##### 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 1934Date of event requiring this shell company report
   KABUSHIKI KAISHA MAKITA
  MAKITA CORPORATION
  Japan
 3-11-8, Sumiyoshi-cho, Anjo City, Aichi Prefecture, Japan
  Title of 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, 2006
    
    
    March 31, 2006Title of Class
    
    (Tokyo time)
    
    
    (New York time)Common Stock, excluding 296,994 shares of Treasury Stock
    
    
    143,711,766American Depositary Shares, each representing one share
of Common Stock
    
    
    
    
    
    
    3,160,984
  þ o
  o þ
   þ o
  þ o o
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Table of Contents
 Cautionary 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
    
    
    8C. Organizational structure
    
    
    12D. Property, plant and equipment
    
    
    13Item 4A. Unresolved Staff Comments
    
    
    13Item 5. Operating and Financial Review and Prospects
    
    
    14A. Operating results
    
    
    14B. Liquidity and capital resources
    
    
    27C. Research and development, patents and licenses, etc.
    
    
    30D. Trend information
    
    
    31E. Off-balance sheet arrangements
    
    
    31F. Tabular disclosure of contractual obligations
    
    
    32G. Safe harbor
    
    
    32Item 6. Directors, Senior Management and Employees
    
    
    32A. Directors and senior management
    
    
    32B. Compensation
    
    
    35C. Board practices
    
    
    35D. Employees
    
    
    37E. Share ownership
    
    
    38Item 7. Major Shareholders and Related Party Transactions
    
    
    38A. Major shareholders
    
    
    38B. Related party transactions
    
    
    39C. Interest of experts and counsel
    
    
    40Item 8. Financial Information
    
    
    40A. Consolidated statements and other financial information
    
    
    40B. Significant changes
    
    
    41Item 9. The Offer and Listing
    
    
    41A. Offer and listing details
    
    
    41B. Plan of distribution
    
    
    41C. Markets
    
    
    41D. Selling shareholders
    
    
    42E. Dilution
    
    
    42F. Expenses of the issue
    
    
    42Item 10. Additional Information
    
    
    42A. Share capital
    
    
    42B. Memorandum and articles of association
    
    
    42C. Material contracts
    
    
    49D. Exchange controls
    
    
    49E. Taxation
    
    
    50F. Dividends and paying agents
    
    
    54G. Statement by experts
    
    
    54H. Documents on display
    
    
    55I. Subsidiary information
    
    
    55Item 11. Quantitative and Qualitative Disclosures about Market Risk
    
    
    55




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Item 12. Description of Securities Other than Equity Securities
    
    
    57PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    57Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    57Item 15. Controls and Procedures
    
    
    57Item 16A. Audit Committee Financial Expert
    
    
    57Item 16B. Code of ethics
    
    
    57Item 16C. Principal Accountant Fees and Services
    
    
    58Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    59Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchases
    
    
    59PART IIIItem 17. Financial Statements
    
    
    59Item 18. Financial Statements
    
    
    59Item 19. Exhibits
    
    
    60EX-1.1 ARTICLES OF INCORPORATION, AS AMENDED AND EFFECTIVE AS OF JUNE 29, 2006 (ENGLISH TRANSLATION)EX-1.2 REGULATIONS OF BOARD OF DIRECTORS, AS AMENDED AND EFFECTIVE AS OF JUNE 29, 2006 (ENGLISH TRANSLATION)EX-1.3 THE SHARE HANDLING REGULATIONS, AS AMENDED AND EFFECTIVE AS OF JUNE 29, 2006 (ENGLISH TRANSLATION)EX-1.4 REGULATIONS OF BOARD OF STATUTORY AUDITORS EFFECTIVE AS OF JULY 7, 2006 (ENGLISH TRANSLATION)EX-12.1 302 CERTIFICATION OF PRESIDENT AND REPRESENTATIVE DIRECTORSEX-12.2 302 CERTIFICATION OF DIRECTORS, 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
   
    
    changes in economic conditions affecting the retail, housing and construction markets in
different countries, particularly in Japan, the United States and Europe and, to a lesser
extent, in Canada, Asia, Australia and the Middle East;
    
    Makitas ability to maintain mutually beneficial relationships with key distributors and to
penetrate new channels of distribution;
    
    circumstances relating to inventory adjustments or changes in purchasing patterns by major
customers and their impact on Makitas manufacturing volumes and inventory levels;
    
    uncertainties surrounding market acceptance of new products introduced in fiscal 2006 and
scheduled for introduction in fiscal 2007, as well as the level of sales generated from these
new products, in connection with Makitas existing investments in productive capacity and
commitments to fund its advertising and product promotions to introduce these new products;
    
    Makitas ability to develop and introduce new products at favorable margins;
    
    adverse changes in currency exchange rates or raw material commodity prices, both in absolute
terms and relative to competitors risk profiles;
    
    increased competition in both Japanese market and worldwide;
    
    changes in consumer preference or loyalties;
    
    price reductions taken by Makita in response to customer and competitive pressures, as well
as price reductions or promotional actions taken in order to drive demand, which may not
result in anticipated sales levels;
    
    Makitas ability to achieve projected levels of efficiencies and cost reduction measures and
to avoid delays in or inefficiencies resulting from manufacturing and administrative
reorganization actions in progress or contemplated;
    
    the impact of various factors on Makitas foreign operations such as tariffs,
nationalization, exchange controls, interest rate fluctuations, civil unrest, governmental
changes, restrictions on Makitas foreign investment in local business and risks related to
other political, economic, and regulatory instabilities;
    
    the effects of litigation, environmental remediation matters, and product liability exposures;
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
    
    Makitas ability to generate sufficient cash flows to support
capital expansion, business acquisition plans and general
operating activities, and Makitas ability to obtain necessary
financing at favorable interest rates;
    
    changes in laws and regulations, including changes in accounting
standards, taxation requirements, including tax rate changes, new
tax laws and revised tax law interpretations, and environmental
laws, both in Japan and in foreign jurisdictions in which Makita
operates;
    
    the impact of unforeseen events, including war or terrorist
activities, on economic conditions and corporate and consumer
confidence;
    
    fluctuations in stock market prices; and
    
    the effects of attestation on internal control over financial
reporting to be expressed by the Companys auditors.
  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
  U.S. Dollars(Millions of yen, except per share amounts)
    
    
    (thousands)Fiscal year ended March 31,Income Statement Data:
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2006Net sales
    
    ¥
    166,169
    
    
    ¥
    175,603
    
    
    ¥
    184,117
    
    
    ¥
    194,737
    
    
    ¥
    229,075
    
    
    $
    1,957,906Operating income
    
    
    5,873
    
    
    
    12,468
    
    
    
    14,696
    
    
    
    31,398
    
    
    
    45,778
    
    
    
    391,265Net income
    
    
    133
    
    
    
    6,723
    
    
    
    7,691
    
    
    
    22,136
    
    
    
    40,411
    
    
    
    345,393Net income per share of Common stock and per ADS:Basic
    
    
    0.9
    
    
    
    45.3
    
    
    
    53.2
    
    
    
    153.9
    
    
    
    281.1
    
    
    
    2.40Diluted
    
    
    0.9
    
    
    
    44.2
    
    
    
    51.9
    
    
    
    148.8
    
    
    
    281.1
    
    
    
    2.40
 U.S. Dollars(Millions of yen, except per share amounts)
    
    
    (thousands)Fiscal year ended March 31,Balance Sheet Data:
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2006Total assets
    
    ¥
    285,138
    
    
    ¥
    278,600
    
    
    ¥
    278,116
    
    
    ¥
    289,904
    
    
    ¥
    326,038
    
    
    $
    2,786,650Cash and cash
equivalents, time
deposits and marketable
securities
    
    
    63,393
    
    
    
    64,083
    
    
    
    92,616
    
    
    
    91,189
    
    
    
    88,672
    
    
    
    757,880Net working capital
    
    
    144,929
    
    
    
    141,759
    
    
    
    147,822
    
    
    
    149,666
    
    
    
    181,808
    
    
    
    1,553,914Short-term borrowings
    
    
    8,984
    
    
    
    2,892
    
    
    
    14,128
    
    
    
    9,060
    
    
    
    1,728
    
    
    
    14,769Long-term indebtedness
    
    
    20,102
    
    
    
    19,843
    
    
    
    7,364
    
    
    
    88
    
    
    
    104
    
    
    
    889Common stock
    
    
    23,803
    
    
    
    23,803
    
    
    
    23,803
    
    
    
    23,805
    
    
    
    23,805
    
    
    
    203,462Treasury stock
    
    
    (2,229
    )
    
    
    (5,110
    )
    
    
    (3,316
    )
    
    
    (3,517
    )
    
    
    (258
    )
    
    
    (2,205
    )Shareholders equity
    
    
    189,939
    
    
    
    182,400
    
    
    
    193,348
    
    
    
    219,640
    
    
    
    266,584
    
    
    
    2,278,496Total number of
shares outstanding
    
    
    149,673,742
    
    
    
    145,967,876
    
    
    
    143,893,191
    
    
    
    143,777,607
    
    
    
    143,711,766
    
    
    
    143,711,766
  3




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(Japanese Yen per U.S. $1.00)Fiscal year ended March 31,
    
    High
    
    
    Low
    
    
    Average
    
    
    Year-end2002
    
    
    115.89
    
    
    
    134.77
    
    
    
    125.64
    
    
    
    132.702003
    
    
    115.71
    
    
    
    133.40
    
    
    
    121.94
    
    
    
    118.072004
    
    
    104.18
    
    
    
    120.55
    
    
    
    113.07
    
    
    
    104.182005
    
    
    102.26
    
    
    
    114.30
    
    
    
    107.47
    
    
    
    107.222006
    
    
    104.41
    
    
    
    120.93
    
    
    
    113.15
    
    
    
    117.48
 (Japanese Yen per U.S. $1.00)June2006
    
    January
    
    
    February
    
    
    March
    
    
    April
    
    
    May
    
    
    (through June 15)High
    
    
    113.96
    
    
    
    115.82
    
    
    
    115.89
    
    
    
    113.79
    
    
    
    110.07
    
    
    
    111.66Low
    
    
    117.55
    
    
    
    118.95
    
    
    
    119.07
    
    
    
    118.66
    
    
    
    113.46
    
    
    
    115.06
   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
    
    
    
    0.32
  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.
 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.
 Environmental or other government regulations may have a material adverse impact on Makitas
business activities.
  5




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Currency exchange rate fluctuations may adversely affect Makitas financial results.
   Fluctuations in stock market prices may adversely affect Makitas financial statements.
 If Makita cannot respond to changes in construction method and trends in demand, Makitas sales
may be materially and adversely affected.
 The rapidly growing presence of China-based power tool manufacturers may adversely affect
Makitas sales results.
 If Makita is not able to develop attractive products, Makitas sales activities may be
adversely affected.
 If Makita fails to maintain cooperative relationships with significant customers, Makitas
sales may be seriously affected.
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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.
 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.
 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 controls over financial reporting
are not effective as of March 31, 2007, or if Makitas independent registered public accounting
firm is unable to provide adequate attestation on managements assessment, or to provide
unqualified opinion on the effectiveness of Makitas internal controls over financial reporting, as
required by Section 404 of the Sarbanes-Oxley Act of 2002.
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Item 4. Information on the Company
 
 A. History and development of the Company
       
 B. Business overview
   8




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Products
 (Millions of yen, except for percentage amounts)
    
    
    U.S. DollarsConsolidated Net Sales by Product Categories
    
    
    (thousands)Fiscal year ended March 31,2004
    
    
    2005
    
    
    2006
    
    
    2006Portable woodworking tools
    
    ¥
    34,452
    
    
    
    18.7
    %
    
    ¥
    34,507
    
    
    
    17.7
    %
    
    ¥
    37,890
    
    
    
    16.5
    %
    
    
    323,846Portable general purpose tools
    
    
    98,176
    
    
    
    53.3
    %
    
    
    105,736
    
    
    
    54.3
    %
    
    
    128,215
    
    
    
    56.0
    %
    
    
    1,095,855Stationary woodworking
machines
    
    
    1,711
    
    
    
    1.0
    %
    
    
    1,573
    
    
    
    0.8
    %
    
    
    2,009
    
    
    
    0.9
    %
    
    
    17,171Other products
    
    
    19,548
    
    
    
    10.6
    %
    
    
    21,763
    
    
    
    11.2
    %
    
    
    26,696
    
    
    
    11.7
    %
    
    
    228,171Parts, repairs and accessories
    
    
    30,230
    
    
    
    16.4
    %
    
    
    31,158
    
    
    
    16.0
    %
    
    
    34,265
    
    
    
    14.9
    %
    
    
    292,863Total
    
    
    184,117
    
    
    
    100.0
    %
    
    
    194,737
    
    
    
    100.0
    %
    
    
    229,075
    
    
    
    100.0
    %
    
    
    1,957,906
 Portable Woodworking Tools
   Portable General Purpose Tools
       9




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Stationary Woodworking Machines
  Other 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 31,2004
    
    
    2005
    
    
    2006
    
    
    2006Japan
    
    ¥
    39,142
    
    
    
    21.3
    %
    
    ¥
    39,379
    
    
    
    20.2
    %
    
    ¥
    41,600
    
    
    
    18.2
    %
    
    $
    355,556North America
    
    
    41,853
    
    
    
    22.7
    
    
    
    38,490
    
    
    
    19.8
    
    
    
    47,673
    
    
    
    20.8
    
    
    
    407,462Europe
    
    
    66,369
    
    
    
    36.0
    
    
    
    75,263
    
    
    
    38.6
    
    
    
    90,504
    
    
    
    39.5
    
    
    
    773,538Asia
    
    
    14,245
    
    
    
    7.7
    
    
    
    16,341
    
    
    
    8.4
    
    
    
    16,993
    
    
    
    7.4
    
    
    
    145,239Other
    
    
    22,508
    
    
    
    12.3
    
    
    
    25,264
    
    
    
    13.0
    
    
    
    32,305
    
    
    
    14.1
    
    
    
    276,111Total
    
    ¥
    184,117
    
    
    
    100.0
    %
    
    ¥
    194,737
    
    
    
    100.0
    %
    
    ¥
    229,075
    
    
    
    100.0
    %
    
    $
    1,957,906
 Japan
       Overseas
   10




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Seasonality
 Competition
  Raw Materials and Sources of Supply
    Government Regulations
  Intellectual Property Rights
 11




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C. Organizational structure
  Proportion ofCountry of
    
    Ownership andCompany Name
    
    Incorporation
    
    Voting InterestMakita U.S.A., Inc.
    
    U.S.A
    
    
    100.0
    %Makita Corporation of America
    
    U.S.A
    
    
    100.0Makita Canada Inc.
    
    Canada
    
    
    100.0Makita Mexico, S.A. de C.V.
    
    Mexico
    
    
    100.0Makita do Brasil Ferramentas Eletricas Ltda.
    
    Brazil
    
    
    99.9Makita Herramientas Electricas de Argentina S.A.
    
    Argentine
    
    
    100.0Makita Chile Ltda.
    
    Chile
    
    
    100.0Makita (Australia) Pty. Ltd.
    
    Australia
    
    
    100.0Makita (New Zealand) Ltd.
    
    New Zealand
    
    
    100.0Makita International Europe Ltd.
    
    U.K.
    
    
    100.0Makita (U.K.) Ltd.
    
    U.K.
    
    
    100.0Makita Manufacturing Europe Ltd.
    
    U.K.
    
    
    100.0Makita France S.A.
    
    France
    
    
    55.0Makita Benelux B.V.
    
    The Netherlands
    
    
    100.0Euro Makita Corporation B.V.
    
    The Netherlands
    
    
    100.0S.A. Makita N.V.
    
    Belgium
    
    
    100.0Makita S.p.A.
    
    Italy
    
    
    100.0Makita Werkzeug GmbH
    
    Germany
    
    
    100.0Dolmar GmbH
    
    Germany
    
    
    100.0Makita Werkzeug Gesellschaft m.b.H.
    
    Austria
    
    
    100.0Makita Sp. z o. o.
    
    Poland
    
    
    100.0Makita SA
    
    Switzerland
    
    
    100.0Makita, S.A.
    
    Spain
    
    
    100.0Makita Gulf FZE
    
    U.A.E.
    
    
    100.0Makita Oy
    
    Finland
    
    
    100.0Makita Singapore Pte. Ltd.
    
    Singapore
    
    
    100.0Makita (Taiwan) Ltd.
    
    Taiwan
    
    
    100.0Makita Power Tools (HK) Ltd.
    
    China
    
    
    100.0Makita (China) Co., Ltd.
    
    China
    
    
    100.0Makita (Kunshan) Co., Ltd.
    
    China
    
    
    100.0Makita Korea Co., Ltd.
    
    Korea
    
    
    100.0Makita Ichinomiya Corporation and 13 other subsidiaries
    
    Japan and other countries
    
    
    100.0
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D. Property, plant and equipment
  Floor spaceLocation
    
    (Square meters)
    
    
    Principal products manufacturedIn Japan;Makita CorporationOkazaki Plants
    
    
    71,804
    
    
    Portable woodworking tools and portable general purpose toolsMakita Ichinomiya Corporation
    
    
    5,325
    
    
    Stationary woodworking machinesOverseas;Makita Corporation of America
    
    
    24,053
    
    
    Portable woodworking tools and portable general purpose toolsMakita (China) Co., Ltd.
    
    
    33,100
    
    
    Portable woodworking tools and portable general purpose toolsMakita (Kunshan) Co., Ltd.
    
    
    6,401
    
    
    Portable woodworking tools and portable general purpose toolsMakita Manufacturing Europe Ltd.
    
