTHER ASSETS:Investment securities
    
    
    30,439
    
    
    
    27,279
    
    
    
    231,178Goodwill
    
    
    779
    
    
    
    764
    
    
    
    6,475Other intangible assets, net
    
    
    1,354
    
    
    
    1,527
    
    
    
    12,941Deferred income taxes
    
    
    698
    
    
    
    1,367
    
    
    
    11,585Other assets
    
    
    5,796
    
    
    
    7,678
    
    
    
    65,06739,066
    
    
    
    38,615
    
    
    
    327,246¥
    326,038
    
    
    ¥
    368,494
    
    
    $
    3,122,831
 
 F-4




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 MARCH 31, 2006 AND 2007
 LIABILITIES AND SHAREHOLDERS EQUITY
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2006
    
    
    2007
    
    
    2007CURRENT LIABILITIES:Short-term borrowings
    
    ¥
    1,728
    
    
    ¥
    1,892
    
    
    $
    16,034Trade notes and accounts payable
    
    
    13,908
    
    
    
    16,025
    
    
    
    135,805Other payables
    
    
    5,417
    
    
    
    6,556
    
    
    
    55,559Accrued expenses
    
    
    6,427
    
    
    
    6,714
    
    
    
    56,898Accrued payroll
    
    
    8,224
    
    
    
    8,571
    
    
    
    72,636Income taxes payable
    
    
    6,701
    
    
    
    10,447
    
    
    
    88,534Deferred income taxes
    
    
    176
    
    
    
    28
    
    
    
    237Other liabilities
    
    
    3,380
    
    
    
    4,083
    
    
    
    34,602Total current liabilities
    
    
    45,961
    
    
    
    54,316
    
    
    
    460,305LONG-TERM LIABILITIES:Long-term indebtedness
    
    
    104
    
    
    
    53
    
    
    
    449Accrued retirement and termination benefits
    
    
    2,901
    
    
    
    3,227
    
    
    
    27,347Deferred income taxes
    
    
    7,923
    
    
    
    4,976
    
    
    
    42,170Other liabilities
    
    
    930
    
    
    
    1,112
    
    
    
    9,42511,858
    
    
    
    9,368
    
    
    
    79,391MINORITY INTERESTS
    
    
    1,635
    
    
    
    2,135
    
    
    
    18,093COMMITMENTS AND CONTINGENT LIABILITIES (Note 15)SHAREHOLDERS EQUITY:Common stock,Authorized - 496,000,000 shares in 2006496,000,000 shares in 2007Issued and outstanding- 144,008,760 shares and 143,711,766
shares, respectively in 2006144,008,760 shares and 143,701,279
shares, respectively in 2007
    
    
    23,805
    
    
    
    23,805
    
    
    
    201,737Additional paid-in capital
    
    
    45,437
    
    
    
    45,437
    
    
    
    385,059Legal reserve
    
    
    5,669
    
    
    
    5,669
    
    
    
    48,042Retained earnings
    
    
    186,586
    
    
    
    215,365
    
    
    
    1,825,127Accumulated other comprehensive income
    
    
    5,345
    
    
    
    12,697
    
    
    
    107,602Treasury stock, at cost: - 296,994 shares in 2006307,481 shares in 2007
    
    
    (258
    )
    
    
    (298
    )
    
    
    (2,525
    )266,584
    
    
    
    302,675
    
    
    
    2,565,042¥
    326,038
    
    
    ¥
    368,494
    
    
    $
    3,122,831
 
 F-5




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 FOR THE YEARS ENDED MARCH 31, 2005, 2006 AND 2007
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2007
    
    
    2007NET SALES
    
    ¥
    194,737
    
    
    ¥
    229,075
    
    
    ¥
    279,933
    
    
    $
    2,372,314Cost of sales
    
    
    113,323
    
    
    
    132,897
    
    
    
    163,909
    
    
    
    1,389,060GROSS PROFIT
    
    
    81,414
    
    
    
    96,178
    
    
    
    116,024
    
    
    
    983,254Selling, general and administrative expenses
    
    
    52,646
    
    
    
    58,726
    
    
    
    66,802
    
    
    
    566,118Losses (gains) on disposals or sales of property, plant and
equipment, net
    
    
    1,234
    
    
    
    (8,326
    )
    
    
    (249
    )
    
    
    (2,110
    )Impairment of long-lived assets
    
    
    577
    
    
    
    
    
    
    
    1,295
    
    
    
    10,975Transfer to the government of the substitutional portion of
pension plan
    
    
    (4,441
    )
    
    
    
    
    
    
    
    
    
    
    OPERATING INCOME
    
    
    31,398
    
    
    
    45,778
    
    
    
    48,176
    
    
    
    408,271OTHER INCOME (EXPENSES):Interest and dividend income
    
    
    1,157
    
    
    
    1,301
    
    
    
    1,364
    
    
    
    11,559Interest expenses
    
    
    (588
    )
    
    
    (364
    )
    
    
    (316
    )
    
    
    (2,678
    )Exchange gains (losses) on foreign currency transactions, net
    
    
    37
    
    
    
    (258
    )
    
    
    (418
    )
    
    
    (3,542
    )Realized gains on securities, net
    
    
    453
    
    
    
    2,918
    
    
    
    918
    
    
    
    7,780Other, net
    
    
    161
    
    
    
    (232
    )
    
    
    (401
    )
    
    
    (3,398
    )Total
    
    
    1,220
    
    
    
    3,365
    
    
    
    1,147
    
    
    
    9,721INCOME BEFORE INCOME TAXES
    
    
    32,618
    
    
    
    49,143
    
    
    
    49,323
    
    
    
    417,992PROVISION FOR INCOME TAXES:Current
    
    
    10,071
    
    
    
    9,365
    
    
    
    16,486
    
    
    
    139,712Deferred
    
    
    411
    
    
    
    (633
    )
    
    
    (4,134
    )
    
    
    (35,034
    )Total
    
    
    10,482
    
    
    
    8,732
    
    
    
    12,352
    
    
    
    104,678NET INCOME
    
    ¥
    22,136
    
    
    ¥
    40,411
    
    
    ¥
    36,971
    
    
    $
    313,314
 Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2007
    
    
    2007PER SHARE OF COMMON STOCK AND ADS:Net incomeBasic
    
    ¥
    153.9
    
    
    ¥
    281.1
    
    
    ¥
    257.3
    
    
    $
    2.18Diluted
    
    
    148.8
    
    
    
    281.1
    
    
    
    257.3
    
    
    
    2.18Cash dividends paid for the year
    
    
    24.0
    
    
    
    55.0
    
    
    
    57.0
    
    
    
    0.48
 
 F-6




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 FOR THE YEARS ENDED MARCH 31, 2005, 2006 AND 2007
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2007
    
    
    2007COMMON STOCK:Beginning balance
    
    ¥
    23,803
    
    
    ¥
    23,805
    
    
    ¥
    23,805
    
    
    $
    201,737Conversion of convertible bonds; 1,768 shares in 2005
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Ending balance
    
    ¥
    23,805
    
    
    ¥
    23,805
    
    
    ¥
    23,805
    
    
    $
    201,737ADDITIONAL PAID-IN CAPITAL:Beginning balance
    
    ¥
    45,421
    
    
    ¥
    45,430
    
    
    ¥
    45,437
    
    
    $
    385,059Conversion of convertible bonds
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Gain on sales of treasury stock
    
    
    7
    
    
    
    7
    
    
    
    
    
    
    
    Ending balance
    
    ¥
    45,430
    
    
    ¥
    45,437
    
    
    ¥
    45,437
    
    
    $
    385,059LEGAL RESERVE:Beginning balance
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    $
    48,042Ending balance
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    $
    48,042RETAINED EARNINGS:Beginning balance
    
    ¥
    138,819
    
    
    ¥
    157,502
    
    
    ¥
    186,586
    
    
    $
    1,581,237Net income
    
    
    22,136
    
    
    
    40,411
    
    
    
    36,971
    
    
    
    313,314Cash dividends
    
    
    (3,453
    )
    
    
    (7,907
    )
    
    
    (8,192
    )
    
    
    (69,424
    )Retirement of treasury stock
    
    
    
    
    
    
    (3,420
    )
    
    
    
    
    
    
    Ending balance
    
    ¥
    157,502
    
    
    ¥
    186,586
    
    
    ¥
    215,365
    
    
    $
    1,825,127ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF
TAX:Beginning balance
    
    ¥
    (17,048
    )
    
    ¥
    (9,249
    )
    
    ¥
    5,345
    
    
    $
    45,297Other comprehensive income for the year
    
    
    7,799
    
    
    
    14,594
    
    
    
    7,515
    
    
    
    63,686Adjustment to initially apply SFAS No.158, net of tax
    
    
    
    
    
    
    
    
    
    
    (163
    )
    
    
    (1,381
    )Ending balance
    
    ¥
    (9,249
    )
    
    ¥
    5,345
    
    
    ¥
    12,697
    
    
    $
    107,602TREASURY STOCK:Beginning balance
    
    ¥
    (3,316
    )
    
    ¥
    (3,517
    )
    
    ¥
    (258
    )
    
    $
    (2,186
    )Purchases
    
    
    (208
    )
    
    
    (164
    )
    
    
    (40
    )
    
    
    (339
    )Retirement and sales
    
    
    7
    
    
    
    3,423
    
    
    
    
    
    
    
    Ending balance
    
    ¥
    (3,517
    )
    
    ¥
    (258
    )
    
    ¥
    (298
    )
    
    $
    (2,525
    )DISCLOSURE OF COMPREHENSIVE INCOME:Net income for the year
    
    ¥
    22,136
    
    
    ¥
    40,411
    
    
    ¥
    36,971
    
    
    $
    313,314Other comprehensive income for the year
    
    
    7,799
    
    
    
    14,594
    
    
    
    7,515
    
    
    
    63,686Total comprehensive income for the year
    
    ¥
    29,935
    
    
    ¥
    55,005
    
    
    ¥
    44,486
    
    
    $
    377,000
 
 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, 2005, 2006 AND 2007
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2007
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    ¥
    22,136
    
    
    ¥
    40,411
    
    
    ¥
    36,971
    
    
    $
    313,314Adjustments to reconcile net income to net cash provided by
operating activities-Depreciation and amortization
    
    
    5,381
    
    
    
    5,922
    
    
    
    8,773
    
    
    
    74,347Deferred income taxes
    
    
    411
    
    
    
    (633
    )
    
    
    (4,134
    )
    
    
    (35,034
    )Realized gains on securities, net
    
    
    (453
    )
    
    
    (2,918
    )
    
    
    (918
    )
    
    
    (7,780
    )Losses (gains) on disposals or sales of property, plant and
equipment, net
    
    
    1,234
    
    
    
    (8,326
    )
    
    
    (249
    )
    
    
    (2,110
    )Impairment of long-lived assets
    
    
    577
    
    
    
    
    
    
    
    1,295
    
    
    
    10,975Changes in assets and liabilities-Trade receivables
    
    
    (1,995
    )
    
    
    (5,011
    )
    
    
    (6,398
    )
    
    
    (54,220
    )Inventories
    
    
    (9,203
    )
    
    
    (8,646
    )
    
    
    (7,979
    )
    
    
    (67,619
    )Trade notes and accounts payables and accrued expenses
    
    
    3,069
    
    
    
    5,121
    
    
    
    4,055
    
    
    
    34,364Income taxes payable
    
    
    (770
    )
    
    
    272
    
    
    
    2,198
    
    
    
    18,627Accrued retirement and termination benefits
    
    
    (4,900
    )
    
    
    (346
    )
    
    
    (1,702
    )
    
    
    (14,424
    )Other, net
    
    
    1,355
    
    
    
    (779
    )
    
    
    448
    
    
    
    3,797Net cash provided by operating activities
    
    
    16,842
    
    
    
    25,067
    
    
    
    32,360
    
    
    
    274,237CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (6,655
    )
    
    
    (11,383
    )
    
    
    (12,980
    )
    
    
    (110,000
    )Purchases of available-for-sale securities
    
    
    (20,091
    )
    
    
    (19,449
    )
    
    
    (26,798
    )
    
    
    (227,102
    )Purchases of held-to-maturity securities
    
    
    (1,753
    )
    
    
    (1,799
    )
    
    
    (499
    )
    
    
    (4,229
    )Proceeds from sales of available-for-sale securities
    
    
    2,422
    
    
    
    16,750
    
    
    
    6,635
    
    
    
    56,229Proceeds from maturities of available-for-sale securities
    
    
    12,250
    
    
    
    17,400
    
    
    
    10,476
    
    
    
    88,780Proceeds from maturities of held-to-maturity securities
    
    
    13,510
    
    
    
    200
    
    
    
    1,500
    
    
    
    12,712Proceeds from sales of property, plant and equipment
    
    
    320
    
    
    
    1,012
    
    
    
    739
    
    
    
    6,263Decrease (increase) in time deposits
    
    
    (38
    )
    
    
    6,514
    
    
    
    (5,035
    )
    
    
    (42,669
    )Cash paid for acquisition of business, net of cash acquired
    
    
    
    
    
    
    (1,204
    )
    
    
    (649
    )
    
    
    (5,500
    )Other, net
    
    
    189
    
    
    
    (386
    )
    
    
    (665
    )
    
    
    (5,637
    )Net cash provided by (used in) investing activities
    
    
    154
    
    
    
    7,655
    
    
    
    (27,276
    )
    
    
    (231,153
    )CASH FLOWS FROM FINANCING ACTIVITIES:Increase (decrease) in short-term borrowings
    
    
    693
    
    
    
    1,073
    
    
    
    135
    
    
    
    1,144Redemption of bonds
    
    
    (12,990
    )
    
    
    
    
    
    
    
    
    
    
    Repayment of long-term indebtedness
    
    
    
    
    
    
    (6,150
    )
    
    
    
    
    
    
    Repayment of club members deposits
    
    
    (209
    )
    
    
    (6,375
    )
    
    
    
    
    
    
    Purchases of treasury stock, net
    
    
    (194
    )
    
    
    (154
    )
    
    
    (40
    )
    
    
    (339
    )Cash dividends paid
    
    
    (3,453
    )
    
    
    (7,907
    )
    
    
    (8,192
    )
    
    
    (69,424
    )Other, net
    
    
    (24
    )
    
    
    (35
    )
    
    
    (210
    )
    
    
    (1,779
    )Net cash used in financing activities
    
    
    (16,177
    )
    
    
    (19,548
    )
    
    
    (8,307
    )
    
    
    (70,398
    )
 
 F-8




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED MARCH 31, 2005, 2006 AND 2007
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2007
    
    
    2007EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
    
    ¥
    (11
    )
    
    ¥
    496
    
    ¥
    1,297
    
    
    $
    10,992NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    808
    
    
    
    13,670
    
    
    (1,926
    )
    
    
    (16,322
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    24,576
    
    
    
    25,384
    
    
    39,054
    
    
    
    330,966,CASH AND CASH EQUIVALENTS, END OF YEAR
    
    ¥
    25,384
    
    
    ¥
    39,054
    
    ¥
    37,128
    
    
    $
    314,644SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the year for-Interest
    
    ¥
    593
    
    
    ¥
    458
    
    ¥
    316
    
    
    $
    2,678Income taxes
    
    
    10,841
    
    
    
    9,093
    
    
    14,289
    
    
    
    121,093NON-CASH INVESTING AND FINANCING ACTIVITIES:Amount due seller in connection with business acquisition
    
    ¥
    
    
    
    ¥
    649
    
    ¥
    
    
    
    $
    Release from obligation for club members deposits
    
    
    
    
    
    
    6,461
    
    
    
    
    
    
    Reduction of short-term borrowings and long-term
indebtedness by disposal of a subsidiary
    
    
    
    
    
    
    2,177
    
    
    
    
    
    
    
 
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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 the manufacture and sale power
tools. The Company and its consolidated subsidiaries main products include drills, rotary hammers,
demolition hammers, grinders and cordless impact drivers. The Company and its consolidated
subsidiaries (collectively Makita) also manufacture and sell pneumatic tools and garden tools.Domestic sales in Japan are made by the Company, while overseas sales are made almost entirely
through sales subsidiaries and distributors under the Makita or Maktec brand name. Approximately
83.3% of consolidated net sales for the year ended March 31, 2007, were generated from customers
outside Japan, with 44.3% from Europe, 18.4% from North America and 20.6% from Asia and other
areas.Makitas manufacturing and assembly operations are conducted primarily at three plants in
Japan and eight plants overseas, located in the United States, Germany, the United Kingdom, Brazil,
China (two plants), Canada and Romania.2.
    
    BASIS OF PRESENTING FINANCIAL STATEMENTSThe 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 countries 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, all of
its majority owned subsidiaries and those variable interest entities where Makita is the primary
beneficiary under Financial Accounting Standards Board (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 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 currencies are translated at the exchange rate in effect at each fiscal year-end and income
and expenses are translated at the average rates of exchange prevailing during each fiscal year.
The local currencies of the overseas subsidiaries are regarded as their functional currencies. The
resulting currency translation adjustments are included in accumulated other comprehensive income
in shareholders equity.
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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 such as time deposits 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 marketable equity securities to be classified as either trading, available-for-sale
securities or held-to-maturity securities. Makita classifies investments in debt and marketable
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 accumulated
other comprehensive income, 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 accretion 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 the 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 the financial condition, business prospects and credit worthiness of the issuer.
Impairment is measured based on the amount by which the carrying amount of the investment exceeds
its fair value. Fair value is determined based on quoted market prices or other valuation
techniques as appropriate.Makita classifies marketable securities, which are available for current operations, in
current assets. 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 into earnings is determined by the average cost method.
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(e)
    
    Allowance for Doubtful ReceivablesAllowance for doubtful receivables represents 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 the 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
potentiality 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 principally 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 DepreciationFor the Company, depreciation of property, plant and equipment is computed principally by
using the declining-balance method over the estimated useful lives. Most of the consolidated
subsidiaries have adopted the straight-line method for computing depreciation. The depreciation
period generally ranges from 10 years to 60 years for buildings and improvements and from 3 years
to 20 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 and 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, 2005, 2006 and 2007 amounted to ¥5,175
million, ¥5,710 million and ¥8,495 million ($71,992 thousand), 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, 2006 and 2007,
was as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2006
    
    
    2007
    
    
    2007Aggregate cost
    
    ¥
    656
    
    
    ¥
    348
    
    
    $
    2,949Accumulated amortization
    
    
    510
    
    
    
    220
    
    
    
    1,864
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(h)
    
    Goodwill and Other Intangible AssetsMakita follows the provisions of SFAS No. 141 Business Combinations and SFAS No. 142
Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of only the purchase method
of accounting for business combinations and refines the definition of intangible assets acquired in
a purchase business combination. SFAS No. 142 eliminates the amortization of goodwill and instead
requires annual impairment testing thereof. SFAS No. 142 also requires acquired intangible assets
with a definite useful life to be amortized over their respective estimated useful lives and
reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets. Any acquired intangible asset determined to have an indefinite useful life
is not amortized, but instead is tested for impairment based on its fair value until its life would
be determined to be no longer indefinite. In connection with the impairment evaluation, SFAS No.
142 requires Makita to perform an assessment of whether there is an indication that goodwill is
impaired. To accomplish this, Makita identifies its reporting units, determines the carrying value
of each reporting unit by assigning the assets and liabilities, including existing goodwill and
intangible assets to those reporting units, and determines the fair value of each reporting unit.(i)
    
    Environmental LiabilitiesLiabilities for environmental remediation and other environmental costs, if any, are accrued
when environmental assessments or remedial efforts are probable and the costs can be reasonably
estimated. Such liabilities are adjusted as further information develops or circumstances change.
Costs of future obligations are not discounted to their present values.(j)
    
    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 ¥4,446 million, ¥4,826
million and ¥5,460 million ($46,271 thousand) for the years ended March 31, 2005, 2006 and 2007,
respectively.Advertising costs are also expensed as incurred and totaled ¥4,381 million, ¥5,138 million and
¥6,002 million ($50,864 thousand) for the years ended March 31, 2005, 2006 and 2007, respectively.(k)
    
    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 ¥5,305 million, ¥6,774 million and ¥7,637 million ($64,720 thousand) for the
years ended March 31, 2005, 2006 and 2007, respectively.(l)
    
    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 the 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.(m)
    
    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.
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(n)
    
    Pension PlansMakita accounts for pension plans in accordance with the provisions of SFAS No. 87,
Employers Accounting for Pensions. Under SFAS No. 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 the future periods. Amortization of an unrecognized net gain or loss is
included as a component of the net periodic benefit plan cost for a year if, as of the beginning of
the year, that unrecognized net gain or loss exceeds 10 percent of the greater of (1) the projected
benefit obligation or (2) the fair value of that plans assets. In such cases, 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.On September 29, 2006, SFAS No. 158, Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans was issued. SFAS No.158 requires, among other things, the recognition
of the funded status of each defined pension benefit plan, retiree health care and other
postretirement benefit plans and postemployment benefit plans on the balance sheet. Each overfunded
plan is recognized as an asset and each underfunded plan is recognized as a liability. The initial
impact of the standard due to unrecognized prior service costs or credits and net actuarial gains
or losses as well as subsequent changes in the funded status is recognized as a component of
accumulated comprehensive income in shareholders equity. Additional minimum pension liabilities
(AML) and related intangible assets are also derecognized upon adoption of the new standard. SFAS
No.158 requires initial application for fiscal years ending after December 15, 2006. Makita adopted
SFAS 158 as of March 31, 2007.(o)
    
    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 had been
converted at the beginning of the year or at the time of issuance unless they were antidilutive.(p)
    
    Impairment of Long-Lived AssetsMakita accounts for impairment of long lived assets with finite useful lives in accordance
with the provisions of SFAS No. 144. 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. The fair
value is determined by independent third party appraisal, projected discounted cash flows or other
valuation techniques as appropriate. Assets to be disposed of, if any, 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.(q)
    
    Derivative Financial InstrumentsMakita conforms to SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities as amended. Makita recognizes all derivative instruments as either assets or
liabilities in the consolidated balance sheets and measure those instruments at fair value. 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 employs derivative financial instruments, including forward foreign currency exchange
contracts, foreign currency options, interest rate swaps and currency swap agreements to manage its
exposure to fluctuations in foreign currency exchange rates and interest rates. Makita does not use
derivatives for speculation or trading purpose. Changes in the fair value of derivatives are
recorded each period in current earnings depending on whether a derivative is designated as part of
a hedge transaction and the type of hedge transaction. The ineffective portion of all hedges is
recognized currently in operations.
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(r)
    
    Use of Estimates in the Preparation of Financial StatementsThe preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosures 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 an allowance for doubtful receivables, impairment of long-lived assets,
realizability of deferred income tax assets, the determination of unrealized losses on securities
for 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.(s)
    