    
    11,520
    
    
    Portable woodworking tools and portable general purpose toolsDolmar GmbH
    
    
    17,747
    
    
    Engine powered equipment
    
    
    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
  13




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Item 5. Operating and Financial Review and Prospects
 
 A. Operating results
  (Millions of yen, except for percentage amounts)
    
    U.S. Dollars (thousands)2004
    
    2005
    
    2006
    
    2006Change%
    
    
    
    
    
    %
    
    
    
    
    
    %
    
    
    
    
    
    %NET SALES
    
    ¥
    184,117
    
    
    
    100.0
    
    
    ¥
    194,737
    
    
    
    100.0
    
    
    ¥
    229,075
    
    
    
    100.0
    
    
    $
    1,957,906
    
    
    
    17.6Cost of sales
    
    
    110,322
    
    
    
    59.9
    
    
    
    113,323
    
    
    
    58.2
    
    
    
    132,897
    
    
    
    58.0
    
    
    
    1,135,872
    
    
    
    17.3GROSS PROFIT
    
    
    73,795
    
    
    
    40.1
    
    
    
    81,414
    
    
    
    41.8
    
    
    
    96,178
    
    
    
    42.0
    
    
    
    822,034
    
    
    
    18.1Selling, general and
administrative expenses
    
    
    53,698
    
    
    
    29.2
    
    
    
    52,646
    
    
    
    27.1
    
    
    
    58,726
    
    
    
    25.6
    
    
    
    501,931
    
    
    
    11.5Losses (Gains) on disposals or
sales of property, plant and
equipment
    
    
    (2,379
    )
    
    
    (1.3
    )
    
    
    1,234
    
    
    
    0.6
    
    
    
    (8,326
    )
    
    
    (3.6
    )
    
    
    (71,162
    )
    
    
    Impairment of long-lived assets
    
    
    7,780
    
    
    
    4.2
    
    
    
    577
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Transfer to the government of
the substitutional portion of
pension plan
    
    
    
    
    
    
    
    
    
    
    (4,441
    )
    
    
    (2.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OPERATING INCOME
    
    
    14,696
    
    
    
    8.0
    
    
    
    31,398
    
    
    
    16.1
    
    
    
    45,778
    
    
    
    20.0
    
    
    
    391,265
    
    
    
    45.8OTHER INCOME (EXPENSES)Interest and dividend income
    
    
    869
    
    
    
    0.5
    
    
    
    1,157
    
    
    
    0.6
    
    
    
    1,301
    
    
    
    0.6
    
    
    
    11,120
    
    
    
    12.4Interest expense
    
    
    (605
    )
    
    
    (0.3
    )
    
    
    (588
    )
    
    
    (0.3
    )
    
    
    (364
    )
    
    
    (0.2
    )
    
    
    (3,111
    )
    
    
    (38.1
    )Exchange gains (losses) on
foreign currency transactions,
net
    
    
    (202
    )
    
    
    (0.1
    )
    
    
    37
    
    
    
    0.0
    
    
    
    (258
    )
    
    
    (0.1
    )
    
    
    (2,205
    )
    
    
    Realized gains on securities, net
    
    
    555
    
    
    
    0.3
    
    
    
    453
    
    
    
    0.2
    
    
    
    2,918
    
    
    
    1.3
    
    
    
    24,940
    
    
    
    544.2Other, net
    
    
    857
    
    
    
    0.4
    
    
    
    161
    
    
    
    0.1
    
    
    
    (232
    )
    
    
    (0.1
    )
    
    
    (1,983
    )
    
    
    Total
    
    
    1,474
    
    
    
    0.8
    
    
    
    1,220
    
    
    
    0.6
    
    
    
    3,365
    
    
    
    1.5
    
    
    
    28,761
    
    
    
    175.8INCOME BEFORE INCOME TAXES
    
    
    16,170
    
    
    
    8.8
    
    
    
    32,618
    
    
    
    16.7
    
    
    
    49,143
    
    
    
    21.5
    
    
    
    420,026
    
    
    
    50.7PROVISION FOR INCOME TAXES
    
    
    8,479
    
    
    
    4.6
    
    
    
    10,482
    
    
    
    5.3
    
    
    
    8,732
    
    
    
    3.8
    
    
    
    74,633
    
    
    
    (16.7
    )NET INCOME
    
    
    7,691
    
    
    
    4.2
    
    
    
    22,136
    
    
    
    11.4
    
    
    
    40,411
    
    
    
    17.6
    
    
    
    345,393
    
    
    
    82.6
 General
Overview
    14




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Fiscal Year (FY) 2006 compared to FY2005
 Net sales
      Sales by region
     15




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##### Table of Contents



Review of Performance by Product Group
 Portable General Purpose Tools
 Portable Woodworking Tools
 Stationary Woodworking Machines
 Other Products
 Parts, Repairs and Accessories
 16




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##### Table of Contents



Cost of Sales
 Gross Profit  (¥
 Selling, General and Administrative Expenses
  Losses (Gains) on disposal or sales of property, plant and equipment
 Operating Income
 Other Income (Expenses)
      Income before income taxes
 Provision for income taxes
 17




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Net income
 Earnings per share
 Regional Segments
 Japan Segment
 North America Segment
 Europe Segment
 Asia Segment
 Other Segment
 18




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Fiscal Year (FY) 2005 compared to FY2004
 Net sales
      Sales by region
    19




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##### Table of Contents



Review of Performance by Product Group
 Portable General Purpose Tools
 Portable Woodworking Tools
 Stationary Woodworking Machines
 20




---



##### Table of Contents



Other Products
 Parts, Repairs and Accessories
 Cost of sales
 Gross profit
 Selling, general and administrative expenses
 Losses (Gains) on disposal or sales of property, plant and equipment
 Impairment of long-lived assets
  21




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Transfer to the government of the substitutional portion of pension plan
   Operating Income
 Other Income (Expenses)
 Income before income taxes
 Provision for income taxes
  22




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##### Table of Contents



Net income
 Earnings per share
 Regional Segments
 Japan Segment
 North America Segment
 Europe Segment
 Asia Segment
 Other Segment
 CRITICAL ACCOUNTING POLICIES
 23




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##### Table of Contents



Revenue Recognition
       Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousand)For the year ended March 31,2004
    
    
    2005
    
    
    2006
    
    
    2006Volume-based rebates:Actual payment for the year
    
    
    (3,607
    )
    
    
    (3,836
    )
    
    
    (5,104
    )
    
    
    (43,624
    )Income statement impact for the year
    
    
    3,903
    
    
    
    4,333
    
    
    
    5,726
    
    
    
    48,940Accrued expenses (BS) as of March 31,
    
    
    1,605
    
    
    
    2,102
    
    
    
    2,724
    
    
    
    23,282Cooperative advertisings:Actual payment for the year
    
    
    (2,076
    )
    
    
    (1,900
    )
    
    
    (2,127
    )
    
    
    (18,179
    )Income statement impact for the year
    
    
    2,147
    
    
    
    1,812
    
    
    
    2,196
    
    
    
    18,769Accrued expenses (BS) as of March 31,
    
    
    596
    
    
    
    508
    
    
    
    577
    
    
    
    4,932Cash discounts:Actual payment for the year
    
    
    (3,503
    )
    
    
    (3,682
    )
    
    
    (4,311
    )
    
    
    (36,846
    )Income statement impact for the year
    
    
    3,661
    
    
    
    3,684
    
    
    
    4,371
    
    
    
    37,359Accrued expenses (BS) as of March 31,
    
    
    429
    
    
    
    431
    
    
    
    491
    
    
    
    4,197
 Inventory valuation and reserve
 24




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Unrealized Losses on Securities
 Allowance for Doubtful Receivables
 Impairment of Long-Lived Assets
   Accrued Retirement and Termination Benefits
 25




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##### Table of Contents



Change in
    
    Change inChange in assumption
    
    projected benefit
    
    pre-tax pensionobligation
    
    expensesYen (millions)50 basis point increase / decrease in discount rate
    
    
    -2,300 / +2,600
    
    
    
    -7 / +650 basis point increase / decrease in expected return on assets
    
    
    
    
    
    
    -140/+140
  Realizability of Deferred Income Tax Assets
  New Accounting Standards
  26




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B. Liquidity and capital resources
     27




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Fiscal year 2006
 Cash Flows
              28




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##### Table of Contents



Capital Expenditures
    Fiscal year 2005
 Cash Flows
      29




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Capital Expenditures
   Financial Position
      
 C. Research and development, patents and licenses, etc.
    30




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D. Trend information
      
 E. Off-balance sheet arrangements
  31




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F. Tabular disclosure of contractual obligations
 Yen (millions)Expected payment date, year ending March 31,Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterCapital lease
    
    
    194
    
    
    
    90
    
    
    
    37
    
    
    
    27
    
    
    
    20
    
    
    
    11
    
    
    
    9Interest expenses on Capital lease
    
    
    18
    
    
    
    9
    
    
    
    4
    
    
    
    2
    
    
    
    2
    
    
    
    1
    
    
    
    Operating lease
    
    
    1,680
    
    
    
    546
    
    
    
    401
    
    
    
    275
    
    
    
    166
    
    
    
    86
    
    
    
    206Contributions to defined benefit plan
    
    
    3,101
    
    
    
    3,101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Derivative financial instruments
    
    
    24,498
    
    
    
    24,498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligation
    
    
    6,373
    
    
    
    6,373
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    ¥
    35,864
    
    
    ¥
    34,617
    
    
    ¥
    442
    
    
    ¥
    304
    
    
    ¥
    188
    
    
    ¥
    98
    
    
    ¥
    215
 U.S. Dollars (thousands)Expected payment date, year ending March 31,Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterCapital lease
    
    
    1,658
    
    
    
    769
    
    
    
    316
    
    
    
    231
    
    
    
    171
    
    
    
    94
    
    
    
    77Interest expenses on Capital
lease
    
    
    154
    
    
    
    77
    
    
    
    34
    
    
    
    17
    
    
    
    17
    
    
    
    9
    
    
    
    Operating lease
    
    
    14,359
    
    
    
    4,667
    
    
    
    3,427
    
    
    
    2,350
    
    
    
    1,419
    
    
    
    735
    
    
    
    1,761Contributions to defined
benefit plan
    
    
    26,504
    
    
    
    26,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Derivative financial instruments
    
    
    209,385
    
    
    
    209,385
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligation
    
    
    54,470
    
    
    
    54,470
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    306,530
    
    
    $
    295,872
    
    
    $
    3,777
    
    
    $
    2,598
    
    
    $
    1,607
    
    
    $
    838
    
    
    $
    1,838
 
 Note:
    
    Calculation of contributions to
defined benefit plan after 2007 is not practicable. G.
Safe harbor
  
 Item 6. Directors, Senior Management and Employees
 
 A. Directors and senior management
  
 
 32




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33




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34




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##### Table of Contents



B. Compensation
    
 C. Board practices
     35




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##### 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 at a specially favorable price (or any offering of stock acquisition rights to acquire shares of capital stock, or bonds
with stock acquisition rights at specially favorable conditions) to any persons other than shareholders;(4)
    
    the removal of a 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 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;
 36




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##### Table of Contents



(9)
    
    the transfer of the whole or a material part of the business;(10)
    
    the taking over of the whole of the business of any other corporation with certain exceptions in which a
shareholders resolution is not required; 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 31,2004
    
    
    
    2005
    
    
    
    2006Categorized by Geographic AreasJapan
    
    
    3,041
    
    
    
    2,996
    
    
    
    3,038Overseas
    
    
    5,392
    
    
    
    5,564
    
    
    
    5,591Total
    
    
    8,433
    
    
    
    8,560
    
    
    
    8,629
    37




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##### Table of Contents



E. Share ownership
  Identity of
    
    Number of
    
    Percentage ofPerson or Group
    
    Shares Owned
    
    voting rightDirectors and Statutory Auditors
    
    
    2,113,316
    
    
    1.47 %
  Name
    
    Position
    
    Number of sharesMasahiko Goto
    
    President, Representative Director
    
    
    1,974,143Masami Tsuruta
    
    Managing Director
    
    
    16,022Yasuhiko Kanzaki
    
    Director
    
    
    11,569Kenichiro Nakai
    
    Director
    
    
    11,700Tadayoshi Torii
    
    Director
    
    
    12,900Tomoyasu Kato
    
    Director
    
    
    12,072Kazuya Nakamura
    
    Director
    
    
    7,400Masahiro Yamaguchi
    
    Director
    
    
    5,900Shiro Hori
    
    Director
    
    
    8,400Tadashi Asanuma
    
    Director
    
    
    4,900Hisayoshi Niwa
    
    Director
    
    
    6,000Zenji Mashiko
    
    Director
    
    
    5,900Akio Kondo
    
    Standing Statutory Auditor
    
    
    6,400Hiromichi Murase
    
    Standing Statutory Auditor
    
    
    4,610Keiichi Usui
    
    Outside Statutory Auditor
    
    
    8,000Shoichi Hase
    
    Outside Statutory Auditor
    
    
    17,400
  
 Item 7. Major Shareholders and Related Party Transactions
 
 A. Major Shareholders
    Name of Beneficial Owner
    
    Number of Shares
    
    PercentageThe Master Trust Bank of Japan, Ltd.
(Trust account)
    
    
    9,041,000
    
    
    
    6.27
    %Japan Trustee Services Bank, Ltd.
(Trust account)
    
    
    8,902,500
    
    
    
    6.18
    %
 38




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##### Table of Contents



Shares Owned
    
    
    
    
    
    Number of
    
    Shares OwnedDate of
    
    Prior to
    
    
    
    
    
    Shares
    
    After theName of Shareholder
    
    Transaction
    
    Transaction
    
    Percentage
    
    Changed
    
    Transaction
    
    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
    
    May 15, 2006
    
    
    9,022,123
    
    
    
    7.35
    %
    
    
    1,556,200
    
    
    
    10,578,323
    
    
    
    7.35
    %
     
 B. Related party transactions
   39




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##### Table of Contents



C. Interest of experts and counsel
  
 Item 8. Financial Information
 
 A. Consolidated statements and other financial information
 1-3. Consolidated Financial Statements
   
 7. Legal or arbitration proceedings
 8. Dividend Policy
    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
    
    
    
    0.32
  40




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##### Table of Contents



B. Significant changes
  
 Item 9. The Offer and Listing
 
 A. Offer and listing details
    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
    
    
    Low2002
    
    
    871
    
    
    
    615
    
    
    
    6.85
    
    
    
    4.882003
    
    
    909
    
    
    
    654
    
    
    
    7.55
    
    
    
    5.352004
    
    
    1,343
    
    
    
    834
    
    
    
    15.45
    
    
    
    10.002005
    
    
    2,115
    
    
    
    1,315
    
    
    
    20.27
    
    
    
    12.002006
    
    
    3,820
    
    
    
    1,755
    
    
    
    34.19
    
    
    
    16.15QuarterlyFiscal year 20051 st quarter ended June 30, 2004
    
    
    1,686
    
    
    
    1,315
    
    
    
    15.34
    
    
    
    12.002 nd quarter ended September 30, 2004
    
    
    1,675
    
    
    
    1,463
    
    
    
    15.45
    
    
    
    13.203 rd quarter ended December 31, 2004
    
    
    1,874
    
    
    
    1,379
    
    
    
    17.75
    
    
    
    13.174 th quarter ended March 31, 2005
    
    
    2,115
    
    
    
    1,705
    
    
    
    20.27
    
    
    
    16.56Fiscal 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
    
    
    
    34.9
    
    
    
    24.22MonthlyJanuary 2006
    
    
    3,420
    
    
    
    2,830
    
    
    
    28.90
    
    
    
    24.22February 2006
    
    
    3,820
    
    
    
    3,150
    
    
    
    31.69
    
    
    
    27.76March 2006
    
    
    3,690
    
    
    
    3,180
    
    
    
    31.49
    
    
    
    27.62April 2006
    
    
    3,720
    
    
    
    3,290
    
    
    
    31.50
    
    
    
    29.00May 2006
    
    
    3,830
    
    
    
    3,260
    
    
    
    34.34
    
    
    
    29.82June 2006(through June 15)
    
    
    3,660
    
    
    
    3,400
    
    
    
    31.98
    
    
    
    26.03
 
 B. Plan of distribution
  
 C. Markets
  41




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##### Table of Contents



D. Selling shareholders
  
 E. Dilution
  
 F. Expenses of the issue
  
 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, 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 exercisable by a Representative Director (or a Director who is given
power by a Representative Director to exercise such power);
    
    the Directors or Statutory Auditors retirement age; or
    
    requirement to hold any shares of capital stock of the Company.
 42




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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 decline conditions concerning offering of corporate bonds; and
    
    to establish and maintain an
internal control system.
  Common stock
 General
     Authorized capital
    43




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##### Table of Contents



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 documentsfor the latest business year present fairly its assets and profit or loss, as
required by ordinances of the Ministry of Justice.
     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)
 44




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##### Table of Contents



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.
 renketsu haito kisei
tekiyo kaisha
  Stock splits
   Consolidation of shares
 Voting Rights
 45




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##### Table of Contents



General meeting of shareholders
     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 at a specially favorable price (or any offering of stock acquisition rights
to acquire shares of capital stock, or bonds with stock acquisition rights at specially favorable
conditions) to any persons other than shareholders;(4)
    
    the removal of a 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 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;
 46




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##### Table of Contents



(9)
    
    the transfer of the whole or a material part of the business;(10)
    
    the taking over of the whole of the business of any other corporation with certain exceptions in which a
shareholders resolution is not required; 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,
  Issue of additional shares and pre-emptive rights
 Voting rights
   Liquidation rights
  Record date
  Acquisition by the Company of Common Stock
  47




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##### Table of Contents



Issue of additional shares and pre-emptive rights
 Unit share system
       Sale by the Company of shares held by shareholders whose location is unknown
  48




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##### Table of Contents



Reporting of substantial shareholdings
    
 C. Material contracts
  
 D. Exchange controls
   
    
    individuals who do not reside in Japan; and
    
    corporations whose principal offices are located outside Japan.
  49




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##### Table of Contents




    
    individuals who are exchange non-residents;
    
    corporations that are organized under the laws of foreign countries or
whose principal offices are located outside of Japan; and
    
    corporations (1) of which 50 percent or more of their shares are held
by individuals who are exchange non-residents and/or corporations (a)
that are organized under the laws of foreign countries or (b) whose
principal offices are located outside of Japan or (2) a majority of
whose officers, or officers having the power of representation, are
individuals who are exchange non-residents.
    