    Revenue RecognitionMakita recognizes revenue at the time of delivery or shipment when all of the following
conditions are met. (1) The sales price is fixed and determinable, (2) Collectibility is reasonably
assured, (3) The title and risk of loss pass to the customer, and (4) Payment terms are established
consistent with Makitas normal payment terms.Makita offers sales incentives to qualifying customers through various incentive programs.
Sales incentives primarily involve volume-based rebates, cooperative advertisings and cash
discounts, and are 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 one year or less. Liabilities
for volume-based rebates are recognized with a corresponding reduction of revenue for the expected
sales incentive at the time the related revenue is recognized, and are based on the estimation of
sales volume reflecting the historical performance of individual customers.
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Cooperative advertising is 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. 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, the revenue from this source is recognized
when the repairs have been completed and the item is shipped to the customer.(t)
    
    New Accounting StandardsIn June 2006, the FASB issued FASB Interpretation No. 48(FIN 48), Accounting for Uncertainty
in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in financial statements and prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal periods
beginning after December 15, 2006 and is required to be adopted by Makita, in the fiscal year
beginning April 1, 2007. Makita is currently evaluating the effect that the adoption of FIN 48 will
have on its consolidated results of operations and financial condition but does not expect FIN 48
to have a material impact.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which provides a
definition of fair value measurements. SFAS No 157 is effective for fiscal periods beginning after
November 15, 2007 and is required to be adopted by Makita, in the fiscal year beginning April 1,
2008. Makita does not expect the adoption of SFAS No. 157 will have a material impact on its
consolidated results of operations and financial condition.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115, which permits an
entity to measure many financial assets and financial liabilities at fair value that are not
currently required to be measured at fair value. Entities that elect the fair value option will
report unrealized gains and losses in earnings. SFAS No 159 is effective for fiscal periods
beginning after November 15, 2007 and is required to be adopted by Makita, in the fiscal year
beginning April 1, 2008. Makita is currently evaluating the effect that the adoption of SFAS No.
159 will have on its consolidated results of operations and financial condition but does not expect
SFAS No. 159 to have a material impact.(u)
    
    ReclassificationsCertain reclassifications have been made to the prior years consolidated financial statements
to conform with the presentation used for the year ended March 31, 2007
 4.
    
    TRANSLATION OF FINANCIAL STATEMENTSSolely for the convenience of readers, the accompanying consolidated financial statement
amounts for the year ended March 31, 2007, 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 ¥118 to US$1 at March 31, 2007. 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 the rate indicated.5.
    
    INVENTORIESInventories as of March 31, 2006 and 2007 comprised the following:
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Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2006
    
    
    2007
    
    
    2007Finished goods
    
    ¥
    64,121
    
    
    ¥
    75,859
    
    
    $
    642,873Work in process
    
    
    2,338
    
    
    
    2,308
    
    
    
    19,559Raw materials
    
    
    13,362
    
    
    
    14,633
    
    
    
    124,009¥
    79,821
    
    
    ¥
    92,800
    
    
    $
    786,441
 6.
    
    IMPAIRMENT OF LONG LIVED ASSETSFor the year ended March 31, 2005, Makita, as part of its facilities integration and cost
cutting plans, decided to vacate a certain information technology facility. Makita classified the
related land and buildings as assets to be held and used, and recorded an impairment charge
totaling ¥577 million. The fair value of the related assets was determined by independent third
party appraisal considering the estimated net cash flows from effecting the sale to a third party
purchaser. Presently, Makita has not decided how and when to dispose of the facility.In December 2003, in connection with the evaluation of its corporate wide marketing,
promotional activities, and the cost benefit relationship, Makita made a decision to no longer
consider a golf course owned by its consolidated subsidiary, Joyama Kaihatsu, Ltd., as a corporate
asset and to curtail utilizing such golf course for promotional, entertainment and employee welfare
purposes. As a result of this decision, the company 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 totaling ¥5,996 million to reduce the carrying value to its estimated fair value,
as determined on a discounted cash flow basis for the year ended March 31, 2004. On May 7, 2005,
the Nagoya District Court confirmed a civil rehabilitation plan for Joyama Kaihatsu. On May 31,
2005, upon confirmation of the civil rehabilitation plan, Makita completed the disposition of
Joyama Kaihatsu. As a result, Makita recorded gains on disposals or sales of property, plant and
equipment of ¥8,326 million for the year ended March 31, 2006. Such gains included ¥8,479 million
of gain on sale of Makitas ownership interests of Joyama Kaihatsu to a third party.During the year ended March 31, 2007, Makita decided to transfer the manufacturing business
(stationary woodworking machines) of its consolidated subsidiary, Makita Ichinomiya Corporation, to
Makitas Okazaki plant in order to streamline the production function in Japan no later than
December 2007. Following the transfer in 2008, Makita plans to dispose of the facility.As a result of this decision, Makita performed an impairment assessment pursuant to the provisions
of SFAS No. 144 and estimated the carrying amount of the facility would not be recovered by the
future cash flows. Consequently, Makita recorded an impairment charge totaling ¥1,295 million. The
fair value of the related assets was determined by independent third party appraisal considering
the estimated net cash flows from the sale to a third party purchaser.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, 2006 and 2007, were as follows:
 Yen (millions)Gross UnrealizedHoldingCarryingAs of March 31, 2006
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair value
    
    
    AmountAvailable-for-sale:Marketable securities:Japanese and foreign government debt securities
    
    ¥
    1
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    1
    
    
    ¥
    1Corporate and bank debt securities
    
    
    4,376
    
    
    
    77
    
    
    
    78
    
    
    
    4,375
    
    
    
    4,375Investments in trusts
    
    
    36,874
    
    
    
    1,691
    
    
    
    57
    
    
    
    38,508
    
    
    
    38,508Marketable equity securities
    
    
    1,496
    
    
    
    2,093
    
    
    
    
    
    
    
    3,589
    
    
    
    3,589¥
    42,747
    
    
    ¥
    3,861
    
    
    ¥
    135
    
    
    ¥
    46,473
    
    
    ¥
    46,473
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Yen (millions)Gross UnrealizedHoldingCarryingAs of March 31, 2006
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair value
    
    
    AmountInvestment securities:Corporate and bank debt securities
    
    ¥
    42
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    42
    
    
    ¥
    42Investments in trusts
    
    
    666
    
    
    
    109
    
    
    
    
    
    
    
    775
    
    
    
    775Marketable equity securities
    
    
    10,334
    
    
    
    16,466
    
    
    
    
    
    
    
    26,800
    
    
    
    26,800Non-marketable equity securities (carried at cost)
    
    
    572
    
    
    
    
    
    
    
    
    
    
    
    572
    
    
    
    572¥
    11,614
    
    
    ¥
    16,575
    
    
    ¥
    
    
    
    ¥
    28,189
    
    
    ¥
    28,189Held-to-maturity:Marketable securities:Japanese corporate debt securities
    
    ¥
    1,300
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    1,300
    
    
    ¥
    1,300¥
    1,300
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    1,300
    
    
    ¥
    1,300Investment securities:Japanese government debt securities
    
    ¥
    300
    
    
    ¥
    
    
    
    ¥
    3
    
    
    ¥
    297
    
    
    ¥
    300Japanese corporate debt securities
    
    
    1,950
    
    
    
    
    
    
    
    122
    
    
    
    1,828
    
    
    
    1,950¥
    2,250
    
    
    ¥
    
    
    
    ¥
    125
    
    
    ¥
    2,125
    
    
    ¥
    2,250Total marketable securities
    
    ¥
    44,047
    
    
    ¥
    3,861
    
    
    ¥
    135
    
    
    ¥
    47,773
    
    
    ¥
    47,773Total investment securities
    
    ¥
    13,864
    
    
    ¥
    16,575
    
    
    ¥
    125
    
    
    ¥
    30,314
    
    
    ¥
    30,439
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Yen (millions)Gross UnrealizedHoldingCarryingAs of March 31, 2007
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair value
    
    
    AmountAvailable-for-sale:Marketable securities:Foreign government debt securities
    
    ¥
    1
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    1
    
    
    ¥
    1Corporate and bank debt securities
    
    
    6,437
    
    
    
    10
    
    
    
    1
    
    
    
    6,446
    
    
    
    6,446Investments in trusts
    
    
    45,115
    
    
    
    2,025
    
    
    
    64
    
    
    
    47,076
    
    
    
    47,076Marketable equity securities
    
    
    1,481
    
    
    
    1,914
    
    
    
    
    
    
    
    3,395
    
    
    
    3,395¥
    53,034
    
    
    ¥
    3,949
    
    
    ¥
    65
    
    
    ¥
    56,918
    
    
    ¥
    56,918Investment securities:Investments in trusts
    
    ¥
    720
    
    
    ¥
    264
    
    
    ¥
    12
    
    
    ¥
    972
    
    
    ¥
    972Marketable equity securities
    
    
    10,546
    
    
    
    13,856
    
    
    
    12
    
    
    
    24,390
    
    
    
    24,390Non-marketable equity securities (carried at cost)
    
    
    567
    
    
    
    
    
    
    
    
    
    
    
    567
    
    
    
    567¥
    11,833
    
    
    ¥
    14,120
    
    
    ¥
    24
    
    
    ¥
    25,929
    
    
    ¥
    25,929Held-to-maturity:Marketable securities:Japanese government debt securities
    
    ¥
    299
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    299
    
    
    ¥
    299Japanese corporate debt securities
    
    
    1,000
    
    
    
    
    
    
    
    1
    
    
    
    999
    
    
    
    1,000¥
    1,299
    
    
    
    
    
    
    
    1
    
    
    
    1,298
    
    
    
    1,299Investment securities:Japanese corporate debt securities
    
    
    1,350
    
    
    
    
    
    
    
    107
    
    
    
    1,243
    
    
    
    1,350¥
    1,350
    
    
    ¥
    
    
    
    ¥
    107
    
    
    ¥
    1,243
    
    
    ¥
    1,350Total marketable securities
    
    ¥
    54,333
    
    
    ¥
    3,949
    
    
    ¥
    66
    
    
    ¥
    58,216
    
    
    ¥
    58,217Total investment securities
    
    ¥
    13,183
    
    
    ¥
    14,120
    
    
    ¥
    131
    
    
    ¥
    27,172
    
    
    ¥
    27,279
 F-19




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##### Table of Contents



U.S. Dollars (thousands)Gross UnrealizedHoldingCarryingAs of March 31, 2007
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair value
    
    
    AmountAvailable-for-sale:Marketable securities:Foreign government debt securities
    
    $
    8
    
    
    $
    
    
    
    $
    
    
    
    $
    8
    
    
    $
    8Corporate and bank debt securities
    
    
    54,551
    
    
    
    85
    
    
    
    8
    
    
    
    54,628
    
    
    
    54,628Investments in trusts
    
    
    382,331
    
    
    
    17,161
    
    
    
    543
    
    
    
    398,949
    
    
    
    398,949Marketable equity securities
    
    
    12,551
    
    
    
    16,220
    
    
    
    
    
    
    
    28,771
    
    
    
    28,771$
    449,441
    
    
    $
    33,466
    
    
    $
    551
    
    
    $
    482,356
    
    
    $
    482,356Investment securities:Corporate and bank debt securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $Investments in trusts
    
    
    6,102
    
    
    
    2,237
    
    
    
    102
    
    
    
    8,237
    
    
    
    8,237Marketable equity securities
    
    
    89,373
    
    
    
    117,424
    
    
    
    102
    
    
    
    206,695
    
    
    
    206,695Non-marketable equity securities (carried at cost)
    
    
    4,805
    
    
    
    
    
    
    
    
    
    
    
    4,805
    
    
    
    4,805$
    100,280
    
    
    $
    119,661
    
    
    $
    204
    
    
    $
    219,737
    
    
    $
    219,737Held-to-maturity:Marketable securities:Japanese government debt securities
    
    $
    2,534
    
    
    $
    
    
    
    $
    
    
    
    $
    2,534
    
    
    $
    2,534Japanese corporate debt securities
    
    
    8,474
    
    
    
    
    
    
    
    8
    
    
    
    8,466
    
    
    
    8,474$
    11,008
    
    
    $
    
    
    
    $
    8
    
    
    $
    11,000
    
    
    $
    11,008Investment securities:Japanese corporate debt securities
    
    $
    11,441
    
    
    $
    
    
    
    $
    907
    
    
    $
    10,534
    
    
    $
    11,441$
    11,441
    
    
    $
    
    
    
    $
    907
    
    
    $
    10,534
    
    
    $
    11,441Total marketable securities
    
    $
    460,449
    
    
    $
    33,466
    
    
    $
    559
    
    
    $
    493,356
    
    
    $
    493,364Total investment securities
    
    $
    111,721
    
    
    $
    119,661
    
    
    $
    1,111
    
    
    $
    230,271
    
    
    $
    231,178
  F-20




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##### Table of Contents



Yen (millions)Less than 12 months
    
    
    12 months or moreGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    UnrealizedHolding
    
    
    
    
    
    
    HoldingAs of March 31, 2007
    
    Fair value
    
    
    Losses
    
    
    Fair value
    
    
    LossesAvailable-for-sale:Marketable securities:Corporate and bank debt securities
    
    ¥
    3,418
    
    
    ¥
    1
    
    
    ¥
    
    
    
    ¥
    Investments in trusts
    
    
    2,523
    
    
    
    64
    
    
    
    
    
    
    
    ¥
    5,941
    
    
    ¥
    65
    
    
    ¥
    
    
    
    ¥
    Investment securities:Investments in trusts
    
    ¥
    201
    
    
    ¥
    12
    
    
    ¥
    
    
    
    ¥
    Marketable equity securities
    
    
    288
    
    
    
    12
    
    
    
    
    
    
    
    ¥
    489
    
    
    ¥
    24
    
    
    ¥
    
    
    
    ¥
    Held-to-maturity:Marketable securities:Japanese corporate debt securities
    
    ¥
    799
    
    
    ¥
    1
    
    
    ¥
    
    
    
    ¥
    ¥
    799
    
    
    ¥
    1
    
    
    ¥
    
    
    
    ¥
    Investment securities:Japanese corporate debt securities
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    1,243
    
    
    ¥
    107¥
    
    
    
    ¥
    
    
    
    ¥
    1,243
    
    
    ¥
    107
 U.S. Dollars (thousands)Less than 12 months
    
    
    12 months or moreGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    UnrealizedHolding
    
    
    
    
    
    
    HoldingAs of March 31, 2007
    
    Fair value
    
    
    Losses
    
    
    Fair value
    
    
    LossesAvailable-for-sale:Marketable securities:Corporate and bank debt securities
    
    $
    28,966
    
    
    $
    8
    
    
    $
    
    
    
    $
    Investments in trusts
    
    
    21,381
    
    
    
    542
    
    
    
    
    
    
    
    $
    50,347
    
    
    $
    550
    
    
    $
    
    
    
    $
    Investment securities:Investments in trusts
    
    $
    1,703
    
    
    $
    102
    
    
    $
    
    
    
    $
    Marketable equity securities
    
    
    2,441
    
    
    
    102
    
    
    
    
    
    
    
    $
    4,144
    
    
    $
    204
    
    
    $
    
    
    
    $
    Held-to-maturity:Marketable securities:Japanese corporate debt securities
    
    $
    6,771
    
    
    $
    8
    
    
    $
    
    
    
    $
    $
    6,771
    
    
    $
    8
    
    
    $
    
    
    
    $
    Investment securities:Japanese corporate debt securities
    
    $
    
    
    
    $
    
    
    
    $
    10,534
    
    
    $
    907$
    
    
    
    $
    
    
    
    $
    10,534
    
    
    $
    907
 F-21




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##### Table of Contents



Maturities of debt securities based on Cost as of March 31, 2007
 Yen (millions)
    
    
    U.S.Dollars (thousands)Available-
    
    
    Held-to-
    
    
    
    
    
    
    Available-
    
    
    Held-to-for-sale
    
    
    maturity
    
    
    Total
    
    
    for-sale
    
    
    maturity
    
    
    TotalDue within one year
    
    ¥
    5,025
    
    
    ¥
    1,299
    
    
    ¥
    6,324
    
    
    $
    42,585
    
    
    $
    11,008
    
    
    $
    53,593Due after one to five years
    
    
    1
    
    
    
    750
    
    
    
    751
    
    
    
    8
    
    
    
    6,356
    
    
    
    6,364Due after five to ten years
    
    
    95
    
    
    
    
    
    
    
    95
    
    
    
    805
    
    
    
    
    
    
    
    805Due after ten years
    
    
    1,317
    
    
    
    600
    
    
    
    1,917
    
    
    
    11,161
    
    
    
    5,085
    
    
    
    16,246Total
    
    ¥
    6,438
    
    
    ¥
    2,649
    
    
    ¥
    9,087
    
    
    $
    54,559
    
    
    $
    22,449
    
    
    $
    77,008
 Maturities of debt securities based on Fair Value as of March 31, 2007
 Yen (millions)
    
    
    U.S.Dollars (thousands)Available-
    
    
    Held-to-
    
    
    
    
    
    
    Available-
    
    
    Held-to-for-sale
    
    
    maturity
    
    
    Total
    
    
    for-sale
    
    
    maturity
    
    
    TotalDue within one year
    
    ¥
    5,024
    
    
    ¥
    1,298
    
    
    ¥
    6,322
    
    
    $
    42,576
    
    
    $
    11,000
    
    
    $
    53,576Due after one to five years
    
    
    1
    
    
    
    742
    
    
    
    743
    
    
    
    8
    
    
    
    6,288
    
    
    
    6,296Due after five to ten years
    
    
    97
    
    
    
    
    
    
    
    97
    
    
    
    822
    
    
    
    
    
    
    
    822Due after ten years
    
    
    1,325
    
    
    
    501
    
    
    
    1,826
    
    
    
    11,230
    
    
    
    4,246
    
    
    
    15,476Total
    
    ¥
    6,447
    
    
    ¥
    2,541
    
    
    ¥
    8,988
    
    
    $
    54,636
    
    
    $
    21,534
    
    
    $
    76,170
  F-22




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##### Table of Contents



8.
    
    ACQUISITIONSTo strengthen its position in the automatic nailer business as a comprehensive supplier of
tools for professional use, Makita acquired the automatic nailer business of Kanematsu-NNK
Corporation (the Business) on January 1, 2006 for total cash consideration of ¥1,853 million
including direct acquisition costs of which, ¥649 million was paid in April 2006 and included in
other payables in the accompanying consolidated balance sheet at March 31, 2006.The Company used the purchase method of accounting to account for the acquisition of the Business.
Accordingly, the financial position and the results of the operation of the Business are included
in the accompanying consolidated financial statements from the acquisition date. The financial
position and the results of the operation of the Business are included in the Japan segment. The
Company has allocated the purchase price based on the fair value of the tangible and intangible
assets acquired and liabilities assumed. The excess of purchase price compared to the fair value of
the net assets acquired (the Goodwill) was ¥793 million. Makita presented the goodwill of ¥779
million and ¥764 million ($6,475 thousand) in the accompanying consolidated balance sheets as of
March 31,2006 and 2007, respectively. The Goodwill is amortized and deductible for Japanese tax
purpose.In connection with this acquisition, intangible assets of the Business comprised patents of ¥179
million ($1,516 thousand), which were estimated to have a remaining useful life of 8 years, and
customer relationships of ¥135 million ($1,144 thousand), which were estimated to have a remaining
useful life of 10 years. These assets were recorded and presented as other intangible assets, net
in the accompanying consolidated balance sheets.9.
    
    INCOME TAXESIncome before income taxes and the provision for income taxes for the years ended March 31,
2005, 2006 and 2007 were as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2007
    
    
    2007Income before income taxes:Domestic
    
    ¥
    15,837
    
    
    ¥
    26,895
    
    
    ¥
    16,341
    
    
    $
    138,483Foreign
    
    
    16,781
    
    
    
    22,248
    
    
    
    32,982
    
    
    
    279,509¥
    32,618
    
    
    ¥
    49,143
    
    
    ¥
    49,323
    
    
    $
    417,992Provision for income taxes:Current-Domestic
    
    ¥
    5,121
    
    
    ¥
    3,171
    
    
    ¥
    8,366
    
    
    $
    70,898Foreign
    
    
    4,950
    
    
    
    6,194
    
    
    
    8,120
    
    
    
    68,81410,071
    
    
    
    9,365
    
    
    
    16,486
    
    
    
    139,712Deferred-Domestic
    
    
    589
    
    
    
    (166
    )
    
    
    (2,453
    )
    
    
    (20,788
    )Foreign
    
    
    (178
    )
    
    
    (467
    )
    
    
    (1,681
    )
    
    
    (14,246
    )411
    
    
    
    (633
    )
    
    
    (4,134
    )
    
    
    (35,034
    )Consolidated provision for income taxes
    
    ¥
    10,482
    
    
    ¥
    8,732
    
    
    ¥
    12,352
    
    
    $
    104,678
 F-23




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##### Table of Contents



Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2007
    
    
    2007Provision for income taxes
    
    ¥
    10,482
    
    
    ¥
    8,732
    
    
    ¥
    12,352
    
    
    $
    104,678Shareholders equity:Foreign currency translation adjustments
    
    
    945
    
    
    
    272
    
    
    
    93
    
    
    
    788Net unrealized holding gains on
available-for-sale securities
    
    
    60
    
    
    
    3,363
    
    
    
    (935
    )
    
    
    (7,923
    )Minimum Pension liability adjustment
    
    
    3,403
    
    
    
    1,360
    
    
    
    66
    
    
    
    559Adjustment to initially apply SFAS
No.158
    
    
    
    
    
    
    
    
    
    
    (110
    )
    
    
    (932
    )¥
    14,890
    
    
    ¥
    13,727
    
    
    ¥
    11,466
    
    
    $
    97,170
   F-24




---



##### Table of Contents



Year ended March 31,2005
    
    
    2006
    
    
    2007Combined statutory income tax rate in Japan
    
    
    40.3
    %
    
    
    40.3
    %
    
    
    40.3
    %Non-deductible expenses
    
    
    0.6
    
    
    
    0.6
    
    
    
    0.8Non-taxable dividends received
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.1
    )Change in valuation allowance
    
    
    (2.1
    )
    
    
    (11.3
    )
    
    
    (5.4
    )Effect of changes in enacted tax rate
    
    
    (0.5
    )
    
    
    (0.7
    )
    
    
    Tax sparing impact
    
    
    (5.5
    )
    
    
    (3.5
    )
    
    
    (2.1
    )Effect of the foreign tax rate differential
    
    
    (2.8
    )
    
    
    (6.7
    )
    
    
    (10.4
    )Other, net
    
    
    2.2
    
    
    
    (0.7
    )
    
    
    1.9Effective income tax rate
    
    
    32.1
    %
    
    
    17.8
    %
    
    
    25.0
    %
     F-25




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##### Table of Contents



Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2007
    
    
    2007Deferred tax
expense
(exclusive of
the effects of
other components
below)
    
    ¥
    619
    
    
    ¥
    (1,035
    )
    
    ¥
    (1,467
    )
    
    $
    (12,432
    )Increase (decrease) in beginning-of-the-year balance of the valuation
allowance for deferred tax assets
    
    
    (208
    )
    
    
    402
    
    
    
    (2,667
    )
    
    
    (22,602
    )¥
    411
    
    
    ¥
    (633
    )
    
    ¥
    (4,134
    )
    