 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.
   50




---



##### 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
      51




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##### Table of Contents



U.S. Federal Income Taxation
 U.S. Holders
  Taxation of Dividends
      52




---



##### Table of Contents




    
    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,
  Taxation of Capital Gains and Losses
   Passive Foreign Investment Companies
   53




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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
     
 F. Dividends and paying agents
  
 G. Statement by experts
  54




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##### Table of Contents



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
 Yen (millions)
    
    U.S. Dollars (thousands)2005
    
    2006
    
    2006Carrying
    
    Fair
    
    Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    Value
    
    Amount
    
    ValueDue within one year
    
    ¥
    53,504
    
    
    ¥
    53,504
    
    
    ¥
    42,810
    
    
    ¥
    42,810
    
    
    $
    365,897
    
    
    $
    365,897Due after one year through five years
    
    
    2,343
    
    
    
    2,348
    
    
    
    2,455
    
    
    
    2,436
    
    
    
    20,983
    
    
    
    20,821Due after five years
    
    
    2,150
    
    
    
    2,144
    
    
    
    1,986
    
    
    
    1,880
    
    
    
    16,974
    
    
    
    16,068Indefinite periods
    
    
    1,614
    
    
    
    1,614
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity securities
    
    
    20,433
    
    
    
    20,433
    
    
    
    30,961
    
    
    
    30,961
    
    
    
    264,624
    
    
    
    264,624¥
    80,044
    
    
    ¥
    80,043
    
    
    ¥
    78,212
    
    
    ¥
    78,087
    
    
    $
    668,478
    
    
    $
    667,410
 55




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##### Table of Contents



Foreign
Exchange Risk
 Yen (millions) (except average contractual rates)
    
    
    U.S. Dollars (thousands)2005
    
    
    2006
    
    
    2006Average
    
    
    
    
    
    
    
    
    
    
    AverageContract
    
    
    
    
    
    
    contractual
    
    
    Contract
    
    
    
    
    
    
    contractual
    
    
    Contractamounts
    
    
    Fair Value
    
    
    rates
    
    
    amounts
    
    
    Fair Value
    
    
    rates
    
    
    amounts
    
    
    Fair ValueForeign currency
contracts;U.S.$/Yen
    
    ¥
    3,934
    
    
    ¥
    (112
    )
    
    ¥
    104.09
    
    
    ¥
    4,368
    
    
    ¥
    (11
    )
    
    ¥
    116.49
    
    
    $
    37,333
    
    
    $
    (94
    )Euro/Yen
    
    
    3,166
    
    
    
    (36
    )
    
    
    137.05
    
    
    
    4,148
    
    
    
    (67
    )
    
    
    140.14
    
    
    
    35,453
    
    
    
    (573
    )A$/Yen
    
    
    329
    
    
    
    (9
    )
    
    
    80.12
    
    
    
    344
    
    
    
    10
    
    
    
    85.91
    
    
    
    2,940
    
    
    
    85STG/Yen
    
    
    129
    
    
    
    (2
    )
    
    
    197.94
    
    
    
    8
    
    
    
    
    
    
    
    201.98
    
    
    
    68
    
    
    
    Euro/STG
    
    
    1,413
    
    
    
    16
    
    
    
    
    
    
    
    1,421
    
    
    
    (10
    )
    
    
    
    
    
    
    12,145
    
    
    
    (85
    )Other
    
    
    1,299
    
    
    
    6
    
    
    
    
    
    
    
    1,538
    
    
    
    8
    
    
    
    
    
    
    
    13,145
    
    
    
    69Total
    
    ¥
    10,270
    
    
    ¥
    (137
    )
    
    
    
    
    
    ¥
    11,827
    
    
    ¥
    (70
    )
    
    
    
    
    
    $
    101,084
    
    
    $
    (598
    )-Foreign currency swaps:U.S.$/Yen
    
    ¥
    749
    
    
    ¥
    
    
    
    ¥
    107.02
    
    
    ¥
    9,099
    
    
    ¥
    (88
    )
    
    ¥
    116.65
    
    
    $
    77,769
    
    
    $
    (752
    )Euro/Yen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,133
    
    
    
    (12
    )
    
    
    141.68
    
    
    
    9,684
    
    
    
    (103
    )CAN$/Yen
    
    
    424
    
    
    
    (19
    )
    
    
    84.74
    
    
    
    305
    
    
    
    
    
    
    
    101.8
    
    
    
    2,607
    
    
    
    A$/Yen
    
    
    3,144
    
    
    
    (187
    )
    
    
    78.60
    
    
    
    1,661
    
    
    
    (32
    )
    
    
    83.06
    
    
    
    14,197
    
    
    
    (274
    )SFr./Yen
    
    
    174
    
    
    
    (5
    )
    
    
    86.99
    
    
    
    173
    
    
    
    (8
    )
    
    
    86.45
    
    
    
    1,478
    
    
    
    (68
    )Total
    
    ¥
    4,491
    
    
    ¥
    (211
    )
    
    
    
    
    
    ¥
    12,371
    
    
    ¥
    (140
    )
    
    
    
    
    
    $
    105,735
    
    
    $
    (1,197
    )-Options purchased to
sell foreign
currencies:U.S.$/Yen
    
    ¥
    406
    
    
    ¥
    1
    
    
    ¥
    101.56
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    $
    
    
    
    $
    Euro/Yen
    
    
    298
    
    
    
    1
    
    
    
    135.51
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    ¥
    767
    
    
    ¥
    2
    
    
    
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    
    
    
    
    $
    
    
    
    $
    -Options written to buy
foreign currencies:U.S.$/Yen
    
    ¥
    424
    
    
    ¥
    (8
    )
    
    ¥
    106.12
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    $
    
    
    
    $
    Euro/Yen
    
    
    305
    
    
    
    (3
    )
    
    
    138.84
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    ¥
    796
    
    
    ¥
    (11
    )
    
    
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    
    
    
    
    $
    
    
    
    $
    -
 56




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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. Changes in internal control over financial reporting
  
 Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of ethics
  57




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##### Table of Contents



Item 16C. Principal Accountant Fees and Services
   Yen (millions)2005
    
    
    2006Audit Fees (1)
    
    ¥
    189
    
    
    
    248Audit- related Fees (2)
    
    
    14
    
    
    
    31Tax Fees (3)
    
    
    66
    
    
    
    74All Other Fees (4)
    
    
    83
    
    
    
    71Total
    
    ¥
    352
    
    
    ¥
    424
 
 (1)
    
    Audit Fees consist of fees billed for the professional services rendered by the Independent Registered Public Accounting Firm
for the audit of Makitas annual or interim financial statements and services that are normally provided by the Independent
 Registered Public Accounting Firm in connection with statutory and regulatory filings or engagement.(2)
    
    Audit-related Fees consist of fees billed for assurance and related services by the Independent Registered Public Accounting
Firm that are reasonably related to employee benefit plan audits, and consultation concerning financial accounting and reporting
standards.(3)
    
    Tax Fees include fees billed for the professional services rendered by the Independent Registered Public Accounting Firm for tax
compliance and transfer pricing documentation.(4)
    
    All Other Fees comprise fees for all other services not included in any of other categories noted above.      58




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##### Table of Contents



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, 2005 to April 30, 2005
    
    
    2,377
    
    
    
    1,928From May 1, 2005to May 31, 2005
    
    
    3,386
    
    
    
    2,049From June 1, 2005 to June 30, 2005
    
    
    10,289
    
    
    
    2,199From July 1, 2005 to July 31, 2005
    
    
    15,105
    
    
    
    2,234From August 1, 2005 to August 31, 2005
    
    
    13,663
    
    
    
    2,328From September 1, 2005 to September 30, 2005
    
    
    10,542
    
    
    
    2,229From October 1, 2005 to October 30, 2005
    
    
    6,132
    
    
    
    2,320From November 1, 2005 to November 30, 2005
    
    
    1,889
    
    
    
    2,806From December 1, 2005 to December 31, 2005
    
    
    3,212
    
    
    
    2,908From January 1, 2006 to January 31, 2006
    
    
    1,316
    
    
    
    3,037From February 1, 2006 to February 28, 2006
    
    
    1,374
    
    
    
    3,421From March 1, 2006 to March 31, 2006
    
    
    892
    
    
    
    3,452Total Number of Shares Purchased and Average Price Paid per Share
    
    
    70,177
    
    
    
    2,335
 
 PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
  59




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##### Table of Contents



Item 19. Exhibits
 1.1
    
    Articles of Incorporation, as amended and effective as of June 29, 2006 (English translation)1.2
    
    Regulations of Board of Directors, as amended and effective as of June 29, 2006 (English translation)1.3
    
    The Share Handling Regulations, as amended and effective as of June 29, 2006 (English translation)1.4
    
    Regulations of Board of Statutory Auditors effective as of July 7, 2006 (English translation)4.1
    
    Summary translation of the Sponsorship Agreement, dated January 17, 2005 and as supplemented on May
26, 2005, among Makita Corporation, Joyama Kaihatsu Ltd., and Tokyo Tatemono Co., Ltd., relating to
the civil rehabilitation of Joyama Kaihatsu Ltd and the operation of Castle Hill Country Club.
(incorporated by reference to Exhibit 4.1 of Makitas annual report on Form 20-F filed with the SEC
on July 5, 2005 (file no.000-12602))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
 60




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##### Table of Contents



SIGNATURES
  MAKITA CORPORATIONBy:
    /s/ Masahiko GotoName:

    Masahiko GotoTitle:

    President and Representative Director  61




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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-2Consolidated Balance Sheets as of March 31, 2005 and 2006
    
    F-3 and F-4Consolidated Statements of Income for the years ended March 31, 2004, 2005 and 2006
    
    F-5Consolidated Statements of Shareholders Equity for the years ended March 31, 2004, 2005 and 2006
    
    F-6Consolidated Statements of Cash Flows for the years ended March 31, 2004, 2005 and 2006
    
    F-7 and F-8Notes to Consolidated Financial Statements
    
    F-9 to F-45(Financial Statements of 50% or less owned persons accounted for by the equity method have been omitted
because they are not applicable.)Schedules:II. Valuation and Qualifying Accounts and Reserves
for the years ended March 31, 2004, 2005 and
2006
    
    F-47
  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



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 MARCH 31, 2005 AND 2006
 A S S E T S
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2006CURRENT ASSETS:Cash and cash equivalents
    
    ¥
    25,384
    
    
    ¥
    39,054
    
    
    $
    333,795Time deposits
    
    
    7,867
    
    
    
    1,845
    
    
    
    15,769Marketable securities
    
    
    57,938
    
    
    
    47,773
    
    
    
    408,316Trade receivables-Notes
    
    
    1,687
    
    
    
    1,936
    
    
    
    16,547Accounts
    
    
    38,997
    
    
    
    46,074
    
    
    
    393,795Less- Allowance for doubtful receivables
    
    
    (1,178
    )
    
    
    (1,016
    )
    
    
    (8,684
    )Inventories
    
    
    66,003
    
    
    
    79,821
    
    
    
    682,231Deferred income taxes
    
    
    3,831
    
    
    
    3,661
    
    
    
    31,291Prepaid expenses and other current assets
    
    
    7,363
    
    
    
    8,621
    
    
    
    73,684Total current assets
    
    
    207,892
    
    
    
    227,769
    
    
    
    1,946,744PROPERTY, PLANT AND EQUIPMENT, AT COST:Land
    
    
    17,673
    
    
    
    17,737
    
    
    
    151,598Buildings and improvements
    
    
    51,085
    
    
    
    55,470
    
    
    
    474,103Machinery and equipment
    
    
    73,356
    
    
    
    74,501
    
    
    
    636,761Construction in progress
    
    
    790
    
    
    
    2,340
    
    
    
    20,000142,904
    
    
    
    150,048
    
    
    
    1,282,462Less- Accumulated depreciation
    
    
    (90,080
    )
    
    
    (90,845
    )
    
    
    (776,453
    )52,824
    
    
    
    59,203
    
    
    
    506,009INVESTMENTS AND OTHER ASSETS:Investment securities
    
    
    22,106
    
    
    
    30,439
    
    
    
    260,162Goodwill
    
    
    
    
    
    
    779
    
    
    
    6,658Other intangible assets, net
    
    
    841
    
    
    
    1,354
    
    
    
    11,573Deferred income taxes
    
    
    390
    
    
    
    698
    
    
    
    5,966Other assets
    
    
    5,851
    
    
    
    5,796
    
    
    
    49,53829,188
    
    
    
    39,066
    
    
    
    333,897¥
    289,904
    
    
    ¥
    326,038
    
    
    $
    2,786,650
 
 F-3




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 MARCH 31, 2005 AND 2006
 LIABILITIES AND SHAREHOLDERS EQUITY
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2006CURRENT LIABILITIES:Short-term borrowings
    
    ¥
    9,060
    
    
    ¥
    1,728
    
    
    $
    14,769Trade notes and accounts payable
    
    
    10,574
    
    
    
    13,908
    
    
    
    118,872Other payables
    
    
    3,197
    
    
    
    5,417
    
    
    
    46,299Accrued expenses
    
    
    5,998
    
    
    
    6,427
    
    
    
    54,932Accrued payroll
    
    
    7,695
    
    
    
    8,224
    
    
    
    70,291Club members deposits
    
    
    12,836
    
    
    
    
    
    
    
    Income taxes payable
    
    
    5,695
    
    
    
    6,701
    
    
    
    57,274Deferred income taxes
    
    
    118
    
    
    
    176
    
    
    
    1,504Other liabilities
    
    
    3,053
    
    
    
    3,380
    
    
    
    28,889Total current liabilities
    
    
    58,226
    
    
    
    45,961
    
    
    
    392,830LONG-TERM LIABILITIES:Long-term indebtedness
    
    
    88
    
    
    
    104
    
    
    
    889Accrued retirement and termination benefits
    
    
    5,126
    
    
    
    2,901
    
    
    
    24,795Deferred income taxes
    
    
    4,538
    
    
    
    7,923
    
    
    
    67,718Other liabilities
    
    
    887
    
    
    
    930
    
    
    
    7,94810,639
    
    
    
    11,858
    
    
    
    101,350MINORITY INTERESTS
    
    
    1,399
    
    
    
    1,635
    
    
    
    13,974COMMITMENTS AND CONTINGENT LIABILITIES
    
    
    
    
    
    
    
    
    
    
    SHAREHOLDERS EQUITY:Common stock,Authorized - 287,000,000 shares in 2005496,000,000 shares in 2006Issued and outstanding- 148,008,760 shares and 143,777,607 shares in 2005144,008,760 shares and 143,711,766 shares in 2006
    
    
    23,805
    
    
    
    23,805
    
    
    
    203,462Additional paid-in capital
    
    
    45,430
    
    
    
    45,437
    
    
    
    388,350Legal reserve
    
    
    5,669
    
    
    
    5,669
    
    
    
    48,453Retained earnings
    
    
    157,502
    
    
    
    186,586
    
    
    
    1,594,752Accumulated other comprehensive income (loss)
    
    
    (9,249
    )
    
    
    5,345
    
    
    
    45,684Treasury stock, at cost: - 4,231,153 shares in 2005296,994 shares in 2006
    
    
    (3,517
    )
    
    
    (258
    )
    
    
    (2,205
    )219,640
    
    
    
    266,584
    
    
    
    2,278,496¥
    289,904
    
    
    ¥
    326,038
    
    
    $
    2,786,650
 
 F-4




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 FOR THE YEARS ENDED MARCH 31, 2004, 2005 AND 2006
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2006
    
    
    2006NET SALES
    
    ¥
    184,117
    
    
    ¥
    194,737
    
    
    ¥
    229,075
    
    
    $
    1,957,906Cost of sales
    
    
    110,322
    
    
    
    113,323
    
    
    
    132,897
    
    
    
    1,135,872GROSS PROFIT
    
    
    73,795
    
    
    
    81,414
    
    
    
    96,178
    
    
    
    822,034Selling, general and administrative expenses
    
    
    53,698
    
    
    
    52,646
    
    
    
    58,726
    
    
    
    501,931Losses (gains) on disposals or sales of property, plant and
equipment
    
    
    (2,379
    )
    
    
    1,234
    
    
    
    (8,326
    )
    
    
    (71,162
    )Impairment of long-lived assets
    
    
    7,780
    
    
    
    577
    
    
    
    
    
    
    
    Transfer to the government of the substitutional portion of
pension plan
    
    
    
    
    
    
    (4,441
    )
    
    
    
    
    
    
    OPERATING INCOME
    
    
    14,696
    
    
    
    31,398
    
    
    
    45,778
    
    
    
    391,265OTHER INCOME (EXPENSES):Interest and dividend income
    
    
    869
    
    
    
    1,157
    
    
    
    1,301
    
    
    
    11,120Interest expense
    
    
    (605
    )
    
    
    (588
    )
    
    
    (364
    )
    
    
    (3,111
    )Exchange gains (losses) on foreign currency transactions, net
    
    
    (202
    )
    
    
    37
    
    
    
    (258
    )
    
    
    (2,205
    )Realized gains on securities, net
    
    
    555
    
    
    
    453
    
    
    
    2,918
    
    
    
    24,940Other, net
    
    
    857
    
    
    
    161
    
    
    
    (232
    )
    
    
    (1,983
    )Total
    
    
    1,474
    
    
    
    1,220
    
    
    
    3,365
    
    
    
    28,761INCOME BEFORE INCOME TAXES
    
    
    16,170
    
    
    
    32,618
    
    
    
    49,143
    
    
    
    420,026PROVISION FOR INCOME TAXES:Current
    
    
    8,745
    
    
    
    10,071
    
    
    
    9,365
    
    
    
    80,043Deferred
    
    
    (266
    )
    