    $
    (35,034
    )
  Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2006
    
    
    2007
    
    
    2007Deferred income tax assets:Marketable securities and investment securities
    
    ¥
    1,071
    
    
    ¥
    1,039
    
    
    $
    8,805Accrued retirement and termination benefits
    
    
    426
    
    
    
    178
    
    
    
    1,509Inventories
    
    
    1,764
    
    
    
    1,670
    
    
    
    14,153Property, plant and equipment
    
    
    1,750
    
    
    
    3,197
    
    
    
    27,093Accrued payroll
    
    
    1,989
    
    
    
    2,043
    
    
    
    17,314Net operating loss carryforwards
    
    
    868
    
    
    
    772
    
    
    
    6,542Other
    
    
    1,153
    
    
    
    1,105
    
    
    
    9,364Total gross deferred income tax assets
    
    
    9,021
    
    
    
    10,004
    
    
    
    84,780Valuation allowance
    
    
    (2,973
    )
    
    
    (318
    )
    
    
    (2,695
    )¥
    6,048
    
    
    ¥
    9,686
    
    
    $
    82,085Deferred income tax liabilities:Undistributed earnings of overseas subsidiaries
    
    ¥
    (791
    )
    
    ¥
    (183
    )
    
    $
    (1,551
    )Unrealized gain on available-for-sale securities
    
    
    (8,181
    )
    
    
    (7,245
    )
    
    
    (61,398
    )Property, plant and equipment
    
    
    (809
    )
    
    
    (796
    )
    
    
    (6,746
    )Other
    
    
    (7
    )
    
    
    (19
    )
    
    
    (161
    )Total gross deferred income tax liabilities
    
    ¥
    (9,788
    )
    
    ¥
    (8,243
    )
    
    $
    (69,856
    )Net deferred income tax liabilities
    
    ¥
    (3,740
    )
    
    ¥
    1,443
    
    
    $
    12,229
  Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2006
    
    
    2007
    
    
    2007Deferred income taxesCurrent assets
    
    ¥
    3,661
    
    
    ¥
    5,080
    
    
    $
    43,051Investment and other assets
    
    
    698
    
    
    
    1,367
    
    
    
    11,585Current liabilities
    
    
    (176
    )
    
    
    (28
    )
    
    
    (237
    )Long-term liabilities
    
    
    (7,923
    )
    
    
    (4,976
    )
    
    
    (42,170
    )¥
    (3,740
    )
    
    ¥
    1,443
    
    
    $
    12,229
 F-26




---



##### Table of Contents



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 are 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 assets 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 recorded by certain subsidiaries.As of March 31, 2007, certain subsidiaries had net operating loss carryforwards for income tax
purposes of ¥4,632 million ($39,254 thousand) which are available to offset future taxable income,
if any. The net operating losses will expire as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)Within 5 years
    
    ¥
    550
    
    
    $
    4,6616 to 20 years
    
    
    2,665
    
    
    
    22,585Indefinite periods
    
    
    1,417
    
    
    
    12,008¥
    4,632
    
    
    $
    39,254
 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 in the total amount of ¥66,331 million ($562,127 thousand) as of
March 31, 2007 because Makita considers these earnings to be indefinitely reinvested, and the
calculation of the unrecognized deferred tax liabilities is not practicable.10.
    
    RETIREMENT AND TERMINATION BENEFIT PLANSThe Company and certain of its consolidated subsidiaries have various contributory and
noncontributory employee 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.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.The following table summarizes the effect of required changes in the AML as of March 31, 2007
prior to the adoption of SFAS No.158 as well as the impact of the initial adoption of SFAS No.158.
 F-27




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##### Table of Contents



Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)Before
    
    
    
    
    
    
    After
    
    
    AfterApplication of
    
    
    
    
    
    
    Application of
    
    
    Application ofSFAS158
    
    
    Adjustment
    
    
    SFAS158
    
    
    SFAS158Other assets
    
    ¥
    4,745
    
    
    ¥
    (280
    )
    
    ¥
    4,465
    
    
    $
    37,839Other liabilities
    
    
    
    
    
    
    (171
    )
    
    
    (171
    )
    
    
    (1,449
    )Accrued retirement and termination
benefits
    
    
    (3,405
    )
    
    
    178
    
    
    
    (3,227
    )
    
    
    (27,347
    )Deferred income taxes
    
    
    104
    
    
    
    110
    
    
    
    214
    
    
    
    1,814Accumulated other comprehensive loss
    
    
    184
    
    
    
    163
    
    
    
    347
    
    
    
    2,941
 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 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.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 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 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 the settlement, both of which exclude the
effect of future salary progression relating to the substitutional portion, times the net
unrecognized gain or loss immediately prior to the settlement, which amounted to ¥ 4,687 million.
This resulting net gain of ¥4,441 million is 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 was accounted
for as a negative plan amendment and is included in prior service cost which are being amortized
into net periodic pension costs over the weighted average remaining service period of the plan
participants.The net periodic pension costs (benefit) of the defined benefit plans for the years ended
March 31, 2005, 2006 and 2007 consisted of the following components:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2007
    
    
    2007Service cost-benefit earned during the year
    
    ¥
    1,332
    
    
    ¥
    1,592
    
    
    ¥
    1,611
    
    
    $
    13,652Interest cost on projected benefit obligation
    
    
    852
    
    
    
    776
    
    
    
    804
    
    
    
    6,814Expected return on plan assets
    
    
    (590
    )
    
    
    (635
    )
    
    
    (1,268
    )
    
    
    (10,746
    )Amortization of prior service cost
    
    
    (215
    )
    
    
    (215
    )
    
    
    (215
    )
    
    
    (1,822
    )
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##### Table of Contents



Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2007
    
    
    2007Amortization of net transition obligation
    
    
    39
    
    
    
    62
    
    
    
    37
    
    
    
    314Recognized actuarial loss
    
    
    518
    
    
    
    482
    
    
    
    428
    
    
    
    3,627Net gain resulting from transfer to the
government of the substitutional portion of
pension plan
    
    
    (4,441
    )
    
    
    
    
    
    
    
    
    
    
    Net periodic pension costs (benefit)
    
    ¥
    (2,505
    )
    
    ¥
    2,062
    
    
    ¥
    1,397
    
    
    $
    11,839
 Reconciliations of beginning and ending balances of the benefit obligations and the fair
value of the plan assets are as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2006
    
    
    2007
    
    
    2007Change in benefit obligation:Benefit obligation at beginning of year
    
    ¥
    35,853
    
    
    ¥
    37,580
    
    
    $
    318,475Service cost
    
    
    1,592
    
    
    
    1,611
    
    
    
    13,652Interest cost
    
    
    776
    
    
    
    804
    
    
    
    6,814Curtailment
    
    
    (32
    )
    
    
    
    
    
    
    Actuarial gains
    
    
    (239
    )
    
    
    (1,551
    )
    
    
    (13,144
    )Business acquired
    
    
    530
    
    
    
    
    
    
    
    Benefits paid
    
    
    (1,027
    )
    
    
    (1,306
    )
    
    
    (11,068
    )Foreign exchange impact
    
    
    127
    
    
    
    251
    
    
    
    2,127Benefit obligation at end of year
    
    
    37,580
    
    
    
    37,389
    
    
    
    316,856Change in plan assets:Fair value of plan assets at beginning of year
    
    
    28,289
    
    
    
    34,922
    
    
    
    295,949Actual return on plan assets
    
    
    5,099
    
    
    
    1,785
    
    
    
    15,127Employer contributions
    
    
    2,292
    
    
    
    2,915
    
    
    
    24,703Business acquired
    
    
    131
    
    
    
    Benefits paid
    
    
    (926
    )
    
    
    (1,168
    )
    
    
    (9,898
    )Foreign exchange impact
    
    
    37
    
    
    
    2
    
    
    
    17Fair value of plan assets at end of year
    
    
    34,922
    
    
    
    38,456
    
    
    
    325,898Funded status
    
    ¥
    (2,658
    )
    
    ¥
    1,067
    
    
    $
    9,043Unrecognized net actuarial loss
    
    
    5,867Prior service cost not yet recognized in net periodic benefit cost
    
    
    (3,141
    )Unrecognized net transition obligation being recognized over 19 years
    
    
    78Net amount recognized
    
    ¥
    146Amounts recognized in the consolidated balance sheet consisted of;Accrued benefit cost
    
    ¥
    (2,901
    )Prepaid benefit cost
    
    
    2,599Intangible assets
    
    
    Accumulated other comprehensive loss, before income taxes
    
    
    448Net amount recognized
    
    ¥
    146
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##### Table of Contents



Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2006
    
    
    2007
    
    
    2007Amounts recognized in accumulated other comprehensive income
consisted of;Net actuarial loss
    
    
    
    
    
    ¥
    3,446
    
    
    $
    29,203Prior service cost
    
    
    
    
    
    
    (2,926
    )
    
    
    (24,797
    )Net transition obligation being recognized over 19 years
    
    
    
    
    
    
    41
    
    
    
    348¥
    561
    
    
    $
    4,754Amounts recognized in the consolidated balance sheet consisted of;Non-current assets
    
    
    
    
    
    ¥
    4,465
    
    
    $
    37,839Current liabilities
    
    
    
    
    
    
    (171
    )
    
    
    (1,449
    )Non-current liabilities
    
    
    
    
    
    
    (3,227
    )
    
    
    (27,347
    )¥
    1,067
    
    
    $
    9,043
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##### Table of Contents



Measurement dateThe Company uses a March 31 measurement date for the majority of its plans.AssumptionsThe weighted-average assumptions used to determine benefit obligations at March 31, 2006 and 2007, were as follows:
 2006
    
    
    2007Discount rate
    
    
    2.2
    %
    
    
    2.5
    %The assumed rate of increase in future compensation levels
    
    
    3.3
    %
    
    
    3.3
    %
  2005
    
    
    2006
    
    
    2007Discount rate
    
    
    2.2
    %
    
    
    2.2
    %
    
    
    2.2
    %Assumed rate of increase in future compensation levels
    
    
    2.3
    %
    
    
    3.3
    %
    
    
    3.3
    %Expected long-term rate of return on plan assets
    
    
    2.1
    %
    
    
    2.3
    %
    
    
    4.2
    %
 Makita determines the discount rate based on long-term high quality fixed income debt securities
that have the same maturity period as the period over which pension benefits are expected to be
settled. In addition, Makita also takes into account estimates with respect to future changes that
are expected by management in the interest rates on its debt securities when determining the
discount rate.Makita determines 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 invests considering the current
expectations for future returns and actual historical returns.Plan AssetsThe benefit plan weighted-average asset allocations at March 31, 2006, and 2007, by asset
category were as follows:
 2006
    
    
    2007Asset CategoryEquity securities
    
    
    54.6
    %
    
    
    54.9
    %Debt securities
    
    
    30.8
    
    
    
    31.2Real estate
    
    
    1.2
    
    
    
    1.6Life insurance company general accounts
    
    
    9.7
    
    
    
    9.5Other
    
    
    3.7
    
    
    
    2.8100.0
    %
    
    
    100.0
    %
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##### Table of Contents



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 marketable equity securities and interest-bearing securities.Makita determined the mix of equity securities and debt securities 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 included common stock of Makita in the amount of ¥7 million ($59 thousand)
at March 31, 2007.Information for pension plans with an accumulated benefit obligation in excess of plan
assets
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2006
    
    
    2007
    
    
    2007Projected benefit obligation
    
    ¥
    2,548
    
    
    ¥
    3,853
    
    
    $
    32,653Accumulated benefit obligation
    
    
    2,464
    
    
    
    3,705
    
    
    
    31,398Fair value of plan assets
    
    
    328
    
    
    
    456
    
    
    
    3,864An accumulated benefit obligation in excess of plan assets
    
    
    2,136
    
    
    
    3,249
    
    
    
    27,534
 Cash flows
  Makita expects to contribute ¥3,173 million ($26,890 thousand) to its domestic and foreign
defined benefit plan in the year ending March 31, 2008.
 Estimated future benefit payments
  Yen
    
    
    U.S. DollarsYear ending March 31,
    
    (millions)
    
    
    (thousands)2008
    
    ¥
    2,481
    
    
    $
    21,0252009
    
    
    1,999
    
    
    
    16,9412010
    
    
    1,887
    
    
    
    15,9922011
    
    
    1,950
    
    
    
    16,5252012
    
    
    1,838
    
    
    
    15,5762013-2017
    
    
    8,803
    
    
    
    74,602
 Certain foreign subsidiaries have defined contribution plans. The total expenses charged to
income under these plans were ¥227 million, ¥216 million and ¥223 million ($1,890 thousand) for the
years ended March 31, 2005, 2006 and 2007, respectively.The Company has unfunded retirement allowance programs for the Directors and the Statutory
Auditors. Under such programs, the aggregate amount set aside as retirement allowances for the
Directors and the Statutory Auditors was ¥490 million and ¥501 million ($4,246 thousand) as of
March 31, 2006 and 2007, respectively, which is included in other liabilities in the accompanying
balance sheets. This Executive retirement and termination allowances program was abolished by the
Annual General Meeting of Shareholders held in June 2006. The aggregate amount set aside will be
paid to the Directors and the Statutory Auditors when they retire.
 F-32




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##### Table of Contents



11.
    