    
    411
    
    
    
    (633
    )
    
    
    (5,410
    )Total
    
    
    8,479
    
    
    
    10,482
    
    
    
    8,732
    
    
    
    74,633NET INCOME
    
    ¥
    7,691
    
    
    ¥
    22,136
    
    
    ¥
    40,411
    
    
    $
    345,393
 Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2006
    
    
    2006PER SHARE OF COMMON STOCK AND ADS:Net incomeBasic
    
    ¥
    53.2
    
    
    ¥
    153.9
    
    
    ¥
    281.1
    
    
    $
    2.40Diluted
    
    
    51.9
    
    
    
    148.8
    
    
    
    281.1
    
    
    
    2.40Cash dividends paid for the year
    
    
    18.0
    
    
    
    24.0
    
    
    
    55.0
    
    
    
    0.47
 
 F-5




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 FOR THE YEARS ENDED MARCH 31, 2004, 2005 AND 2006
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2006
    
    
    2006COMMON STOCK:Beginning balance
    
    ¥
    23,803
    
    
    ¥
    23,803
    
    
    ¥
    23,805
    
    
    $
    203,462Conversion of convertible bonds; 1,768 shares in 2005
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Ending balance
    
    ¥
    23,803
    
    
    ¥
    23,805
    
    
    ¥
    23,805
    
    
    $
    203,462ADDITIONAL PAID-IN CAPITAL:Beginning balance
    
    ¥
    45,419
    
    
    ¥
    45,421
    
    
    ¥
    45,430
    
    
    $
    388,290Conversion of convertible bonds
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Gain on sales of treasury stock
    
    
    2
    
    
    
    7
    
    
    
    7
    
    
    
    60Ending balance
    
    ¥
    45,421
    
    
    ¥
    45,430
    
    
    ¥
    45,437
    
    
    $
    388,350LEGAL RESERVE:Beginning balance
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    $
    48,453Ending balance
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    ¥
    5,669
    
    
    $
    48,453RETAINED EARNINGS:Beginning balance
    
    ¥
    137,753
    
    
    ¥
    138,819
    
    
    ¥
    157,502
    
    
    $
    1,346,171Net income
    
    
    7,691
    
    
    
    22,136
    
    
    
    40,411
    
    
    
    345,393Cash dividends
    
    
    (2,610
    )
    
    
    (3,453
    )
    
    
    (7,907
    )
    
    
    (67,581
    )Retirement of treasury stock
    
    
    (4,015
    )
    
    
    
    
    
    
    (3,420
    )
    
    
    (29,231
    )Ending balance
    
    ¥
    138,819
    
    
    ¥
    157,502
    
    
    ¥
    186,586
    
    
    $
    1,594,752ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF
TAX:Beginning balance
    
    ¥
    (25,134
    )
    
    ¥
    (17,048
    )
    
    ¥
    (9,249
    )
    
    $
    (79,051
    )Other comprehensive income for the year
    
    
    8,086
    
    
    
    7,799
    
    
    
    14,594
    
    
    
    124,735Ending balance
    
    ¥
    (17,048
    )
    
    ¥
    (9,249
    )
    
    ¥
    5,345
    
    
    $
    45,684TREASURY STOCK:Beginning balance
    
    ¥
    (5,110
    )
    
    ¥
    (3,316
    )
    
    ¥
    (3,517
    )
    
    $
    (30,060
    )Purchases
    
    
    (2,227
    )
    
    
    (208
    )
    
    
    (164
    )
    
    
    (1,402
    )Retirement and sales
    
    
    4,021
    
    
    
    7
    
    
    
    3,423
    
    
    
    29,257Ending balance
    
    ¥
    (3,316
    )
    
    ¥
    (3,517
    )
    
    ¥
    (258
    )
    
    $
    (2,205
    )DISCLOSURE OF COMPREHENSIVE INCOME:Net income for the year
    
    ¥
    7,691
    
    
    ¥
    22,136
    
    
    ¥
    40,411
    
    
    $
    345,393Other comprehensive income for the year
    
    
    8,086
    
    
    
    7,799
    
    
    
    14,594
    
    
    
    124,735Total comprehensive income for the year
    
    ¥
    15,777
    
    
    ¥
    29,935
    
    
    ¥
    55,005
    
    
    $
    470,128
 
 F-6




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED MARCH 31, 2004, 2005 AND 2006
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2006
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    ¥
    7,691
    
    
    ¥
    22,136
    
    
    ¥
    40,411
    
    
    $
    345,393Adjustments to reconcile net income to net cash provided by
operating activities-Depreciation and amortization
    
    
    7,963
    
    
    
    5,381
    
    
    
    5,922
    
    
    
    50,615Deferred income taxes
    
    
    (266
    )
    
    
    411
    
    
    
    (633
    )
    
    
    (5,410
    )Realized gains on securities, net
    
    
    (555
    )
    
    
    (453
    )
    
    
    (2,918
    )
    
    
    (24,940
    )Losses (gains) on disposals or sales of property, plant and
equipment
    
    
    (2,379
    )
    
    
    1,234
    
    
    
    (8,326
    )
    
    
    (71,162
    )Impairment of long-lived assets
    
    
    7,780
    
    
    
    577
    
    
    
    
    
    
    
    Changes in assets and liabilities-Trade receivables
    
    
    (1,610
    )
    
    
    (1,995
    )
    
    
    (5,011
    )
    
    
    (42,829
    )Inventories
    
    
    6,193
    
    
    
    (9,203
    )
    
    
    (8,646
    )
    
    
    (73,897
    )Trade notes and accounts payables and accrued expenses
    
    
    3,175
    
    
    
    3,069
    
    
    
    5,121
    
    
    
    43,769Income taxes payable
    
    
    2,368
    
    
    
    (770
    )
    
    
    272
    
    
    
    2,325Accrued retirement and termination benefits
    
    
    (562
    )
    
    
    (4,900
    )
    
    
    (346
    )
    
    
    (2,957
    )Other, net
    
    
    (857
    )
    
    
    1,355
    
    
    
    (779
    )
    
    
    (6,659
    )Net cash provided by operating activities
    
    
    28,941
    
    
    
    16,842
    
    
    
    25,067
    
    
    
    214,248CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (4,494
    )
    
    
    (6,655
    )
    
    
    (11,383
    )
    
    
    (97,291
    )Purchases of available-for-sale securities
    
    
    (26,691
    )
    
    
    (20,091
    )
    
    
    (19,449
    )
    
    
    (166,231
    )Purchases of held-to-maturity securities
    
    
    (8,261
    )
    
    
    (1,753
    )
    
    
    (1,799
    )
    
    
    (15,376
    )Proceeds from sales of available-for-sale securities
    
    
    4,090
    
    
    
    2,422
    
    
    
    16,750
    
    
    
    143,162Proceeds from maturities of available-for-sale securities
    
    
    14,100
    
    
    
    12,250
    
    
    
    17,400
    
    
    
    148,718Proceeds from maturities of held-to-maturity securities
    
    
    
    
    
    
    13,510
    
    
    
    200
    
    
    
    1,709Proceeds from sales of property, plant and equipment
    
    
    5,154
    
    
    
    320
    
    
    
    1,012
    
    
    
    8,650Decrease (increase) in time deposits
    
    
    (1,162
    )
    
    
    (38
    )
    
    
    6,514
    
    
    
    55,675Cash paid for acquisition of business
    
    
    
    
    
    
    
    
    
    
    (1,204
    )
    
    
    (10,291
    )Other, net
    
    
    2
    
    
    
    189
    
    
    
    (386
    )
    
    
    (3,298
    )Net cash provided by (used in) investing activities
    
    
    (17,262
    )
    
    
    154
    
    
    
    7,655
    
    
    
    65,427CASH FLOWS FROM FINANCING ACTIVITIES:Increase (decrease) in short-term borrowings
    
    
    (882
    )
    
    
    693
    
    
    
    1,073
    
    
    
    9,171Redemption of bonds
    
    
    
    
    
    
    (12,990
    )
    
    
    
    
    
    
    Repayment of long-term indebtedness
    
    
    
    
    
    
    
    
    
    
    (6,150
    )
    
    
    (52,564
    )Repayment of club members deposits
    
    
    (860
    )
    
    
    (209
    )
    
    
    (6,375
    )
    
    
    (54,487
    )Purchases of treasury stock, net
    
    
    (2,220
    )
    
    
    (194
    )
    
    
    (154
    )
    
    
    (1,316
    )Cash dividends paid
    
    
    (2,610
    )
    
    
    (3,453
    )
    
    
    (7,907
    )
    
    
    (67,581
    )Other, net
    
    
    (24
    )
    
    
    (24
    )
    
    
    (35
    )
    
    
    (300
    )Net cash used in financing activities
    
    
    (6,596
    )
    
    
    (16,177
    )
    
    
    (19,548
    )
    
    
    (167,077
    )
 
 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, 2004, 2005 AND 2006
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2006
    
    
    2006EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
    
    ¥
    (877
    )
    
    ¥
    (11
    )
    
    ¥
    496
    
    
    $
    4,240NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    4,206
    
    
    
    808
    
    
    
    13,670
    
    
    
    116,838CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    20,370
    
    
    
    24,576
    
    
    
    25,384
    
    
    
    216,957CASH AND CASH EQUIVALENTS, END OF YEAR
    
    ¥
    24,576
    
    
    ¥
    25,384
    
    
    ¥
    39,054
    
    
    $
    333,795SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the year for-Interest
    
    ¥
    605
    
    
    ¥
    593
    
    
    ¥
    458
    
    
    $
    3,915Income taxes
    
    
    6,377
    
    
    
    10,841
    
    
    
    9,093
    
    
    
    77,718NON-CASH INVESTING AND FINANCING ACTIVITIES:Amount due seller inconnect with business acquisition
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    649
    
    
    $
    5,547Release from obligation for club members deposits
    
    
    
    
    
    
    
    
    
    
    6,461
    
    
    
    55,222Reduction of short-term borrowings and long-term
indebtedness by deconsolidation of a subsidiary
    
    
    
    
    
    
    
    
    
    
    2,177
    
    
    
    18,607
 
 F-8




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##### Table of Contents



MAKITA CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    DESCRIPTION OF BUSINESSMakita Corporation (the Company) is a recognized leader in
manufacture and sale of portable electric power tools. The
Company and its consolidated subsidiaries main products
include impact drivers, circular saws, jig saws, planers,
drills, rotary hammers, grinders and slide compound saws. The
Company and its consolidated subsidiaries (collectively
Makita) also manufacture and sell stationary woodworking
machines and pneumatic tools as well as garden tools.Domestic sales in Japan are made by the Company, while
overseas sales are made under the Makita or maktec brand
name, almost entirely through sales subsidiaries and
distributors. Approximately 81.8% of consolidated net sales
for the year ended March 31, 2006, were generated from
customers outside Japan, with 20.8% from North America, 39.5%
from Europe and 21.5% from Asia and other areas.Makitas manufacturing and assembly operations are conducted
primarily at three plants in Japan and seven plants overseas,
located in the United States, Germany, the United Kingdom,
Brazil, China (two plants) and Canada.2.
    
    BASIS OF PRESENTING FINANCIAL STATEMENTSForeign subsidiaries translate their financial statements
into Japanese yen from each of their functional currencies.
The accounts and the financial statements of the Company and
domestic subsidiaries are maintained and reported in their
functional currency, the Japanese yen.The books of the Company and its domestic subsidiaries are
maintained in conformity with Japanese accounting principles,
while foreign subsidiaries maintain their books in conformity
with the standards of their country of domicile.The accompanying consolidated financial statements reflect
all necessary adjustments, not recorded in the Companys and
its consolidated subsidiaries books, to present them in
conformity with U.S. generally accepted accounting principles
(U.S. GAAP).3.
    
    SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
 (a)
    
    Principles of ConsolidationThe accompanying consolidated
financial statements include the
accounts of the Company, 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 currently
does not have any consolidated
Variable Interest Entities as
set out in FIN 46R.(b)
    
    Foreign Currency TranslationUnder the provisions of
Statement of Financial
Accounting Standards (SFAS)
No. 52, Foreign Currency
Translation, overseas
subsidiaries assets and
liabilities denominated in their
local foreign 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
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 (loss), net of applicable income taxes.
Non-marketable equity securities are carried at cost and reviewed
periodically for impairment. Held-to-maturity securities are reported
at amortized cost, adjusted for the amortization or 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 to
be recognized is measured based on the amount by which the carrying
amount of the investment exceeds the fair value of the investment.
Fair value is determined based on quoted market prices or other
valuation techniques as appropriate.Makita classifies marketable securities in current assets which are
available for current operations. Other investments are classified as
investment securities as a part of non-current investments and other
assets in the consolidated balance sheets.The cost of a security sold or the amount reclassified out of
accumulated other comprehensive income (loss) into earnings 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
potential for recovery is considered remote.(f)
    
    InventoriesInventory costs include raw materials, labor and manufacturing overheads.
Inventories are valued at the lower of cost or market price, with cost determined
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 50 years for buildings and improvements and from 3 years to 10 years
for machinery and equipment. The cost and accumulated depreciation and
amortization applicable to assets retired are removed from the accounts and any
resulting gain or loss is recognized. Betterments, renewals 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, 2004, 2005 and 2006 amounted
to ¥7,692 million, ¥5,175 million and ¥5,710 million, respectively, which
included amortization of capitalized lease equipment.Certain leased buildings, improvements, machinery and equipment are accounted for
as capital leases in conformity with SFAS No. 13, Accounting for Leases. The
aggregate cost included in property, plant and equipment and related accumulated
amortization as of March 31, 2005 and 2006, was as follows:
 Yen
    
    U.S. Dollars(millions)
    
    (thousands)2005
    
    2006
    
    2006Aggregate cost
    
    ¥
    677
    
    
    ¥
    656
    
    
    $
    5,607Accumulated amortization
    
    
    533
    
    
    
    510
    
    
    
    4,359
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(h)
    
    Goodwill and Other Intangible AssetsMakita follows the provisions of SFAS No. 141 and SFAS No. 142. SFAS
No. 141, Business Combinations 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, Goodwill and Other Intangible Assets
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 no longer be 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 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 ¥4,377 million, ¥ 4,446 million and
¥4,826 million ($41,248 thousand) for the years ended March 31, 2004,
2005 and 2006, respectively.Advertising costs are also expensed as incurred and totaled ¥3,797
million, ¥4,381 million and ¥5,138 million ($43,915 thousand) for the
years ended March 31, 2004, 2005 and 2006, 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 ¥4,418 million, ¥5,305 million and ¥6,774 million
($57,897 thousand) for the years ended March 31, 2004, 2005and 2006,
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.(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,
Accounting for the Impairment or Disposal of Long-lived Assets.
Long-lived assets, such as property, plant and equipment, and certain
intangible assets subject to amortization, are reviewed for
impairment whenever events or charges in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to its estimated
undiscounted future cash flow. An impairment charge is recognized in
the amount by which the carrying amount of the asset exceeds the fair
value of the asset. 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 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
values. The accounting for changes in the fair value of a derivative
instrument depends on whether it has been designated and qualifies as
part of a hedging relationship, and on the type of hedging
relationship.Makita 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 dose 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. generally accepted accounting principles 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 when persuasive evidence of an
arrangement exists, delivery has occurred or services are
rendered, the sales price is fixed and determinable and
collectibility is reasonably assured. Makita believes the
foregoing conditions are satisfied upon shipment or
delivery of the product depending on the terms of the
sales arrangement.Makita sells its products outside of Japan directly to
retail customers pursuant to sales contracts and purchase
orders. Within Japan, the Company mainly utilizes
wholesalers, which in turn, provide the products to their
associated retail customers. Arrangements with wholesalers
are subject to customary terms and conditions evidenced by
signed contractual arrangements. The use of wholesalers is
a customary point of sale business practice in Japan for
which many companies across multiple industries
participate.Makita recognizes revenue to its wholesale customers upon
shipment. Makita believes recognition of revenue at this
point is appropriate because (i) the title and risk of
loss passes to the wholesaler upon shipment of a product
to the wholesaler; (ii) Makita is not contractually
obligated nor has Makita accepted returns of the product
historically from the wholesaler other than in the event
of product defect; (iii) payment terms are established
consistent with Makitas normal payment terms for all
other customers; (iv) payment terms are not linked
contractually nor practically to the payment of the
wholesalers invoices by its retail customers and; (v)
sales incentives are offered directly to wholesalers under
terms and conditions similar to arrangements offered to
other customers and are in no way established to provide
relief in lieu of returned products.Furthermore, Makita periodically reviews readily available
financial statements and other market data on certain of
its wholesale customers in order to assess their overall
financial viability for the purposes of establishing
credit limits. Within Japan, the Company also requires on
average, two months worth of estimated sales be held in
the form of cash collateral with an independent third
party or that the Company be granted a security interest
in the wholesalers assets of an equivalent value.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 advertisings are provided to certain customers as
contribution or sponsored fund for advertisements. Under cooperative
advertising programs, Makita does not receive an identifiable benefit
sufficiently separable from its customers. Accordingly, cooperative
advertisings are also accounted as a reduction of revenue.Cash discounts are provided as a certain percentage of the invoice
price as predetermined by spot contracts or based on contractually
agreed upon amounts with customers. Cash discounts are recognized as
a reduction of revenue at the time the related revenue is recognized
based on Makitas ability to reliably estimate such future discounts
to be taken. Cash discounts are substantially all taken within 30
days following the date of sale. Estimates of expected cash discounts
are evaluated and adjusted periodically based on actual sales
transactions and historical trend.When repairs are made and charged to customers, 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 November 2004, the FASB issued SFAS No. 151, Inventory Costs  an
amendment of ARB No. 43, Chapter 4 (SFAS No. 151). SFAS No. 151
amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to
clarify the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). Among other
provisions, the new statement requires that items such as idle
facility expense, excessive spoilage, double freight, and rehandling
costs be recognized as current period charges regardless of whether
they meet the criterion of so abnormal as stated in ARB No. 43.
Additionally, SFAS No. 151 requires that the allocation of fixed
production overheads to the costs of conversion be based on the
normal capacity of the production facilities. SFAS No. 151 is
effective for the year ended March 31, 2007. Makita does not expect
the adoption of SFAS No. 151 will have a material impact on its
consolidated results of operations and financial condition.In December 2004, the FASB issued SFAS No. 153, Exchanges of
Non-monetary Assets  an amendment of APB Opinion No. 29. SFAS No.
153 eliminates the exception from fair value measurement for
non-monetary exchanges of similar productive assets in paragraph
21(b) of APB Opinion No. 29, Accounting for Non-monetary
Transactions, and replaces it with an exception for exchanges that
do not have commercial substance. SFAS No. 153 specifies that a
non-monetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result
of the exchange. SFAS No. 153 is effective for fiscal periods
beginning after June 15, 2005 and is required to be adopted by
Makita, in the fiscal year beginning April 1, 2006. Makita does not
expect the adoption of SFAS No. 153 will have a material impact on
its consolidated results of operations and financial condition.In May 2005, the FASB issued SFAS No. 154, Accounting Changes and
Error Correctionsa replacement of APB Opinion No. 20 and FASB
Statement No. 3. SFAS No. 154 replaces APB Opinion No. 20,
Accounting Changes and SFAS No. 3,Reporting Accounting Changes in
Interim Financial Statements, and provides guidance on the
accounting for and reporting of accounting changes and error
corrections. SFAS No. 154 establishes retrospective application, or
the latest practicable date, as the required method for reporting a
change in accounting principle and the reporting of a correction of
an error. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December
15, 2005In June 2005, the FASB issued FASB Staff Position (FSP) FAS 143-1,
Accounting for Electronic Equipment Waste Obligations (FSP
143-1). FSP 143-1 provides guidance on the accounting for certain
obligations associated with the Waste Electrical and Electronic
Equipment Directive (the Directive), adopted by the European Union
(EU). Under the Directive, the waste management obligation for
historical equipment (products put on the market on or prior to
August 13, 2005) remains with the commercial user until the customer
replaces the equipment. FSP 143-1 is required to be applied to the
later of the first reporting period ending after June 8, 2005 or the
date of the Directives adoption into law by the applicable EU member
countries. Makita does not expect the adoption of FSP 143-1 will have
a material impact on its consolidated results of operations and
financial condition.In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments (FSP 115-1). FSP 115-1 provides guidance on
determining when investments in certain debt and equity securities
are considered impaired, whether that impairment is
other-than-temporary, and on measuring such impairment loss. FSP
115-1 also includes accounting considerations subsequent to the
recognition of an other-than-temporary impairment and
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requires certain disclosures about unrealized losses that have not been
recognized as other-than-temporary impairments. FSP 115-1 is required
to be applied to reporting periods beginning after December 15, 2005.
Makita does not expect the adoption of FSP 115-1 will have a material
impact on its consolidated results of operations and financial
condition.(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, 2006.
 4.
    