    SHORT-TERM BORROWINGS AND LONG-TERM INDEBTEDNESSAs of March 31, 2006 and 2007, short-term borrowings consisted of the following:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2006
    
    
    2007
    
    
    2007Bank borrowings
    
    ¥
    1,638
    
    
    ¥
    1,816
    
    
    $
    15,390Current maturities of long-term indebtedness
    
    
    90
    
    
    
    76
    
    
    
    644Total
    
    ¥
    1,728
    
    
    ¥
    1,892
    
    
    $
    16,034
 Short-term borrowings, excluding current maturities of long-term indebtedness, amounting to ¥1,638
million and ¥1,816 million ($15,390 thousand) as of March 31, 2006 and 2007, respectively,
consisted primarily of bank borrowings of overseas subsidiaries denominated in foreign currencies.
As of March 31, 2006 and 2007, the weighted average interest rate on the borrowings was 9.8% and
12.6%, respectively.Certain subsidiaries of the Company had unused lines of credit available for immediate
short-term borrowings without restrictions amounting to ¥22,208 million and ¥18,800 million
($159,322 thousand) as of March 31, 2006 and 2007, respectively.As of March 31, 2006 and 2007, long-term indebtedness consisted of the following:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2006
    
    
    2007
    
    
    2007Capital lease obligations (see Note 3(g))
    
    ¥
    194
    
    
    ¥
    129
    
    
    $
    1,093Less- Current maturities included in short-term borrowings
    
    
    (90
    )
    
    
    (76
    )
    
    
    (644
    )¥
    104
    
    
    ¥
    53
    
    
    $
    449
 There were no covenants or cross default provisions under the Makitas financing
arrangements. Furthermore, there were no subsidiary level dividend restrictions under the financing
arrangements.The aggregate annual maturities of long-term indebtedness subsequent to March 31, 2007 are as
summarized below:
 Yen
    
    
    U.S. DollarsYear ending March 31,
    
    (millions)
    
    
    (thousands)2008
    
    ¥
    76
    
    
    $
    6442009
    
    
    32
    
    
    
    2712010
    
    
    17
    
    
    
    1442011
    
    
    3
    
    
    
    262012
    
    
    1
    
    
    
    82013 and thereafter
    
    
    
    
    
    
    ¥
    129
    
    
    $
    1,093
 12.
    
    SHAREHOLDERS EQUITYAt the annual meeting of shareholders held 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 purchase option of the Companys common stock. At the Board of Directors
meeting held on February 17, 2006, the
Company decided to retire treasury stock pursuant to the provisions of Article 212 of the Japanese
commercial code. 4,000,000 shares of treasury stock were retired during the fiscal year ended March
31, 2006.The Corporation Law of Japan provides that an amount equal to 10% of distributions from
retained earnings paid by the Company should be appropriated as capital reserve or earned reserve
(hereinafter called reserve). No further appropriations are required when the total amount of the
reserve exceed 25% of capital stock.
 F-33




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##### Table of Contents



Based on a resolution of the Board of Directors, at the annual meeting of shareholders to
be held on June 27, 2007, the shareholders will be asked to approve the declaration of a cash
dividend in the amount of ¥7,904 million, which will be paid to shareholders of record as of March
31, 2007. The declaration of this dividend has not been reflected in the consolidated financial
statements as of March 31, 2007.
 The amount of retained earnings available for dividends distribution is recorded in the
Companys non-consolidated books and amounted to ¥136,499 million ($1,157 thousand) as of March 31,
2007.
 13.
    
    OTHER COMPREHENSIVE INCOME (LOSS)Accumulated other comprehensive income (loss) as of March 31, 2005, 2006 and 2007, were as
follows:
 Yen
    
    
    U.S.Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2007
    
    
    2007Foreign currency translation adjustments:Beginning balance
    
    ¥
    (17,582
    )
    
    ¥
    (14,486
    )
    
    ¥
    (6,043
    )
    
    $
    (51,212
    )Adjustments for the year
    
    
    3,096
    
    
    
    8,443
    
    
    
    8,807
    
    
    
    74,636Ending balance
    
    ¥
    (14,486
    )
    
    ¥
    (6,043
    )
    
    ¥
    2,764
    
    
    $
    23,424Net unrealized holding gains on available-for-sale securities:Beginning balance
    
    ¥
    6,592
    
    
    ¥
    6,680
    
    
    ¥
    11,666
    
    
    $
    98,865Adjustments for the year
    
    
    88
    
    
    
    4,986
    
    
    
    (1,386
    )
    
    
    (11,746
    )Ending balance
    
    ¥
    6,680
    
    
    ¥
    11,666
    
    
    ¥
    10,280
    
    
    $
    87,119Minimum pension liability adjustment:Beginning balance
    
    ¥
    (6,058
    )
    
    ¥
    (1,443
    )
    
    ¥
    (278
    )
    
    $
    (2,356
    )Adjustments for the year
    
    
    4,615
    
    
    
    1,165
    
    
    
    94
    
    
    
    797Adjustments to initially apply SFAS No.158
    
    
    
    
    
    
    
    
    
    
    184
    
    
    
    1,559Ending balance
    
    ¥
    (1,443
    )
    
    ¥
    (278
    )
    
    ¥
    
    
    
    $
    Pension liability adjustment:Adjustments to initially apply SFAS No.158
    
    
    
    
    
    
    
    
    
    
    (347
    )
    
    
    (2,941
    )Ending balance
    
    
    
    
    
    
    
    
    
    
    (347
    )
    
    
    (2,941
    )Total other accumulated comprehensive income (loss):Beginning balance
    
    ¥
    (17,048
    )
    
    ¥
    (9,249
    )
    
    ¥
    5,345
    
    
    $
    45,297Adjustments for the year
    
    
    7,799
    
    
    
    14,594
    
    
    
    7,515
    
    
    
    63,686Adjustments to initially apply SFAS No.158
    
    
    
    
    
    
    
    
    
    
    (163
    )
    
    
    (1,381
    )Ending balance
    
    ¥
    (9,249
    )
    
    ¥
    5,345
    
    
    ¥
    12,697
    
    
    $
    107,602
 F-34




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##### Table of Contents



Tax effects allocated to each component of other comprehensive income were as follows:
 Yen (millions)Tax benefit
    
    
    Net of taxPretax amount
    
    
    (expense)
    
    
    amountFor the
year ended March 31, 2005Foreign currency translation adjustment
    
    ¥
    4,041
    
    
    ¥
    (945
    )
    
    ¥
    3,096Unrealized gains on available-for-sale securities:Unrealized holding gains arising during the year
    
    
    601
    
    
    
    (243
    )
    
    
    358Less- Reclassification adjustment for gains realized in net income
    
    
    (453
    )
    
    
    183
    
    
    
    (270
    )Net unrealized gains
    
    
    148
    
    
    
    (60
    )
    
    
    88Minimum pension liability adjustment
    
    
    8,018
    
    
    
    (3,403
    )
    
    
    4,615Other comprehensive income
    
    ¥
    12,207
    
    
    ¥
    (4,408
    )
    
    ¥
    7,799
 Yen (millions)Tax benefit
    
    
    Net of taxPretax amount
    
    
    (expense)
    
    
    amountFor the year ended March 31, 2006Foreign currency translation adjustment
    
    ¥
    8,715
    
    
    ¥
    (272
    )
    
    ¥
    8,443Unrealized holding gains on available-for-sale securities:Unrealized holding gains arising during the year
    
    
    11,267
    
    
    
    (4,539
    )
    
    
    6,728Less- Reclassification adjustment for gains realized in net income
    
    
    (2,918
    )
    
    
    1,176
    
    
    
    (1,742
    )Net unrealized gains
    
    
    8,349
    
    
    
    (3,363
    )
    
    
    4,986Minimum pension liability adjustment
    
    
    2,525
    
    
    
    (1,360
    )
    
    
    1,165Other comprehensive income
    
    ¥
    19,589
    
    
    ¥
    (4,995
    )
    
    ¥
    14,594
 Yen (millions)Tax benefit
    
    
    Net of taxPretax amount
    
    
    (expense)
    
    
    amountFor the year ended March 31, 2007Foreign currency translation adjustment
    
    ¥
    8,900
    
    
    ¥
    (93
    )
    
    ¥
    8,807Unrealized holding gains on available-for-sale securities:Unrealized holding gains arising during the year
    
    
    (1,403
    )
    
    
    565
    
    
    
    (838
    )Less- Reclassification adjustment for gains realized in net income
    
    
    (918
    )
    
    
    370
    
    
    
    (548
    )Net unrealized gains
    
    
    (2,321
    )
    
    
    935
    
    
    
    (1,386
    )Minimum pension liability adjustment
    
    
    160
    
    
    
    (66
    )
    
    
    94Other comprehensive income
    
    ¥
    6,739
    
    
    ¥
    776
    
    
    ¥
    7,515
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##### Table of Contents



U.S. Dollars (thousands)Tax benefit
    
    
    Net of taxPretax amount
    
    
    (expense)
    
    
    amountFor the year ended March 31, 2007Foreign currency translation adjustment
    
    $
    75,424
    
    
    $
    (788
    )
    
    $
    74,636Unrealized holding gains on available-for-sale securities:Unrealized holding gains arising during the year
    
    
    (11,889
    )
    
    
    4,787
    
    
    
    (7,102
    )Less- Reclassification adjustment for gains realized
in net income
    
    
    (7,780
    )
    
    
    3,136
    
    
    
    (4,644
    )Net unrealized gains
    
    
    (19,669
    )
    
    
    7,923
    
    
    
    (11,746
    )Minimum pension liability adjustment
    
    
    1,355
    
    
    
    (559
    )
    
    
    796Other comprehensive income
    
    $
    57,110
    
    
    $
    6,576
    
    
    $
    63,686
 14.
    