    TRANSLATION OF FINANCIAL STATEMENTSSolely for the convenience of readers, the accompanying consolidated
financial statement amounts for the year ended March 31, 2006, 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 ¥117 to US$1 at March 31, 2006. 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.5.
    
    INVENTORIESInventories as of March 31, 2005 and 2006 comprised the following:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2006Finished goods
    
    ¥
    53,425
    
    
    ¥
    64,121
    
    
    $
    548,043Work in process
    
    
    1,844
    
    
    
    2,338
    
    
    
    19,983Raw materials
    
    
    10,734
    
    
    
    13,362
    
    
    
    114,205¥
    66,003
    
    
    ¥
    79,821
    
    
    $
    682,231
 6.
    
    IMPAIRMENT OF LONG LIVED ASSETSIn December 2003, in connection with the ongoing strategic revenue growth and cost cutting
initiatives, specifically including an evaluation of its corporate wide marketing, promotional
activities, the cost benefit relationship therefrom, and the continued rationalization of
certain personnel related costs, Makita made a decision to no longer consider a golf course
owned by a consolidated subsidiary, 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, Makita performed an impairment analysis by considering cash flows
expected to be generated from the golf course on a stand alone basis and recorded an impairment
charge of ¥ 5,996 million to reduce the carrying value to its estimated fair value, as
determined on a discounted cash flow basis.On May 7, 2005, the Nagoya District Court confirmed a civil rehabilitation plan for Joyama
Kaihatsu, Ltd. On May 31, 2005, upon confirmation of the civil rehabilitation plan, Makita
transferred its ownership interests in Joyama Kaihatsu, Ltd., to a third party. In connection
with this ownership transfer, Makita recorded a gain on sale of the golf course of ¥ 8,479
million including the release from its obligation for club membership deposits of ¥ 6,461
million in the consolidated income statement in the year ended March 31, 2006.During the year ended March 31, 2004, Makita made a decision to sell a part of its production
facility in the United Kingdom rather than holding it for future use. As a result of this
decision, Makita recorded an impairment charge of ¥243 million, based on the expected sales
value less cost to sell the facility.The Company, as part of its facilities integration and cost cutting plans, decided to vacate a
certain research and development facility in Japan and a related administrative facility during
the year ended March 31, 2004, and a certain information technology facility (collectively the
Facility) during the year ended March 31, 2005. The Company intends to continue to hold the
Facility as is for the foreseeable future considering the expected difficulty in identifying a
buyer with operating plans commensurating with the present zoning requirements. As discussed
above, the Facility was principally used as a research and development facility and provides
training and information technology
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services. The current zoning regulations require that the
buyer utilize the Facility on a substantially same basis. Therefore, the combination of the
limitations imposed by the zoning rules and the fact that the Facility is located in a rural,
non industrial section of Japan has caused management to determine that the recoverable value on
an as-is basis will most likely be limited to the estimated fair value of the land.As a result of the decision to vacate the Facility, the Company performed an
impairment assessment pursuant to the provisions of SFAS No. 144 and recorded
an impairment charge of ¥1,541 million and ¥577 million for the years ended
March 31, 2004 and 2005, respectively. This impairment charge reduced the
carrying value of the administrative facility to its estimated fair value of
¥316 million in the year ended March 31, 2004 and the technology facility to
¥196 million in the year ended March 31, 2005. The estimated fair value of ¥316
million and ¥196 million represents the fair value of the land as determined by
a third party appraiser considering the estimated net cash flows from effecting
the sale to a third party purchaser. The carrying value of the building has
been reduced to zero on the basis that the Company anticipates no future use
from the Facility and the expectation of realizing only the value of the land
upon sale. Presently, the Company has not decided how and when to dispose of
the Facility. In addition, the Company currently has no plans regarding the use
of the vacated Facility and as a result, the Company does not expect any future
cash flows from the Facility.
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7.
    
    MARKETABLE SECURITIES AND INVESTMENT SECURITIESMarketable securities and investment securities consisted of available-for-sale securities and held-to-maturity securities.The cost, gross unrealized holding gains and losses, fair value and carrying amount for such securities by major security type as of March
31, 2005 and 2006, were as follows:
 Yen (millions)Gross UnrealizedHoldingCarryingAs of March 31, 2005
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair value
    
    
    AmountAvailable-for-sale:Marketable securities:Japanese and foreign government debt securities
    
    ¥
    100
    
    
    ¥
    1
    
    
    ¥
    
    
    
    ¥
    101
    
    
    ¥
    101Corporate and bank debt securities
    
    
    5,580
    
    
    
    151
    
    
    
    1
    
    
    
    5,730
    
    
    
    5,730Investments in trusts
    
    
    48,391
    
    
    
    1,098
    
    
    
    14
    
    
    
    49,475
    
    
    
    49,475Marketable equity securities
    
    
    1,403
    
    
    
    1,129
    
    
    
    
    
    
    
    2,532
    
    
    
    2,532¥
    55,474
    
    
    ¥
    2,379
    
    
    ¥
    15
    
    
    ¥
    57,838
    
    
    ¥
    57,838Investment securities:Corporate and bank debt securities
    
    ¥
    1,594
    
    
    ¥
    20
    
    
    ¥
    
    
    
    ¥
    1,614
    
    
    ¥
    1,614Investments in trusts
    
    
    645
    
    
    
    94
    
    
    
    
    
    
    
    739
    
    
    
    739Marketable equity securities
    
    
    7,837
    
    
    
    9,481
    
    
    
    7
    
    
    
    17,311
    
    
    
    17,311Non-marketable equity securities (carried at cost)
    
    
    590
    
    
    
    
    
    
    
    
    
    
    
    590
    
    
    
    590¥
    10,666
    
    
    ¥
    9,595
    
    
    ¥
    7
    
    
    ¥
    20,254
    
    
    ¥
    20,254Held-to-maturity:Marketable securities:Japanese corporate debt securities
    
    ¥
    100
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    100
    
    
    ¥
    100¥
    100
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    100
    
    
    ¥
    100Investment securities:Japanese government debt securities
    
    ¥
    300
    
    
    ¥
    2
    
    
    ¥
    
    
    
    ¥
    302
    
    
    ¥
    300Japanese corporate debt securities
    
    
    1,552
    
    
    
    2
    
    
    
    5
    
    
    
    1,549
    
    
    
    1,552¥
    1,852
    
    
    ¥
    4
    
    
    ¥
    5
    
    
    ¥
    1,851
    
    
    ¥
    1,852Total marketable securities
    
    ¥
    55,574
    
    
    ¥
    2,379
    
    
    ¥
    15
    
    
    ¥
    57,938
    
    
    ¥
    57,938Total investment securities
    
    ¥
    12,518
    
    
    ¥
    9,599
    
    
    ¥
    12
    
    
    ¥
    22,105
    
    
    ¥
    22,106
 F-18




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##### Table of Contents



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
    
    
    ¥
    46,473Investment 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
 F-19




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##### Table of Contents






U.S. Dollars (thousands)Gross UnrealizedHoldingCarryingAs of March 31, 2006
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair value
    
    
    AmountAvailable-for-sale:Marketable securities:Japanese and foreign government debt
securities
    
    $
    9
    
    
    $
    
    
    
    $
    
    
    
    $
    9
    
    
    $
    9Corporate and bank debt securities
    
    
    37,402
    
    
    
    658
    
    
    
    667
    
    
    
    37,393
    
    
    
    37,393Investments in trusts
    
    
    315,162
    
    
    
    14,453
    
    
    
    487
    
    
    
    329,128
    
    
    
    329,128Marketable equity securities
    
    
    12,786
    
    
    
    17,889
    
    
    
    
    
    
    
    30,675
    
    
    
    30,675$
    365,359
    
    
    $
    33,000
    
    
    $
    1,154
    
    
    $
    397,205
    
    
    $
    397,205Investment securities:Corporate and bank debt securities
    
    $
    358
    
    
    $
    
    
    
    $
    
    
    
    $
    358
    
    
    $
    358Investments in trusts
    
    
    5,692
    
    
    
    932
    
    
    
    
    
    
    
    6,624
    
    
    
    6,624Marketable equity securities
    
    
    88,325
    
    
    
    140,735
    
    
    
    
    
    
    
    229,060
    
    
    
    229,060Non-marketable equity securities
(carried at cost)
    
    
    4,889
    
    
    
    
    
    
    
    
    
    
    
    4,889
    
    
    
    4,889$
    99,264
    
    
    $
    141,667
    
    
    $
    
    
    
    $
    240,931
    
    
    $
    240,931Held-to-maturity:Marketable securities:Japanese corporate debt securities
    
    $
    11,111
    
    
    $
    
    
    
    $
    
    
    
    $
    11,111
    
    
    $
    11,111$
    11,111
    
    
    $
    
    
    
    $
    
    
    
    $
    11,111
    
    
    $
    11,111Investment securities:Japanese government debt securities
    
    $
    2,564
    
    
    $
    
    
    
    $
    25
    
    
    $
    2,539
    
    
    $
    2,564Japanese corporate debt securities
    
    
    16,667
    
    
    
    
    
    
    
    1,043
    
    
    
    15,624
    
    
    
    16,667$
    19,231
    
    
    $
    
    
    
    $
    1,068
    
    
    $
    18,163
    
    
    $
    19,231Total marketable securities
    
    $
    376,470
    
    
    $
    33,000
    
    
    $
    1,154
    
    
    $
    408,316
    
    
    $
    408,316Total investment securities
    
    $
    118,495
    
    
    $
    141,667
    
    
    $
    1,068
    
    
    $
    259,094
    
    
    $
    260,162
 Investments in trusts represent funds deposited with trust banks in multiple investor
accounts and managed by the fund managers of the trust banks. As of March 31, 2005 and 2006,
each fund consisted of marketable equity securities and interest-bearing bonds.
 F-20




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##### Table of Contents






The following table shows our investments gross unrealized holding losses and fair value, aggregated by investment category and length of time that individual securities have been in a
continuous unrealized loss position, at March 31, 2006.
 Yen (millions)Less than 12 months
    
    
    12 months or moreGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    UnrealizedHolding
    
    
    
    
    
    
    HoldingAs of March 31, 2006
    
    Fair value
    
    
    Losses
    
    
    Fair value
    
    
    LossesAvailable-for-sale:Marketable securities:Corporate and bank debt securities
    
    ¥
    1,374
    
    
    ¥
    78
    
    
    ¥
    
    
    
    ¥
    Investments in trusts
    
    
    3,792
    
    
    
    57
    
    
    
    
    
    
    
    ¥
    5,166
    
    
    ¥
    135
    
    
    ¥
    
    
    
    ¥
    Held-to-maturity:Investment securitiesJapanese government debt securities:
    
    
    297
    
    
    
    3
    
    
    
    
    
    
    
    Japanese corporate debt securities:
    
    ¥
    1,828
    
    
    ¥
    122
    
    
    ¥
    
    
    
    ¥
    ¥
    2,125
    
    
    ¥
    125
    
    
    ¥
    
    
    
    ¥
    
 U.S. Dollars (thousands)Less than 12 months
    
    
    12 months or moreGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    UnrealizedHolding
    
    
    
    
    
    
    HoldingAs of March 31, 2006
    
    Fair value
    
    
    Losses
    
    
    Fair value
    
    
    LossesAvailable-for-sale:Marketable securities:Corporate and bank debt securities
    
    $
    11,744
    
    
    $
    667
    
    
    $
    
    
    
    $
    Investments in trusts
    
    
    32,410
    
    
    
    487
    
    
    
    
    
    
    
    $
    44,154
    
    
    $
    1,154
    
    
    $
    
    
    
    $
    Held-to-maturity:Investment securitiesJapanese government debt securities:
    
    
    2,539
    
    
    
    25
    
    
    
    
    
    
    
    Japanese corporate debt securities:
    
    $
    15,624
    
    
    $
    1,043
    
    
    $
    
    
    
    $
    $
    18,163
    
    
    $
    1,068
    
    
    $
    
    
    
    $
    
 F-21




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##### Table of Contents



Maturities of debt securities classified as available-for-sale and held-to-maturity as of March 31, 2006, regardless of their balance sheet classification, were as follows:Maturities of debt securities based on Cost as of March 31, 2006
 Yen (millions)
    
    

U.S. Dollars (thousands)Available-
    
    
    Held-to-
    
    
    
    
    
    
    Available-
    
    
    Held-to-for-sale
    
    
    maturity
    
    
    Total
    
    
    for-sale
    
    
    maturity
    
    
    TotalDue within one year
    
    ¥
    2,925
    
    
    ¥
    1,300
    
    
    ¥
    4,225
    
    
    $
    25,000
    
    
    $
    11,111
    
    
    $
    36,111Due after one to five years
    
    
    30
    
    
    
    1,650
    
    
    
    1,680
    
    
    
    256
    
    
    
    14,103
    
    
    
    14,359Due after five to ten years
    
    
    100
    
    
    
    600
    
    
    
    700
    
    
    
    855
    
    
    
    5,128
    
    
    
    5,983Due after ten years
    
    
    1,364
    
    
    
    
    
    
    
    1,364
    
    
    
    11,658
    
    
    
    
    
    
    
    11,658Total
    
    ¥
    4,419
    
    
    ¥
    3,550
    
    
    ¥
    7,969
    
    
    $
    37,769
    
    
    $
    30,342
    
    
    $
    68,111
 Maturities of debt securities based on Fair Value as of March 31, 2006
 Yen (millions)
    
    

U.S. Dollars (thousands)Available-
    
    
    Held-to-
    
    
    
    
    
    
    Available-
    
    
    Held-to-for-sale
    
    
    maturity
    
    
    Total
    
    
    for-sale
    
    
    maturity
    
    
    TotalDue within one year
    
    ¥
    3,002
    
    
    ¥
    1,300
    
    
    ¥
    4,302
    
    
    $
    25,658
    
    
    $
    11,111
    
    
    $
    36,769Due after one to five years
    
    
    30
    
    
    
    1,631
    
    
    
    1,661
    
    
    
    256
    
    
    
    13,940
    
    
    
    14,196Due after five to ten years
    
    
    94
    
    
    
    494
    
    
    
    588
    
    
    
    803
    
    
    
    4,223
    
    
    
    5,026Due after ten years
    
    
    1,292
    
    
    
    
    
    
    
    1,292
    
    
    
    11,043
    
    
    
    
    
    
    
    11,043Total
    
    ¥
    4,418
    
    
    ¥
    3,425
    
    
    ¥
    7,843
    
    
    $
    37,760
    
    
    $
    29,274
    
    
    $
    67,034
 Gross realized gains on sales of marketable securities and investment securities for the years ended March 31, 2004, 2005 and 2006 amounted to ¥862 million and ¥543 million and ¥437 million ($3,736 thousand), respectively. Effective October 1,
2005, UJF Holdings Co., Ltd., and Mitsubishi Tokyo Financial Group Co., Ltd., completed a merge in which, the shares of common stock owned by the Company in UFJ Holdings were exchanged for shares of common stock of the newly merged entity,
Mitsubishi UFJ Financial Group Co., Ltd. As a result of this merger and common share exchange, the Company realized a gain on securities of ¥2,528 million ($21,606 thousand) for the year ended March 31, 2006. Gross realized losses, which included
the gross realized losses considered as other than temporary, during the years ended March 31, 2004, 2005 and 2006 amounted to ¥307 million, ¥90 million and ¥47 million ($402 thousand), respectively. The cost of the securities sold was computed
based on the average cost of all the shares of each such security held at the time of sale. Gross unrealized losses on marketable securities and investment securities of which declines in market value are considered to be other than temporary were
charged to earnings as realized losses on securities, amounting to ¥279 million, ¥82 million and ¥47 million ($402 thousand) for the years ended March 31, 2004, 2005 and 2006, respectively. Proceeds from the sales and maturities of
available-for-sale securities were ¥18,190 million, ¥14,672 million and ¥34,150 million ($291,880 thousand) for the years ended March 31, 2004, 2005 and 2006, respectively. Proceeds from the held-to-maturity securities were ¥13,510 million and
¥200 million ($1,709 thousand) for the years ended March 31, 2005 and 2006, respectively.
 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 ($15,838 thousand) including direct
acquisition costs of which, ¥649 million was unpaid
and included in other payables in the accompanying
consolidated balance sheet at March 31, 2006 and
which was paid in April 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 in Note 19. 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 ¥779 million ($6,658 thousand) as
of March 31, 2006. The Goodwill is deductible for
Japanese tax purpose.In connection with this acquisition, intangible assets
of the Business comprised patents of ¥179 million
($1,530 thousand), which were estimated to have a
remaining useful life of 8 years, and customer
relationships of ¥135 million ($1,154 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.Had the operating result of the Business been included as if the
transaction had been consummated on April 1, 2005, the pro forma
operating results for the Company for the year ended March 31, 2006
would not have been materially different.9.
    
    INCOME TAXESIncome before income taxes and the provision for income taxes for the years ended March 31, 2004, 2005 and 2006 were as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2006
    
    
    2006Income before income taxes:Domestic
    
    ¥
    3,237
    
    
    ¥
    15,837
    
    
    ¥
    26,895
    
    
    $
    229,872Foreign
    
    
    12,933
    
    
    
    16,781
    
    
    
    22,248
    
    
    
    190,154¥
    16,170
    
    
    ¥
    32,618
    
    
    ¥
    49,143
    
    
    $
    420,026Provision for income taxes:Current-Domestic
    
    ¥
    5,264
    
    
    ¥
    5,121
    
    
    ¥
    3,171
    
    
    $
    27,103Foreign
    
    
    3,481
    
    
    
    4,950
    
    
    
    6,194
    
    
    
    52,9408,745
    
    
    
    10,071
    
    
    
    9,365
    
    
    
    80,043Deferred-Domestic
    
    
    26
    
    
    
    589
    
    
    
    (166
    )
    
    
    (1,419
    )Foreign
    
    
    (292
    )
    
    
    (178
    )
    
    
    (467
    )
    
    
    (3,991
    )(266
    )
    
    
    411
    
    
    
    (633
    )
    
    
    (5,410
    )Consolidated provision for income taxes
    
    ¥
    8,479
    
    
    ¥
    10,482
    
    
    ¥
    8,732
    
    
    $
    74,633
 F-23




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##### Table of Contents



Total income taxes were allocated as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2006
    
    
    2006Provision for income taxes
    
    ¥
    8,479
    
    
    ¥
    10,482
    
    
    ¥
    8,732
    
    
    $
    74,633Shareholders equity:Foreign currency translation adjustments
    
    
    (458
    )
    
    
    945
    
    
    
    272
    
    
    
    2,325Net unrealized holding gains on
available-for-sale securities
    
    
    4,168
    
    
    
    60
    
    
    
    3,363
    
    
    
    28,744Minimum pension liability adjustment
    
    
    4,392
    
    
    
    3,403
    
    
    
    1,360
    
    
    
    11,623¥
    16,581
    
    
    ¥
    14,890
    
    
    ¥
    13,727
    
    
    $
    117,325
 As a result of the enactment of an amendment to the Japanese local tax law on March 31, 2003, the effective tax rate used for the calculation of deferred income tax assets and liabilities was reduced
from 41.4% to 40.2% for the year ended March 31, 2003, and increased from 40.2% to 40.3% for the year ended March 31, 2004. The effect of this tax rate change for the year ended March 31, 2004 was an
¥11 million increase to total tax expense. For the years ended March 31, 2005 and 2006, residual tax effects of ¥168 million and ¥336 million ($2,872 thousand) previously recorded in accumulated other
comprehensive income (minimum pension liability adjustments) were released and recorded as a reduction to income tax expense in the consolidated statements of income as a result of the elimination of
the minimum pension liability adjustment.The Company and its domestic subsidiaries are subject to a National Corporate tax of 30.0%, an Inhabitant tax of approximately 5.6% and a deductible Enterprise tax of approximately 7.9%, which in the
aggregate resulted in a combined statutory income tax rate of approximately 40.3% for the years ended March 31, 2005 and 2006.
 F-24




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##### Table of Contents



A reconciliation of the combined statutory income tax rates to the effective income tax rates is as follows:
 Year ended March 31,2004
    
    
    2005
    
    
    2006Combined statutory income tax rate in Japan
    
    
    41.4
    %
    
    
    40.3
    %
    
    
    40.3
    %Non-deductible expenses
    
    
    0.6
    
    
    
    0.6
    
    
    
    0.6Non-taxable dividends received
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.2
    )Change in valuation allowance
    
    
    15.3
    
    
    
    (2.1
    )
    
    
    (11.3
    )Impact of advance pricing agreement finalization
    
    
    (1.3
    )
    
    
    
    
    
    
    Effect of changes in enacted tax rate
    
    
    0.1
    
    
    
    (0.5
    )
    
    
    (0.7
    )Tax sparing impact
    
    
    (1.8
    )
    
    
    (5.5
    )
    
    
    (3.5
    )Effect of the foreign tax rate differential
    
    
    (1.3
    )
    
    
    (2.8
    )
    
    
    (6.7
    )Other, net
    
    
    (0.4
    )
    
    
    2.2
    
    
    
    (0.7
    )Effective income tax rate
    
    
    52.4
    %
    
    
    32.1
    %
    
    
    17.8
    %
 According to the provisions of the tax treaties which have been concluded between Japan and 15 countries, Japanese corporations can claim a tax credit against Japanese income taxes on income earned in one of those 15 countries, even though that income is
exempted from income taxes or is reduced by special tax incentive measures in those countries, as if no special exemption or reduction was provided. The Company applied such tax sparing mainly to China with the indicated tax reduction effect. The effect of
the tax sparing resulted in decrease of tax expense by ¥292 million or 1.8%, ¥1,790 million or 5.5% and ¥1,706 million or 3.5% ($14,701 thousand) for the years ended March 31, 2004, 2005 and 2006, respectively.The net change in the total valuation allowance for the year ended March 31, 2004, was an increase of ¥2,134 million, which was mainly caused by 100% valuation allowance against deferred income tax assets on the impairment loss on long-lived assets of the
subsidiary that operates a golf course in Japan. This increase in valuation allowance, offset by a decrease due to the tax sparing and other miscellaneous adjustments, had the effect of increasing Makitas effective tax rate by 11.0% to the effective tax
rate of 52.4% from the statutory tax rate of 41.4% for the year ended March 31, 2004. The net change in the total valuation allowance for the year ended March 31, 2005, was a decrease of ¥617 million, which was mainly caused by a decrease in net operating
losses carry forwards of certain consolidated subsidiaries. In addition to this decrease in valuation allowance, a decrease in tax sparing and other miscellaneous adjustments had the affect of decreasing Makitas effective tax rate by 8.2% to the effective
tax rate of 32.1% from the statutory tax rate of 40.3% for the year
ended March 31, 2005. In 2006, following the completion of the civil rehabilitation proceedings and the sale of the golf course business, previously unrecognized deferred tax asset were realized in connection with the gain on sale of golf course business and the related valuation
allowance of ¥ 5,782 million ($48,957 thousand) was reversed. Makita also provided a valuation allowance of ¥ 402 million ($3,436 thousand) against deferred tax assets that existed at the beginning of the year because it was determined that such assets were
not more likely than not to be realized in future years. As a consequence, the net change in the total valuation allowance for the year ended March 31, 2006 was a decrease of ¥5,238 million ($ 44,769 thousand), net of effect of translation, resulting in a
reduction of income tax expense. This decrease in valuation allowance as well as a decrease due to the tax sparing and other miscellaneous adjustments had affect of decreasing Makitas effective tax rate by 22.5% to the effective rate of 17.8% from the
statutory tax rate of 40.3% for the year ended March 31, 2006.
 F-25




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##### Table of Contents



The significant components of deferred income tax expense attributable to income before income taxes for the years ended March 31, 2004, 2005 and 2006 are as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2006
    
    
    2006Deferred tax expense
(exclusive of the effects
of other components below)
    
    ¥
    (282
    )
    
    ¥
    619
    
    
    ¥
    (1,035
    )
    
    $
    (8,846
    )Adjustment to deferred tax
assets and liabilities for
enacted changes in tax
laws and rates
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    Increase (decrease) in
beginning-of-the-year
balance of the valuation
allowance for deferred
tax assets
    
    
    
    
    
    
    (208
    )
    
    
    402
    
    
    
    3,436¥
    (266
    )
    
    ¥
    411
    
    
    ¥
    (633
    )
    
    $
    (5,410
    )
 F-26




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##### Table of Contents



Significant components of deferred income tax assets and liabilities as of March 31, 2005 and 2006, were as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2006Deferred income tax assets:Marketable securities and investment securities
    
    ¥
    2,432
    
    
    ¥
    1,071
    
    
    $
    9,154Accrued retirement and termination benefits and other accrued expenses
    
    
    407
    
    
    
    256
    
    
    
    2,188Minimum pension liability
    
    
    1,193
    
    
    
    170
    
    
    
    1,453Inventories
    
    
    1,331
    
    
    
    1,764
    
    
    
    15,077Property, plant and equipment
    
    
    7,647
    
    
    
    1,750
    
    
    
    14,957Accrued payroll
    
    
    1,951
    
    
    
    1,989
    
    
    
    17,000Net operating loss carryforwards
    
    
    854
    
    
    
    868
    
    
    
    7,419Other
    
    
    949
    
    
    
    1,153
    
    
    
    9,855Total gross deferred income tax assets
    
    
    16,764
    
    
    
    9,021
    
    
    
    77,103Valuation allowance
    
    
    (8,211
    )
    
    
    (2,973
    )
    
    
    (25,410
    )¥
    8,553
    
    
    ¥
    6,048
    
    
    $
    51,693Deferred income tax liabilities:Undistributed earnings of overseas subsidiaries
    
    ¥
    (3,128
    )
    
    ¥
    (791
    )
    
    $
    (6,761
    )Unrealized gain on available-for-sale securities
    
    
    (4,817
    )
    
    
    (8,181
    )
    
    
    (69,923
    )Property, plant and equipment
    
    
    (942
    )
    
    
    (809
    )
    
    
    (6,915
    )Other
    
    
    (101
    )
    
    
    (7
    )
    
    
    (59
    )Total gross deferred income tax liabilities
    
    ¥
    (8,988
    )
    
    ¥
    (9,788
    )
    
    $
    (83,658
    )Net deferred income tax liabilities
    
    ¥
    (435
    )
    
    ¥
    (3,740
    )
    
    $
    (31,965
    )
 Net deferred income taxes are recorded in the consolidated balance sheets as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2006Deferred income taxesCurrent assets
    
    ¥
    3,831
    
    
    ¥
    3,661
    
    
    $
    31,291Investment and other assets
    
    
    390
    
    
    
    698
    
    
    
    5,966Current liabilities
    
    
    (118
    )
    
    
    (176
    )
    
    
    (1,504
    )Long-term liabilities
    
    
    (4,538
    )
    
    
    (7,923
    )
    
    
    (67,718
    )¥
    (435
    )
    
    ¥
    (3,740
    )
    
    $
    (31,965
    )
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##### 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, 2006, certain subsidiaries had net operating loss
carryforwards for income tax purposes of ¥1,827 million ($15,615
thousand) which are available to reduce future income taxes. The net
operating losses will expire as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)Within 5 years
    
    ¥
    425
    
    
    $
    3,6326 to 20 years
    
    
    
    
    
    
    Indefinite periods
    
    
    1,402
    
    
    
    11,983¥
    1,827
    
    
    $
    15,615
 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 ¥44,524 million
($380,547 thousand) as of March 31, 2006 because Makita
considers these earnings to be permanently reinvested, and
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 employees
benefit plans covering substantially all of their
employees. Under the plans, employees are entitled to
lump-sum payments at the time of termination or retirement,
or to pension payments. A domestic contributory plan covers
substantially all of the employees of the Company.The amounts of lump-sum or pension payments under the plans are generally determined on the basis of length of service and remuneration
at the time of termination or retirement.Until June, 2004, the domestic contributory plan was composed of a corporate defined benefit portion established by the Company and a
substitutional portion based on benefits prescribed by the Japanese government (similar to social security benefits in the United
States). The Company has been exempted from contributing to the Japanese Pension Insurance program that would otherwise have been
required if it had not elected to fund the government substitutional portion of the benefit through a domestic contributory plan
arrangement. The plan assets of the domestic contributory plan are invested and managed as a single portfolio for the entire domestic
contributory plan and are not separately attributed to the substitutional and corporate portions. In June 2001, the Japanese pension law
was amended to permit an employer to elect to transfer the entire substitutional portion benefit obligation from the domestic
contributory plan to the government together with a specified amount of plan assets pursuant to a government formula. After such
transfer, the employer is required to make periodic contributions to the Japanese Pension Insurance program, and the Japanese government
is responsible for all benefit payments. The corporate portion of the domestic contributory plan continues to exist exclusively as a
corporate defined benefit pension plan. The Company accounted for the transfer in accordance with EITF 03-02, Accounting for the
Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities. As specified in EITF 03-02, the
entire separation process is accounted for at the time of completion of the transfer to the government of the benefit obligation and
related plan assets as a settlement in accordance with SFAS
No. 88, Employers Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits.
 F-28




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##### Table of Contents



The aggregate effect of this separation was determined based on the Companys
pension benefit obligation as of the date the transfer was completed based on the determination of plan assets required to be
transferred.The Company received an approval of exemption from the Minister of Health, Labor and Welfare in January 2003, from the obligation for
benefits related to future employee service with respect to the substitutional portion of its domestic contributory plan. The Company
received government approval of exemption from the obligation for benefits related to past employee service in April 2004 with respect to
the substitutional portion of its domestic contributory plan. The transfer to the government was completed on June 28, 2004.As a result of the transfer, the Company recognized a subsidy from the Japanese government equal to the difference between the fair value
of the obligation deemed settled with the Japanese government and the assets required to be transferred to the government in the amount
of ¥ 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, 2004, 2005 and 2006 consisted of the
following components:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2006
    
    
    2006Service cost-benefit earned during the year
    
    ¥
    1,671
    
    
    ¥
    1,332
    
    
    ¥
    1,565
    
    
    $
    13,376Interest cost on projected benefit obligation
    
    
    1,225
    
    
    
    852
    
    
    
    776
    
    
    
    6,632Expected return on plan assets
    
    
    (643
    )
    
    
    (590
    )
    
    
    (635
    )
    
    
    (5,427
    )Amortization of prior service cost
    
    
    14
    
    
    
    (176
    )
    
    
    (153
    )
    
    
    (1,308
    )Recognized actuarial loss
    
    
    975
    
    
    
    518
    
    
    
    482
    
    
    
    4,120Net gain resulting from transfer to the government
of the substitutional portion of pension plan
    
    
    
    
    
    
    (4,441
    )
    
    
    
    
    
    
    Net periodic pension costs (benefit)
    
    ¥
    3,242
    
    
    ¥
    (2,505
    )
    
    ¥
    2,035
    
    
    $
    17,393
 F-29




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##### Table of Contents



Reconciliations of beginning and ending balances of the benefit obligations and the fair value of the plan assets are as
follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2006Change in benefit obligation:Benefit obligation at beginning of year
    
    ¥
    54,899
    
    
    ¥
    35,853
    
    
    $
    306,436Service cost
    
    
    1,332
    
    
    
    1,565
    
    
    
    13,376Interest cost
    
    
    852
    
    
    
    776
    
    
    
    6,632Employees contributions
    
    
    25
    
    
    
    27
    
    
    
    231Plan amendments
    
    
    (3,089
    )
    
    
    
    
    
    
    Curtailment
    
    
    
    
    
    
    (32
    )
    
    
    (274
    )Actuarial losses
    
    
    (120
    )
    
    
    (239
    )
    
    
    (2,042
    )Transfer to the government of the substitutional portion of pension plan
    
    
    (17,276
    )
    
    
    
    
    
    
    Business acquired
    
    
    
    
    
    
    530
    
    
    
    4,530Benefits paid
    
    
    (938
    )
    
    
    (1,027
    )
    
    
    (8,778
    )Foreign exchange impact
    
    
    168
    
    
    
    127
    
    
    
    1,086Benefit obligation at end of year
    
    
    35,853
    
    
    
    37,580
    
    
    
    321,197Change in plan assets:Fair value of plan assets at beginning of year
    
    
    32,981
    
    
    
    28,289
    
    
    
    241,786Actual return on plan assets
    
    
    836
    
    
    
    5,099
    
    
    
    43,581Employer contributions
    
    
    2,354
    
    
    
    2,265
    
    
    
    19,359Employees contributions
    
    
    25
    
    
    
    27
    
    
    
    231Transfer to the government of the substitutional portion of pension plan
    
    
    (7,082
    )
    
    
    
    
    
    
    Business acquired
    
    
    
    
    
    
    131
    
    
    
    1,120Benefits paid
    
    
    (843
    )
    