    EARNINGS PER SHAREA reconciliation of the numerators and denominators of basic and diluted earnings per share
computations is as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)Numerator
    
    2005
    
    
    2006
    
    
    2007
    
    
    2007Net income available to common
share holders  Basic
    
    ¥
    22,136
    
    
    ¥
    40,411
    
    
    ¥
    36,971
    
    
    $
    313,314Effect of dilutive common shares:1.5% unsecured convertible
bonds, due March, 2005
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    Net income available to
common share holders Diluted
    
    ¥
    22,253
    
    
    ¥
    40,411
    
    
    ¥
    36,971
    
    
    $
    313,314Denominator
    
    Number of sharesWeighted average common shares
outstanding  Basic
    
    
    143,844,383
    
    
    
    143,736,927
    
    
    
    143,706,789Dilutive effect of:1.5% unsecured convertible
bonds, due and fully repaid in
March, 2005
    
    
    5,748,927
    
    
    
    
    
    
    
    Weighted average common
shares outstanding  Diluted
    
    
    149,593,310
    
    
    
    143,736,927
    
    
    
    143,706,789Yen
    
    U.S. DollarsEarnings per share:Basic
    
    ¥
    153.9
    
    
    ¥
    281.1
    
    
    ¥
    257.3
    
    
    $
    2.18Diluted
    
    
    148.8
    
    
    
    281.1
    
    
    
    257.3
    
    
    
    2.18
 F-36




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##### Table of Contents



15.
    
    COMMITMENTS AND CONTINGENT LIABILITIESAt March 31, 2007, the Company was contingently liable as a guarantor for housing and
education loans to employees in the amount of ¥10 million ($85 thousand). The Company will be
required to satisfy the outstanding loan commitments of certain employees in the event those
employees are not able to fulfill their repayment obligations. The fair value of the liabilities
for the Companys obligations under the guarantees described above as of March 31, 2007, was
insignificant.Makita was contingently liable for trade notes receivable discounted with banks of ¥286
million ($2,424 thousand) as of March 31, 2007 in the event notes issuers are not able to fulfill
their payment obligations. The fair value of the liabilities for the Companys obligations
described above as of March 31, 2007, was insignificant.Makitas purchase obligations, mainly for raw materials, were ¥12,383 million ($104,941
thousand) as of March 31, 2007.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 ¥1,796 million, ¥1,714 million and ¥1,881 million ($15,941
thousand) under cancelable and noncancelable operating lease agreements for offices, warehouses,
automobiles and office equipment during the years ended March 31, 2005, 2006 and 2007,
respectively. The minimum rental payments required under noncancelable operating lease agreements
as of March 31, 2007, were as follows:
 Yen
    
    
    U.S. DollarsYear ending March 31,
    
    (millions)
    
    
    (thousands)2008
    
    ¥
    603
    
    
    $
    5,1112009
    
    
    468
    
    
    
    3,9662010
    
    
    294
    
    
    
    2,4922011
    
    
    203
    
    
    
    1,7202012
    
    
    138
    
    
    
    1,1692013 and thereafter
    
    
    297
    
    
    
    2,517¥
    2,003
    
    
    $
    16,975
 F-37




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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. The change in accrued product warranty cost for the years ended March
31, 2005, 2006 and 2007 was summarized as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2007
    
    
    2007Balance at beginning of year
    
    ¥
    667
    
    
    ¥
    804
    
    
    ¥
    928
    
    
    $
    7,864Addition
    
    
    830
    
    
    
    853
    
    
    
    1,476
    
    
    
    12,509Utilization
    
    
    (728
    )
    
    
    (779
    )
    
    
    (1,163
    )
    
    
    (9,856
    )Foreign exchange impact
    
    
    35
    
    
    
    50
    
    
    
    65
    
    
    
    551Balance at end of year
    
    ¥
    804
    
    
    ¥
    928
    
    
    ¥
    1,306
    
    
    $
    11,068
 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 contracts and interest rate swaps utilized by the Company and
certain of its consolidated subsidiaries to reduce these risks. Makita does not use derivative
instruments for trading or speculation purpose.Makita is also exposed to a risk of credit-related losses in the event of nonperformance by
counter parties to the financial instrument contracts; however 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 exposures 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, 2006 and 2007 of ¥48 million and ¥50 million ($424
thousand), respectively, were recorded as assets and of ¥258 million and ¥215 million ($1,822
thousand), respectively as liabilities, and the changes in their fair values for the years ended
March 31, 2006 and 2007 amounting to a gain of ¥147 million and ¥45 million ($381 thousand),
respectively, were recorded in exchange gains on foreign currency transactions, net.(c)
    
    Interest rate risk managementMakita executes financing and investing activities through the Company. To manage the
variability in cash flows caused by interest rate change of time deposit, the Company enters into
interest rate swaps as a cash flow hedge.The Company had interest rate swaps with a fair value of ¥5 million as of March 31, 2006 and ¥
3 million ($25 thousand) as of March 31, 2007. These interest swaps were recorded as current
liabilities. As the interest rate swaps do not meet the hedge accounting criteria, the changes in
fair value of the hedging interest rate swaps which amounted to a gain of ¥ 2 million ($17
thousand) were recorded in earnings and classified in other income for both of the years ended
March 31, 2006 and 2007.
 F-38




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##### 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 instruments for which it is practicable to estimate a fair value:
 (a)
    
    Cash and Cash Equivalents, Time Deposits, Trade Notes and Accounts Receivable, Short-term
Borrowings, Trade Notes and Accounts Payable, Other payables, and Other Accrued ExpensesThe carrying amounts approximate fair value because of the short maturities of those
instruments.(b)
    
    Long-term Time DepositsThe fair value is estimated by discounting 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 and investment securities is estimated based on quoted market
prices. For certain investments such as non-marketable securities, since there are no quoted market
prices existing, a reasonable estimation of a fair value could not be made without incurring
excessive cost. Non-marketable securities amounted to ¥572 million and ¥567 million ($4,805
thousand) as of March 31, 2006 and 2007, respectively.(d)
    
    Long-term IndebtednessThe fair value of long-term indebtedness is a present value of future cash flows associated
with each instrument discounted using Makitas current borrowing rates for similar debt instruments
of comparable maturities.(e)
    
    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.(f)
    
    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-39




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##### Table of Contents



The estimated fair value of the financial instruments was as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2006
    
    
    2007
    
    
    2007Carrying
    
    
    
    
    
    
    Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueMarketable securities
    
    ¥
    47,773
    
    
    ¥
    47,773
    
    
    ¥
    58,217
    
    
    ¥
    58,216
    
    
    $
    493,364
    
    
    $
    493,356Investment securities
    
    
    30,439
    
    
    
    30,314
    
    
    
    27,279
    
    
    
    27,172
    
    
    
    231,178
    
    
    
    230,271Long-term time deposits
    
    
    2,006
    
    
    
    2,006
    
    
    
    2,207
    
    
    
    2,207
    
    
    
    18,712
    
    
    
    18,712Long-term indebtedness including
current maturities
    
    
    (194
    )
    
    
    (194
    )
    
    
    (129
    )
    
    
    (129
    )
    
    
    (1,093
    )
    
    
    (1,093
    )Interest rate swap agreements:Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liabilities
    
    
    (5
    )
    
    
    (5
    )
    
    
    (3
    )
    
    
    (3
    )
    
    
    (25
    )
    
    
    (25
    )Foreign currency contracts:Assets
    
    
    31
    
    
    
    31
    
    
    
    25
    
    
    
    25
    
    
    
    212
    
    
    
    212Liabilities
    
    
    (101
    )
    
    
    (101
    )
    
    
    (125
    )
    
    
    (125
    )
    
    
    (1,059
    )
    
    
    (1,059
    )Currency swaps:Assets
    
    
    17
    
    
    
    17
    
    
    
    18
    
    
    
    18
    
    
    
    153
    
    
    
    153Liabilities
    
    
    (157
    )
    
    
    (157
    )
    
    
    (71
    )
    
    
    (71
    )
    
    
    (602
    )
    
    
    (602
    )Currency option contracts:Assets
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7
    
    
    
    59
    
    
    
    59Liabilities
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )
    
    
    (161
    )
    
    
    (161
    )
 (g)
    
    LimitationThe fair value estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These estimates are subjective in
nature and involve uncertainties and are matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the estimates.
 F-40




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##### Table of Contents



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, 2005, 2006 and 2007, Makitas operating structure
included the following geographical operating segments: Japan Group, Europe Group, North America
Group, Asia Group, and Other Group.Makita evaluates the performance of each operating segment based on U.S. GAAP.Segment Products and Services
Makita is a manufacturer and wholesaler of electric power tools and other tools. The operating
segments derive substantially all of their revenues from the sale of electric power tools and parts
and repairs.Year ended March 31, 2005
 Yen(millions)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    Europe
    
    
    America
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    ¥
    50,955
    
    
    ¥
    75,864
    
    
    ¥
    38,607
    
    
    ¥
    7,378
    
    
    ¥
    21,933
    
    
    ¥
    194,737
    
    
    ¥
    
    
    
    ¥
    194,737Intersegment
    
    
    47,786
    
    
    
    5,802
    
    
    
    3,583
    
    
    
    34,937
    
    
    
    168
    
    
    
    92,276
    
    
    
    (92,276
    )
    
    
    Total
    
    ¥
    98,741
    
    
    ¥
    81,666
    
    
    ¥
    42,190
    
    
    ¥
    42,315
    
    
    ¥
    22,101
    
    
    ¥
    287,013
    
    
    ¥
    (92,276
    )
    
    ¥
    194,737Operating expenses
    
    ¥
    82,826
    
    
    ¥
    71,541
    
    
    ¥
    40,580
    
    
    ¥
    37,389
    
    
    ¥
    21,146
    
    
    ¥
    253,482
    
    
    ¥
    (90,143
    )
    
    ¥
    163,339Operating income
    
    
    15,915
    
    
    
    10,125
    
    
    
    1,610
    
    
    
    4,926
    
    
    
    955
    
    
    
    33,531
    
    
    
    (2,133
    )
    
    
    31,398Long-lived assets
    
    
    33,023
    
    
    
    6,993
    
    
    
    3,431
    
    
    
    6,858
    
    
    
    2,686
    
    
    
    52,991
    
    
    
    (167
    )
    
    
    52,824Identifiable assets
    
    
    224,099
    
    
    
    79,309
    
    
    
    30,627
    
    
    
    31,713
    
    
    
    19,141
    
    
    
    384,889
    
    
    
    (94,985
    )
    
    
    289,904Depreciation and amortization
    
    
    2,729
    
    
    
    1,057
    
    
    
    668
    
    
    
    794
    
    
    
    186
    
    
    
    5,434
    
    
    
    (53
    )
    
    
    5,381Capital expenditures
    
    
    1,966
    
    
    
    1,289
    
    
    
    589
    
    
    
    1,483
    
    
    
    1,544
    
    
    
    6,871
    
    
    
    (216
    )
    
    
    6,655
 Year ended March 31, 2006
 Yen(millions)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    Europe
    
    
    America
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    ¥
    53,788
    
    
    ¥
    91,249
    
    
    ¥
    47,979
    
    
    ¥
    8,645
    
    
    ¥
    27,414
    
    
    ¥
    229,075
    
    
    ¥
    
    
    
    ¥
    229,075Intersegment
    
    
    57,826
    
    
    
    6,306
    
    
    
    4,321
    
    
    
    43,979
    
    
    
    181
    
    
    
    112,613
    
    
    
    (112,613
    )
    
    
    Total
    
    ¥
    111,614
    
    
    ¥
    97,555
    
    
    ¥
    52,300
    
    
    ¥
    52,624
    
    
    ¥
    27,595
    
    
    ¥
    341,688
    
    
    ¥
    (112,613
    )
    
    ¥
    229,075Operating expenses
    
    ¥
    87,468
    
    
    ¥
    85,505
    
    
    ¥
    50,437
    
    
    ¥
    46,162
    
    
    ¥
    25,048
    
    
    ¥
    294,620
    
    
    ¥
    (111,323
    )
    