    
    (926
    )
    
    
    (7,915
    )Foreign exchange impact
    
    
    18
    
    
    
    37
    
    
    
    317Fair value of plan assets at end of year
    
    
    28,289
    
    
    
    34,922
    
    
    
    298,479Funded status
    
    
    (7,564
    )
    
    
    (2,658
    )
    
    
    (22,718
    )Unrecognized net actuarial loss
    
    
    11,051
    
    
    
    5,867
    
    
    
    50,145Prior service cost not yet recognized in net periodic benefit cost
    
    
    (3,357
    )
    
    
    (3,141
    )
    
    
    (26,846
    )Unrecognized net transition obligation being recognized over 19 years
    
    
    139
    
    
    
    78
    
    
    
    667Net amount recognized
    
    ¥
    269
    
    
    ¥
    146
    
    
    $
    1,248Amounts recognized in the consolidated balance sheets consisted of;Accrued benefit cost
    
    ¥
    (5,126
    )
    
    ¥
    (2,901
    )
    
    $
    (24,795
    )Prepaid benefit cost
    
    
    2,399
    
    
    
    2,599
    
    
    
    22,214Intangible assets
    
    
    23
    
    
    
    
    
    
    
    Accumulated other comprehensive loss, before income taxes
    
    
    2,973
    
    
    
    448
    
    
    
    3,829Net amount recognized
    
    ¥
    269
    
    
    ¥
    146
    
    
    $
    1,248
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##### Table of Contents



Measurement dateThe Company uses a December 31 measurement date for the majority of its plans.AssumptionsThe weighted-average assumptions used to determine benefit obligations at March 31, 2005 and
2006, were as follows:
 2005
    
    
    2006Discount rate
    
    
    2.2
    %
    
    
    2.2
    %The assumed rate of increase in future compensation levels
    
    
    3.3
    %
    
    
    3.3
    %
 The weighted-average assumptions used to determine net periodic pension cost for each of the
years in the three-year period ended March 31, 2006, were as follows:
 2004
    
    
    2005
    
    
    2006Discount rate
    
    
    2.1
    %
    
    
    2.2
    %
    
    
    2.2
    %Assumed rate of increase in future compensation levels
    
    
    2.3
    %
    
    
    2.3
    %
    
    
    3.3
    %Expected long-term rate of return on plan assets
    
    
    2.0
    %
    
    
    2.1
    %
    
    
    2.3
    %
 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, 2005, and 2006, by asset
category were as follows:
 2005
    
    
    2006Asset CategoryEquity securities
    
    
    43.9
    %
    
    
    54.6
    %Debt securities
    
    
    36.6
    
    
    
    30.8Real estate
    
    
    4.5
    
    
    
    1.2Life insurance company general accounts
    
    
    11.8
    
    
    
    9.7Other
    
    
    3.2
    
    
    
    3.7100.0
    %
    
    
    100.0
    %
 F-31




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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 interest-bearing securities and marketable equity securities.The mix of equity securities and debt securities is determined after taking into consideration
the expected long-term yield on pension assets. To decide whether changes in the basic
portfolio are necessary, Makita examines the divergence between the expected long-term income
and the actual income from the portfolio on an annual basis. Makita revises the portfolio when
it is deemed necessary to reach the expected long-term yield.Equity securities include common stock of Makita in the amount of ¥4 million ($34 thousand) at
March 31, 2006.Information for pension plans with an accumulated benefit obligation in excess of plan
assets
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2006Projected benefit obligation
    
    ¥
    35,401
    
    
    ¥
    2,548
    
    
    $
    21,778Accumulated benefit obligation
    
    
    30,564
    
    
    
    2,464
    
    
    
    21,060Fair value of plan assets
    
    
    28,289
    
    
    
    328
    
    
    
    2,803An accumulated benefit obligation in excess of plan assets
    
    
    2,275
    
    
    
    2,136
    
    
    
    18,257
 Cash flowsContributionsMakita expects to contribute ¥3,101 million ($26,504 thousand) to its domestic and foreign
defined benefit plan in the year ending March 31, 2007.Estimated future benefit paymentsThe following benefits payments, which reflect expected future service, as appropriate, are
expected to be paid:
 Yen
    
    
    U.S. DollarsYear ending March 31,
    
    (millions)
    
    
    (thousands)2007
    
    ¥
    1,369
    
    
    $
    11,7012008
    
    
    1,960
    
    
    
    16,7522009
    
    
    1,937
    
    
    
    16,5562010
    
    
    1,851
    
    
    
    15,8212011
    
    
    1,906
    
    
    
    16,2912012-2016
    
    
    9,019
    
    
    
    77,085
 Certain foreign subsidiaries have defined contribution plans. The total expenses charged to
income under these plans were ¥249 million, ¥227 million and ¥216 million ($1,846 thousand) for
the years ended March 31, 2004, 2005 and 2006, 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 ¥477 million and ¥490 million as of March 31, 2005 and
2006, respectively, and is included in other liabilities in the accompanying balance sheets.
The payment to the Directors and the Statutory Auditors are subject to shareholders approval.
 F-32




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##### Table of Contents



11.
    
    SHORT-TERM BORROWINGS AND LONG-TERM INDEBTEDNESSAs of March 31, 2005 and 2006, short-term borrowings consisted of the following:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2006Bank borrowings
    
    ¥
    1,968
    
    
    ¥
    1,638
    
    
    $
    14,000Current maturities of long-term indebtedness
    
    
    7,092
    
    
    
    90
    
    
    
    769Total
    
    ¥
    9,060
    
    
    ¥
    1,728
    
    
    $
    14,769
 Short-term borrowings, excluding current maturities of long-term indebtedness, amounting
to ¥1,968 million and ¥1,638 million ($14,000 thousand) as of March 31, 2005 and 2006,
respectively, consisted primarily of bank borrowings denominated in foreign currencies by
overseas subsidiaries. As of March 31, 2005 and 2006, the weighted average interest rate on the
borrowings was 6.1% and 9.8%, respectively.Certain subsidiaries of the Company had unused lines of credit available for immediate
short-term borrowings without restrictions amounting to ¥21,509 million and ¥22,208 million
($189,812 thousand) as of March 31, 2005 and 2006, respectively.As of March 31, 2005 and 2006, long-term indebtedness consisted of the following:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    20063.3% (weighted average rate) unsecured loans from banks
and insurance companies in yen, due September and
November 2005
    
    ¥
    6,205
    
    
    ¥
    
    
    
    $
    0.6% (weighted average rate) unsecured loans from
Japanese companies, due May 2005
    
    
    800
    
    
    
    
    
    
    
    Capital lease obligations (see Note 3(g))
    
    
    175
    
    
    
    194
    
    
    
    1,658Total
    
    
    7,180
    
    
    
    194
    
    
    
    1,658Less- Current maturities included in short-term borrowings
    
    
    (7,092
    )
    
    
    (90
    )
    
    
    (769
    )¥
    88
    
    
    ¥
    104
    
    
    $
    889
 In accordance with SFAS No. 133, changes in fair values of fixed rate long-term
indebtedness, amounting to ¥205 million as of March 31, 2005, which are effectively hedged by
using derivative instruments, are reflected in the carrying value of long-term indebtedness in
the accompanying consolidated balance sheets. During the year ended March 31, 2006, the
long-term indebtedness was redeemed and therefore no interest rate swaps were outstanding at
March 31, 2006. There were no covenants or cross default provisions under the Companys
financing arrangements. Furthermore, there were no subsidiary level dividend restrictions under
the financing arrangements.
 F-33




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##### Table of Contents



The aggregate annual maturities of long-term indebtedness subsequent to March 31, 2006 are as
summarized below:
 Yen
    
    
    U.S. DollarsYear ending March 31,
    
    (millions)
    
    
    (thousands)2007
    
    ¥
    90
    
    
    $
    7692008
    
    
    37
    
    
    
    3162009
    
    
    27
    
    
    
    2312010
    
    
    20
    
    
    
    1712011
    
    
    11
    
    
    
    942012 and thereafter
    
    
    9
    
    
    
    77¥
    194
    
    
    $
    1,658
 12.
    
    CLUB MEMBERS DEPOSITSMakitas club members deposits as of March 31, 2005, consisted of deposits from individuals
who were members of the Castle Hill Country Club, owned and operated by Joyama Kaihatsu Ltd., a
subsidiary of the Company. On April 11, 2005, the Nagoya District Court approved the civil
rehabilitation plan for Joyama Kaihatsu, Ltd., including its repayment obligation of the club
members deposits and such plan was confirmed on May 7, 2005. On May 31, 2005, Makita
transferred its ownership interests in Joyama Kaihatsu, Ltd., to a third party. In connection
with the ownership transfer, Makita paid ¥6,375 million ($54,487 thousand), and was released
from its obligation for club member deposits of ¥6,461 million ($55,222 thousand) in the year
ended March 31, 2006. Please see Note 6.13.
    
    SHAREHOLDERS EQUITYThe Japanese Commercial Code (the Code) provides that an amount equal to at least 10% of cash
dividends and other distributions from retained earning paid by the Company be appropriate as a
legal reserve. No further appropriation is required when the total amount of the legal reserve
and additional paid-in capital equals 25% of common stock. The Code also provides that to the
extent that the sum of the additional paid-in capital and the legal reserve exceeds 25% of the
stated capital, the amount of the excess (if any ) is available for appropriations by the
resolution of the shareholders. Legal reserves as of March 31, 2005 and 2006 were ¥5,669
million ($48,453 thousand), and were restricted from being used as dividends. Further, the Code
provides that at least one-half of the proceeds from shares issued be included in common stock.On June 29, 2004, the shareholders of the Company resolved to amend the Companys Articles of
Incorporation to permit the Companys Board of Directors to authorize a repurchase of the
Companys shares of common stock. 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
Code. 4,000,000 shares of treasury stock were retired during the fiscal year ended March 31,
2006.The Code provides that cash dividends may be approved semiannually by the resolution of the
annual general shareholders meeting after the end of each fiscal year or by the declaration of
the Board of Directors after the end of each interim six-month period. Such dividends are
payable to shareholders of record at the end of each fiscal year or interim six-month period.
At the general meeting to be held on June 29, 2006, the shareholders will be asked to approve
the declaration of a cash dividend (¥38 per share) on the common stock totaling 5,461 million
($46,675 thousand), which will be paid to shareholders of record as of March 31, 2006. The
declaration of this dividend has not been reflected in the consolidated financial statements as
of March 31, 2006.
 The amount of retained earnings legally available for dividend distribution is that recorded in
the Companys non-consolidated books and amounted to ¥122,972 million ($1,051,043 thousand) as
of March 31, 2006.The Corporate Act, which has been in force since May 1, 2006 (the Act), requires a company to
obtain the approval of shareholders for transferring on amount between capital and additional
paid-in capital. The Act also permits a company to transfer an amount of capital or additional
paid-in capital to legal reserve or retained earnings mainly upon approval of shareholders.
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14.
    
    OTHER COMPREHENSIVE INCOME (LOSS)Accumulated other comprehensive income (loss) as of March 31, 2004, 2005 and 2006, was as
follows:
 Yen
    
    
    U.S.Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2006
    
    
    2006Foreign currency translation adjustments:Beginning balance
    
    ¥
    (13,022
    )
    
    ¥
    (17,582
    )
    
    ¥
    (14,486
    )
    
    $
    (123,812
    )Adjustments for the year
    
    
    (4,560
    )
    
    
    3,096
    
    
    
    8,443
    
    
    
    72,162Ending balance
    
    ¥
    (17,582
    )
    
    ¥
    (14,486
    )
    
    ¥
    (6,043
    )
    
    $
    (51,650
    )Net unrealized holding gains on available-for-sale securities:Beginning balance
    
    ¥
    478
    
    
    ¥
    6,592
    
    
    ¥
    6,680
    
    
    $
    57,094Adjustments for the year
    
    
    6,114
    
    
    
    88
    
    
    
    4,986
    
    
    
    42,615Ending balance
    
    ¥
    6,592
    
    
    ¥
    6,680
    
    
    ¥
    11,666
    
    
    $
    99,709Minimum pension liability adjustment:Beginning balance
    
    ¥
    (12,590
    )
    
    ¥
    (6,058
    )
    
    ¥
    (1,443
    )
    
    $
    (12,333
    )Adjustments for the year
    
    
    6,532
    
    
    
    4,615
    
    
    
    1,165
    
    
    
    9,958Ending balance
    
    ¥
    (6,058
    )
    
    ¥
    (1,443
    )
    
    ¥
    (278
    )
    
    $
    (2,375
    )Total accumulated comprehensive income (loss):Beginning balance
    
    ¥
    (25,134
    )
    
    ¥
    (17,048
    )
    
    ¥
    (9,249
    )
    
    $
    (79,051
    )Adjustments for the year
    
    
    8,086
    
    
    
    7,799
    
    
    
    14,594
    
    
    
    124,735Ending balance
    
    ¥
    (17,048
    )
    
    ¥
    (9,249
    )
    
    ¥
    5,345
    
    
    $
    45,684
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Tax effects allocated to each component of other comprehensive income (loss) and adjustments
were as follows:
 Yen (millions)Tax benefit
    
    
    Net of taxPretax amount
    
    
    (expense)
    
    
    amountAs of March 31, 2004Foreign currency translation adjustment
    
    ¥
    (5,018
    )
    
    ¥
    458
    
    
    ¥
    (4,560
    )Unrealized gains on available-for-sale securities:Unrealized holding gains arising during the year
    
    
    10,837
    
    
    
    (4,393
    )
    
    
    6,444Less- Reclassification adjustment for gains realized in net income
    
    
    (555
    )
    
    
    225
    
    
    
    (330
    )Net unrealized gains
    
    
    10,282
    
    
    
    (4,168
    )
    
    
    6,114Minimum pension liability adjustment
    
    
    10,924
    
    
    
    (4,392
    )
    
    
    6,532Other comprehensive income
    
    ¥
    16,188
    
    
    ¥
    (8,102
    )
    
    ¥
    8,086
 Yen (millions)Tax benefit
    
    
    Net of taxPretax amount
    
    
    (expense)
    
    
    amountAs of March 31, 2005Foreign currency translation adjustment
    
    ¥
    4,041
    
    
    ¥
    (945
    )
    
    ¥
    3,096Unrealized 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)
    
    
    amountAs of March 31, 2006Foreign currency translation adjustment
    
    ¥
    8,715
    
    
    ¥
    (272
    )
    
    ¥
    8,443Unrealized 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
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##### Table of Contents



U.S. Dollars (thousands)Tax benefit
    
    
    Net of taxPretax amount
    
    
    (expense)
    
    
    amountAs of March 31, 2006Foreign currency translation adjustment
    
    $
    74,487
    
    
    $
    (2,325
    )
    
    $
    72,162Unrealized gains on available-for-sale securities:Unrealized holding gains arising during the year
    
    
    96,299
    
    
    
    (38,795
    )
    
    
    57,504Less- Reclassification adjustment for gains
realized in net income
    
    
    (24,940
    )
    
    
    10,051
    
    
    
    (14,889
    )Net unrealized gains
    
    
    71,359
    
    
    
    (28,744
    )
    
    
    42,615Minimum pension liability adjustment
    
    
    21,581
    
    
    
    (11,623
    )
    
    
    9,958Other comprehensive income
    
    $
    167,427
    
    
    $
    (42,692
    )
    
    $
    124,735
 15.
    
    EARNINGS PER SHAREA reconciliation of the numerators and denominators of basic and diluted earnings per share
computations is as follows:
 Yen
    
    
    U.S. DollarsNumerator
    
    (millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2006
    
    
    2006Net income available to common
share holders  Basic
    
    ¥
    7,691
    
    
    ¥
    22,136
    
    
    ¥
    40,411
    
    
    $
    345,393Effect of dilutive common shares:1.5% unsecured convertible
bonds, due March, 2005
    
    
    119
    
    
    
    117
    
    
    
    
    
    
    
    Net income available to
common share holders Diluted
    
    ¥
    7,810
    
    
    ¥
    22,253
    
    
    ¥
    40,411
    
    
    $
    345,393Denominator
    
    Number of sharesWeighted average common shares
outstanding  Basic
    
    
    144,682,696
    
    
    
    143,844,383
    
    
    
    143,736,927Dilutive effect of:1.5% unsecured convertible
bonds, due and fully repaid in
March, 2005
    
    
    5,749,811
    
    
    
    5,748,927
    
    
    
    Weighted average common
shares outstanding  Diluted
    
    
    150,432,507
    
    
    
    149,593,310
    
    
    
    143,736,927Yen
    
    
    U.S. DollarsEarnings per share:Basic
    
    ¥
    53.2
    
    
    ¥
    153.9
    
    
    ¥
    281.1
    
    
    $
    2.40Diluted
    
    
    51.9
    
    
    
    148.8
    
    
    
    281.1
    
    
    
    2.40
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##### Table of Contents



16.
    
    COMMITMENTS AND CONTINGENT LIABILITIESAt March 31, 2006, the Company was contingently liable as a guarantor for housing and education
loans to employees in the amount of ¥14 million ($120 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, 2006, was
insignificant.Makita was contingently liable for trade notes receivable discounted with banks of ¥653 million
($5,581 thousand) as of March 31, 2006 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, 2006, was insignificant.Makitas purchase obligations, mainly for raw materials, were ¥ 6,373 million ($54,470
thousand) as of March 31, 2006.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 ¥1,745 million, ¥1,796 million and ¥1,714 million ($14,650
thousand) under cancelable and noncancelable operating lease agreements for offices,
warehouses, automobiles and office equipment during the years ended March 31, 2004, 2005 and
2006, respectively. The minimum rental payments required under noncancelable operating lease
agreements as of March 31, 2006, were as follows:
 Yen
    
    
    U.S. DollarsYear ending March 31,
    
    (millions)
    
    
    (thousands)2007
    
    ¥
    546
    
    
    $
    4,6672008
    
    
    401
    
    
    
    3,4272009
    
    
    275
    
    
    
    2,3502010
    
    
    166
    
    
    
    1,4192011
    
    
    86
    
    
    
    7352012 and thereafter
    
    
    206
    
    
    
    1,761¥
    1,680
    
    
    $
    14,359
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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, 2004, 2005 and 2006 is summarized as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2004
    
    
    2005
    
    
    2006
    
    
    2006Balance at beginning of year
    
    ¥
    693
    
    
    ¥
    667
    
    
    ¥
    804
    
    
    $
    6,872Addition
    
    
    529
    
    
    
    830
    
    
    
    853
    
    
    
    7,291Utilization
    
    
    (532
    )
    
    
    (728
    )
    
    
    (779
    )
    
    
    (6,658
    )Foreign exchange impact
    
    
    (23
    )
    
    
    35
    
    
    
    50
    
    
    
    427Balance at end of year
    
    ¥
    667
    
    
    ¥
    804
    
    
    ¥
    928
    
    
    $
    7,932
 17.
    