    ¥
    183,297Operating income
    
    
    24,146
    
    
    
    12,050
    
    
    
    1,863
    
    
    
    6,462
    
    
    
    2,547
    
    
    
    47,068
    
    
    
    (1,290
    )
    
    
    45,778Long-lived assets
    
    
    36,578
    
    
    
    7,529
    
    
    
    3,732
    
    
    
    9,170
    
    
    
    2,371
    
    
    
    59,380
    
    
    
    (177
    )
    
    
    59,203Identifiable assets
    
    
    243,553
    
    
    
    85,858
    
    
    
    44,814
    
    
    
    42,275
    
    
    
    21,556
    
    
    
    438,056
    
    
    
    (112,018
    )
    
    
    326,038Depreciation and amortization
    
    
    2,917
    
    
    
    1,217
    
    
    
    656
    
    
    
    923
    
    
    
    269
    
    
    
    5,982
    
    
    
    (60
    )
    
    
    5,922Capital expenditures
    
    
    6,398
    
    
    
    1,549
    
    
    
    620
    
    
    
    2,537
    
    
    
    426
    
    
    
    11,530
    
    
    
    (147
    )
    
    
    11,383
 F-41




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##### Table of Contents



Year ended March 31, 2007
 Yen(millions)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    Europe
    
    
    America
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    ¥
    61,776
    
    
    ¥
    124,924
    
    
    ¥
    51,432
    
    
    ¥
    9,698
    
    
    ¥
    32,103
    
    
    ¥
    279,933
    
    
    ¥
    
    
    
    ¥
    279,933Intersegment
    
    
    64,040
    
    
    
    5,709
    
    
    
    5,297
    
    
    
    67,021
    
    
    
    149
    
    
    
    142,216
    
    
    
    (142,216
    )
    
    
    Total
    
    ¥
    125,816
    
    
    ¥
    130,633
    
    
    ¥
    56,729
    
    
    ¥
    76,719
    
    
    ¥
    32,252
    
    
    
    422,149
    
    
    ¥
    (142,216
    )
    
    ¥
    279,933Operating expenses
    
    ¥
    108,403
    
    
    ¥
    112,577
    
    
    ¥
    54,217
    
    
    ¥
    66,815
    
    
    ¥
    28,786
    
    
    ¥
    370,798
    
    
    ¥
    (139,041
    )
    
    ¥
    231,757Operating income
    
    
    17,413
    
    
    
    18,056
    
    
    
    2,512
    
    
    
    9,904
    
    
    
    3,466
    
    
    
    51,351
    
    
    
    (3,175
    )
    
    
    48,176Long-lived assets
    
    
    36,831
    
    
    
    10,345
    
    
    
    3,381
    
    
    
    10,296
    
    
    
    2,690
    
    
    
    63,543
    
    
    
    (163
    )
    
    
    63,380Identifiable assets
    
    
    257,735
    
    
    
    110,158
    
    
    
    38,756
    
    
    
    50,934
    
    
    
    26,535
    
    
    
    484,118
    
    
    
    (115,624
    )
    
    
    368,494Depreciation and amortization
    
    
    5,270
    
    
    
    1,432
    
    
    
    637
    
    
    
    1,233
    
    
    
    261
    
    
    
    8,833
    
    
    
    (60
    )
    
    
    8,773Capital expenditures
    
    
    7,266
    
    
    
    2,820
    
    
    
    451
    
    
    
    2,235
    
    
    
    351
    
    
    
    13,123
    
    
    
    (143
    )
    
    
    12,980
 Year ended March 31, 2007
 U.S. Dollars(thousands)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    Europe
    
    
    America
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    $
    523,525
    
    
    $
    1,058,679
    
    
    $
    435,864
    
    
    $
    82,186
    
    
    $
    272,060
    
    
    $
    2,372,314
    
    
    $
    
    
    
    $
    2,372,314Intersegment
    
    
    542,712
    
    
    
    48,381
    
    
    
    44,890
    
    
    
    567,975
    
    
    
    1,263
    
    
    
    1,205,221
    
    
    
    (1,205,221
    )
    
    
    Total
    
    $
    1,066,237
    
    
    $
    1,107,060
    
    
    $
    480,754
    
    
    $
    650,161
    
    
    $
    273,323
    
    
    $
    3,577,535
    
    
    $
    (1,205,221
    )
    
    $
    2,372,314Operating expenses
    
    $
    918,669
    
    
    $
    954,043
    
    
    $
    459,466
    
    
    $
    566,229
    
    
    $
    243,950
    
    
    $
    3,142,357
    
    
    $
    (1,178,314
    )
    
    $
    1,964,043Operating income
    
    
    147,568
    
    
    
    153,017
    
    
    
    21,288
    
    
    
    83,932
    
    
    
    29,373
    
    
    
    435,178
    
    
    
    (26, 907
    )
    
    
    408,271Long-lived assets
    
    
    312,127
    
    
    
    87,669
    
    
    
    28,653
    
    
    
    87,254
    
    
    
    22,797
    
    
    
    538,500
    
    
    
    (1,381
    )
    
    
    537,119Identifiable assets
    
    
    2,184,195
    
    
    
    933,542
    
    
    
    328,441
    
    
    
    431,644
    
    
    
    224,873
    
    
    
    4,102,695
    
    
    
    (979,864
    )
    
    
    3,122,831Depreciation and amortization
    
    
    44,661
    
    
    
    12,136
    
    
    
    5,398
    
    
    
    10,449
    
    
    
    2,212
    
    
    
    74,856
    
    
    
    (509
    )
    
    
    74,347Capital expenditures
    
    
    61,576
    
    
    
    23,898
    
    
    
    3,822
    
    
    
    18,941
    
    
    
    2,975
    
    
    
    111,212
    
    
    
    (1,212
    )
    
    
    110,000
 Long-lived assets shown above consist of property, plant and equipment.Transfers between segments are made at estimated arms-length prices. No single external
customer accounted for 10% or more of Makitas net sales for each of the years ended March 31,
2005, 2006 and 2007.Segment information is determined by the location of the Company and its relevant
subsidiaries.Makitas current revenues from external customers by each group of products are set forth below.
 (Yen millions, except for percentage amounts)Consolidated Net Sales by Product Categories
    
    
    U.S. DollarsYear ended March 31,
    
    
    (thousands)2005
    
    
    2006
    
    
    2007
    
    
    2007Power Tools
    
    ¥
    142,477
    
    
    
    73.2
    %
    
    ¥
    171,376
    
    
    
    74.8
    %
    
    ¥
    210,894
    
    
    
    75.3
    %
    
    $
    1,787,237Gardening and Household Products
    
    
    21,102
    
    
    
    10.8
    
    
    
    23,434
    
    
    
    10.2
    
    
    
    28,123
    
    
    
    10.0
    
    
    
    238,331Parts, Repairs and Accessories
    
    
    31,158
    
    
    
    16.0
    
    
    
    34,265
    
    
    
    15.0
    
    
    
    40,916
    
    
    
    14.7
    
    
    
    346,746Total
    
    ¥
    194,737
    
    
    
    100.0
    %
    
    ¥
    229,075
    
    
    
    100.0
    %
    
    ¥
    279,933
    
    
    
    100.0
    %
    
    $
    2,372,314
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##### Table of Contents



19.
    
    RELATED PARTY TRANSACTIONSThe transactions between the Company and Maruwa Co., Ltd. (Maruwa), for which a director of
the Company and certain of his family members have a majority of the voting rights, amounted to ¥2
million for advertising expenses for each of the years ended March 31, 2005, 2006 and 2007.The Companys purchases of raw materials and production equipment from Toa Co., Ltd., for
which a director of the Company and certain of his family members have a majority of the voting
rights, were ¥200 million, ¥223 million and ¥129 million during the years ended March 31, 2005,
2006 and 2007, respectively. The accounts payable of the Company related to these transactions were
¥19 million, ¥10 million and ¥6 million as of March 31, 2005, 2006 and 2007, respectively.The president of Toyoda Machine Works Ltd. was elected as an outside director of the Company
as of June 29, 2005. The Companys purchases of raw materials and production equipment from Toyoda
Machine Works Ltd. were ¥4 million from July 1 to December 31, 2005. The outside director became a
vice president of JTEKT Corporation, which was formed as the result of a business combination
between Toyoda Machine Works Ltd. and Koyo Seiko Co., Ltd., occurring on January 1, 2006, became an
outside director of the Company. The Companys purchases of raw materials and production equipment
from JTEKT Corporation, were ¥151 million from January 1, 2006 to March 31, 2006 and ¥498 million
during the year ended March 31, 2007. The accounts payable of the Company related to these
transactions were ¥53 million and ¥35 million as of March 31, 2006 and 2007, respectively.20.
    
    SUBSEQUENT EVENTSMakita has established the Strong Company as a long-term goal and has been aiming to obtain
and to maintain the top share in the market as a global total supplier of useful tools for consumer
living and housing. In order to strengthen the area of gardening tools, which Makita considers an
important measure area to achieve the long-term goal of the Company, the Board of Directors of the
Company decided to launch a tender offer for common shares of Fuji Robin Industries Ltd. (Fuji
Robin) at the Board of Directors meeting held on March 20, 2007. The tender offer began on March
22, 2007, and ended on May 7, 2007. As a result, the Company acquired 89.35% of Fuji Robins
outstanding shares, and Fuji Robin became a consolidated subsidiary of the Company as of May 15,
2007. Total funds required for the tender offer were approximately ¥2.7 billion. The Company,
pursuant to SFAS No.141, used the purchase method for the acquisition of Fuji Robin. On May 25,
2007, in order to acquire all of the remaining shares of Fuji Robin, the Company entered into a
share exchange agreement with Fuji Robin effective August 1, 2007. Under the terms of the share exchange agreement, Makita issued 0.059
shares of its common stock in return for each remaining Fuji Robin share. A total of 81,456 Makita shares held by Makita as treasury stock
was delivered in connection with the share exchange.
 A brief description of Fuji Robin is as follows (net sales and operating income complied with Japanese GAAP):Net sales
    
    ¥11,138 million (for the year ended March 31, 2007)Operating income
    
    ¥52 million (for the year ended March 31, 2007)Common stock
    
    ¥833 million (as of March 31, 2007)Main products manufactured
    
    Engines, agricultural and forestry machinery, construction machineryPro forma results of operations have not been presented as these results are not material to
Makitas consolidated results of operations.
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##### Table of Contents



MAKITA
CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES  FOR THE YEARS ENDED MARCH 31, 2005, 2006 AND 2007
 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
    
    
    year2005:Allowance for doubtful receivables
    
    
    1,346
    
    
    
    98
    
    
    
    
    
    
    
    (326
    )
    
    
    60
    
    
    
    1,178Deferred income tax assets
valuation allowance
    
    
    8,828
    
    
    
    234
    
    
    
    
    
    
    
    (929
    )
    
    
    78
    
    
    
    8,2112006:Allowance for doubtful receivables
    
    
    1,178
    
    
    
    114
    
    
    
    
    
    
    
    (356
    )
    
    
    80
    
    
    
    1,016Deferred income tax assets
valuation allowance
    
    
    8,211
    
    
    
    698
    
    
    
    
    
    
    
    (6,228
    )
    
    
    292
    
    
    
    2,9732007:Allowance for doubtful receivables
    
    
    1,016
    
    
    
    175
    
    
    
    
    
    
    
    (386
    )
    
    
    64
    
    
    
    869Deferred income tax assets
valuation allowance
    
    
    2,973
    
    
    
    34
    
    
    
    
    
    
    
    (2,701
    )
    
    
    12
    
    
    
    318
 F-44