    DERIVATIVES AND HEDGING ACTIVITIES
 (a)
    
    Risk management policyMakita is exposed to market risks, such as changes in currency exchange rates and interest
rates. Derivative financial instruments are comprised principally of foreign exchange
contracts, currency swaps, currency options and interest rate swaps utilized by 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, 2005 and 2006 of ¥30 million and ¥48
million ($410 thousand) were recorded as assets and ¥387 million and ¥258 million
($2,205 thousand) in liabilities, respectively, and changes in their fair values for the years
ended March 31, 2005 and 2006 amounting to a loss of ¥732 million and a gain of ¥147 million
($1,256 thousand), respectively, were recorded in exchange gains (losses) on foreign currency
transactions.(c)
    
    Interest rate risk managementMakita executes financing and investing activities through the Company and its financial
subsidiary, Euro Makita Corporation B.V. (EMC). To manage the variability in the fair values
of fixed rate long-term indebtedness, time deposit and fixed rate debt securities caused by
fluctuations in interest rates, the Company and EMC enter into interest rate swaps as a fair
value hedge.As of March 31, 2005, EMC had interest rate swaps with a fair value of ¥205 million, which have
been designated as fair value hedges of underlying long-term indebtedness with fixed interest
rates and were recorded as current assets. Changes in fair values of both the hedging interest
rate swaps and the underlying long-term indebtedness were recorded as equal and offsetting
gains and losses in other income (expenses). There was no hedging ineffectiveness or net gains
or losses excluded from the assessment of hedge effectiveness for the year ended March 31,
2005, as the critical terms of the interest rate swaps match the terms of the hedged long-term
indebtedness. During the year ended March 31, 2006, the long-term indebtedness was
redeemed and therefore the fair value hedge interest rate swaps related to EMC were not
outstanding at March 31, 2006.
 F-39




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The Company and EMC had interest rate swaps with a fair value of ¥7 million as of March 31,
2005, and the Company had interest rate swaps with a fair value of ¥5 million ($43 thousand) as
of March 31, 2006. These interest swaps have been designated as fair value hedges of underlying
time deposit and investment securities with fixed interest rates and were recorded as current
liabilities. As the interest rate swaps do not meet hedge accounting criteria, the changes in
fair value of the hedging interest rate swaps which amounted to a loss of ¥19 million and an
gain of ¥2 million ($17 thousand) were recorded in earnings and classified in other income
(expenses) for the years ended March 31, 2005 and 2006, respectively.
 18.
    
    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 Expenses
The carrying amount approximates fair value because of the short maturities of those
instruments.(b)
    
    Long-term Time Deposits
The 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 Securities
The fair value of marketable securities is estimated based on quoted market prices. For other
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 ¥590 million and ¥572 million ($4,889 thousand) as
of as of March 31, 2005 and 2006, respectively.(d)
    
    Long-term Indebtedness
The fair value of long-term indebtedness is present value of future cash flows associated with
each instrument discounted using the Companys current borrowing rate for similar debt
instruments of comparable maturities.(e)
    
    Club Members Deposits
The fair value of club members deposits is based on the latest actual transaction price or the
present value of future cash flows.(f)
    
    Interest Rate Swap Agreements
The fair values of interest rate swap agreements are based on the estimated amount that Makita
would receive or pay to terminate the swap agreements which are based on quoted prices obtained
from brokers.(g)
    
    Other Derivative Financial Instruments
The fair values of other derivative financial instruments, foreign currency contracts, currency
swaps and currency option contracts, all of which are used for hedging purposes, are estimated
by obtaining quotes and other relevant information from brokers.
 F-40




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##### Table of Contents



The estimated fair value of the financial instruments was as follows:
 Yen
    
    
    U.S. Dollars(millions)
    
    
    (thousands)2005
    
    
    2006
    
    
    2006Carrying
    
    
    
    
    
    
    Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueMarketable securities
    
    ¥
    57,938
    
    
    ¥
    57,938
    
    
    ¥
    47,773
    
    
    ¥
    47,773
    
    
    $
    408,316
    
    
    $
    408,316Investment securities
    
    
    22,106
    
    
    
    22,105
    
    
    
    30,439
    
    
    
    30,314
    
    
    
    260,162
    
    
    
    259,094Long-term time deposits
    
    
    2,322
    
    
    
    2,316
    
    
    
    2,006
    
    
    
    2,006
    
    
    
    17,145
    
    
    
    17,145Long-term indebtedness
including current maturities
    
    
    (7,180
    )
    
    
    (6,530
    )
    
    
    (194
    )
    
    
    (194
    )
    
    
    (1,658
    )
    
    
    (1,658
    )Club members deposits
    
    
    (12,836
    )
    
    
    (6,375
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swap agreements:Assets
    
    
    205
    
    
    
    205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liabilities
    
    
    (7
    )
    
    
    (7
    )
    
    
    (5
    )
    
    
    (5
    )
    
    
    (43
    )
    
    
    (43
    )Foreign currency contracts:Assets
    
    
    23
    
    
    
    23
    
    
    
    31
    
    
    
    31
    
    
    
    265
    
    
    
    265Liabilities
    
    
    (160
    )
    
    
    (160
    )
    
    
    (101
    )
    
    
    (101
    )
    
    
    (863
    )
    
    
    (863
    )Currency swaps:Assets
    
    
    5
    
    
    
    5
    
    
    
    17
    
    
    
    17
    
    
    
    145
    
    
    
    145Liabilities
    
    
    (216
    )
    
    
    (216
    )
    
    
    (157
    )
    
    
    (157
    )
    
    
    (1,342
    )
    
    
    (1,342
    )Currency option contracts:Assets
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liabilities
    
    
    (11
    )
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 (h)
    
    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-41




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##### Table of Contents



19.
    
    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, 2004, 2005, 2006, Makitas operating structure included the
following geographical operating segments: Japan Group, North America Group, Europe Group, Asia
Group, and Other Group.Makita evaluates the performance of each operating segment based on U.S. generally accepted
accounting principles.Segment Products and Services
Makita is a manufacturer and wholesaler of electric power tools and other tools. The operating
segments derive substantially all their revenues from the sale of electric power tools and parts
and repairs.Year ended March 31, 2004
 Yen(millions)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    America
    
    
    Europe
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    ¥
    48,413
    
    
    ¥
    41,699
    
    
    ¥
    67,110
    
    
    ¥
    6,612
    
    
    ¥
    20,283
    
    
    ¥
    184,117
    
    
    ¥
    
    
    
    ¥
    184,117Intersegment
    
    
    40,633
    
    
    
    3,978
    
    
    
    4,726
    
    
    
    22,364
    
    
    
    123
    
    
    
    71,824
    
    
    
    (71,824
    )
    
    
    Total
    
    ¥
    89,046
    
    
    ¥
    45,677
    
    
    ¥
    71,836
    
    
    ¥
    28,976
    
    
    ¥
    20,406
    
    
    ¥
    255,941
    
    
    ¥
    (71,824
    )
    
    ¥
    184,117Operating expenses
    
    ¥
    87,594
    
    
    ¥
    44,958
    
    
    ¥
    64,358
    
    
    ¥
    26,048
    
    
    ¥
    19,061
    
    
    ¥
    242,019
    
    
    ¥
    (72,598
    )
    
    ¥
    169,421Operating income
    
    
    1,452
    
    
    
    719
    
    
    
    7,478
    
    
    
    2,928
    
    
    
    1,345
    
    
    
    13,922
    
    
    
    774
    
    
    
    14,696Long-lived assets
    
    
    35,701
    
    
    
    3,610
    
    
    
    6,386
    
    
    
    6,176
    
    
    
    1,257
    
    
    
    53,130
    
    
    
    (165
    )
    
    
    52,965Identifiable assets
    
    
    230,165
    
    
    
    29,037
    
    
    
    69,908
    
    
    
    28,526
    
    
    
    16,364
    
    
    
    374,000
    
    
    
    (95,884
    )
    
    
    278,116Depreciation and amortization
    
    
    4,804
    
    
    
    1,163
    
    
    
    1,044
    
    
    
    824
    
    
    
    172
    
    
    
    8,007
    
    
    
    (44
    )
    
    
    7,963Capital expenditures
    
    
    1,958
    
    
    
    256
    
    
    
    1,149
    
    
    
    1,266
    
    
    
    273
    
    
    
    4,902
    
    
    
    (408
    )
    
    
    4,494
 Year ended March 31, 2005
 Yen(millions)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    America
    
    
    Europe
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    ¥
    50,955
    
    
    ¥
    38,607
    
    
    ¥
    75,864
    
    
    ¥
    7,378
    
    
    ¥
    21,933
    
    
    ¥
    194,737
    
    
    ¥
    
    
    
    ¥
    194,737Intersegment
    
    
    47,786
    
    
    
    3,583
    
    
    
    5,802
    
    
    
    34,937
    
    
    
    168
    
    
    
    92,276
    
    
    
    (92,276
    )
    
    
    Total
    
    ¥
    98,741
    
    
    ¥
    42,190
    
    
    ¥
    81,666
    
    
    ¥
    42,315
    
    
    ¥
    22,101
    
    
    ¥
    287,013
    
    
    ¥
    (92,276
    )
    
    ¥
    194,737Operating expenses
    
    ¥
    82,826
    
    
    ¥
    40,580
    
    
    ¥
    71,541
    
    
    ¥
    37,389
    
    
    ¥
    21,146
    
    
    ¥
    253,482
    
    
    ¥
    (90,143
    )
    
    ¥
    163,339Operating income
    
    
    15,915
    
    
    
    1,610
    
    
    
    10,125
    
    
    
    4,926
    
    
    
    955
    
    
    
    33,531
    
    
    
    (2,133
    )
    
    
    31,398Long-lived assets
    
    
    33,023
    
    
    
    3,431
    
    
    
    6,993
    
    
    
    6,858
    
    
    
    2,686
    
    
    
    52,991
    
    
    
    (167
    )
    
    
    52,824Identifiable assets
    
    
    224,099
    
    
    
    30,627
    
    
    
    79,309
    
    
    
    31,713
    
    
    
    19,141
    
    
    
    384,889
    
    
    
    (94,985
    )
    
    
    289,904Depreciation and amortization
    
    
    2,729
    
    
    
    668
    
    
    
    1,057
    
    
    
    794
    
    
    
    186
    
    
    
    5,434
    
    
    
    (53
    )
    
    
    5,381Capital expenditures
    
    
    1,966
    
    
    
    589
    
    
    
    1,289
    
    
    
    1,483
    
    
    
    1,544
    
    
    
    6,871
    
    
    
    (216
    )
    
    
    6,655
 F-42




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##### Table of Contents



Year ended March 31, 2006
 Yen(millions)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    America
    
    
    Europe
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    ¥
    53,788
    
    
    ¥
    47,979
    
    
    ¥
    91,249
    
    
    ¥
    8,645
    
    
    ¥
    27,414
    
    
    ¥
    229,075
    
    
    ¥
    
    
    
    ¥
    229,075Intersegment
    
    
    57,826
    
    
    
    4,321
    
    
    
    6,306
    
    
    
    43,979
    
    
    
    181
    
    
    
    112,613
    
    
    
    (112,613
    )
    
    
    Total
    
    ¥
    111,614
    
    
    ¥
    52,300
    
    
    ¥
    97,555
    
    
    ¥
    52,624
    
    
    ¥
    27,595
    
    
    
    341,688
    
    
    ¥
    (112,613
    )
    
    ¥
    229,075Operating expenses
    
    ¥
    87,468
    
    
    ¥
    50,437
    
    
    ¥
    85,505
    
    
    ¥
    46,162
    
    
    ¥
    25,048
    
    
    ¥
    294,620
    
    
    ¥
    (111,323
    )
    
    ¥
    183,297Operating income
    
    
    24,146
    
    
    
    1,863
    
    
    
    12,050
    
    
    
    6,462
    
    
    
    2,547
    
    
    
    47,068
    
    
    
    (1,290
    )
    
    
    45,778Long-lived assets
    
    
    36,578
    
    
    
    3,732
    
    
    
    7,529
    
    
    
    9,170
    
    
    
    2,371
    
    
    
    59,380
    
    
    
    (177
    )
    
    
    59,203Identifiable assets
    
    
    243,553
    
    
    
    44,814
    
    
    
    85,858
    
    
    
    42,275
    
    
    
    21,556
    
    
    
    438,056
    
    
    
    (112,018
    )
    
    
    326,038Depreciation and amortization
    
    
    2,917
    
    
    
    656
    
    
    
    1,217
    
    
    
    923
    
    
    
    269
    
    
    
    5,982
    
    
    
    (60
    )
    
    
    5,922Capital expenditures
    
    
    6,398
    
    
    
    620
    
    
    
    1,549
    
    
    
    2,537
    
    
    
    426
    
    
    
    11,530
    
    
    
    (147
    )
    
    
    11,383
 Year ended March 31, 2006
 U.S. Dollars(thousands)North
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate andJapan
    
    
    America
    
    
    Europe
    
    
    Asia
    
    
    Other
    
    
    Total
    
    
    Eliminations
    
    
    ConsolidatedSales:External customers
    
    $
    459,726
    
    
    $
    410,077
    
    
    $
    779,906
    
    
    $
    73,889
    
    
    $
    234,308
    
    
    $
    1,957,906
    
    
    $
    
    
    
    $
    1,957,906Intersegment
    
    
    494,239
    
    
    
    36,932
    
    
    
    53,897
    
    
    
    375,889
    
    
    
    1,547
    
    
    
    962,504
    
    
    
    (962,504
    )
    
    
    Total
    
    $
    953,965
    
    
    $
    447,009
    
    
    $
    833,803
    
    
    $
    449,778
    
    
    $
    235,855
    
    
    $
    2,920,410
    
    
    $
    (962,504
    )
    
    $
    1,957,906Operating expenses
    
    $
    747,589
    
    
    $
    431,086
    
    
    $
    730,811
    
    
    $
    394,547
    
    
    $
    214,086
    
    
    $
    2,518,119
    
    
    $
    (951,478
    )
    
    $
    1,566,641Operating income
    
    
    206,376
    
    
    
    15,923
    
    
    
    102,992
    
    
    
    55,231
    
    
    
    21,769
    
    
    
    402,291
    
    
    
    (11,026
    )
    
    
    391,265Long-lived assets
    
    
    312,633
    
    
    
    31,897
    
    
    
    64,350
    
    
    
    78,376
    
    
    
    20,265
    
    
    
    507,521
    
    
    
    (1,512
    )
    
    
    506,009Identifiable assets
    
    
    2,081,650
    
    
    
    383,026
    
    
    
    733,829
    
    
    
    361,325
    
    
    
    184,239
    
    
    
    3,744,069
    
    
    
    (957,419
    )
    
    
    2,786,650Depreciation and amortization
    
    
    24,932
    
    
    
    5,607
    
    
    
    10,402
    
    
    
    7,889
    
    
    
    2,299
    
    
    
    51,129
    
    
    
    (514
    )
    
    
    50,615Capital expenditures
    
    
    54,684
    
    
    
    5,299
    
    
    
    13,239
    
    
    
    21,684
    
    
    
    3,641
    
    
    
    98,547
    
    
    
    (1,256
    )
    
    
    97,291
 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, 2004, 2005
and 2006.Segment information is determined by the location of the Company and its relevant subsidiaries.
 F-43




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##### Table of Contents



Makitas current revenues from external customers by each group of products are set forth below.
 (Yen millions, except for percentage amounts)
    
    
    
    
    
    
    
    
    
    
    U.S. DollarsConsolidated Net Sales by Product Categories
    
    
    
    
    
    
    
    
    
    
    (thousands)Year ended March 31,2004
    
    
    2005
    
    
    2006
    
    
    2006Portable woodworking tools
    
    ¥
    34,452
    
    
    
    18.7
    %
    
    ¥
    34,507
    
    
    
    17.7
    %
    
    ¥
    37,890
    
    
    
    16.5
    %
    
    $
    323,846Portable general purpose tools
    
    
    98,176
    
    
    
    53.3
    
    
    
    105,736
    
    
    
    54.3
    
    
    
    128,215
    
    
    
    56.0
    
    
    
    1,095,855Stationary woodworking
machines
    
    
    1,711
    
    
    
    1.0
    
    
    
    1,573
    
    
    
    0.8
    
    
    
    2,009
    
    
    
    0.9
    
    
    
    17,171Other products
    
    
    19,548
    
    
    
    10.6
    
    
    
    21,763
    
    
    
    11.2
    
    
    
    26,696
    
    
    
    11.7
    
    
    
    228,171Parts, repairs and accessories
    
    
    30,230
    
    
    
    16.4
    
    
    
    31,158
    
    
    
    16.0
    
    
    
    34,265
    
    
    
    14.9
    
    
    
    292,863Total
    
    ¥
    184,117
    
    
    
    100.0
    %
    
    ¥
    194,737
    
    
    
    100.0
    %
    
    ¥
    229,075
    
    
    
    100.0
    %
    
    $
    1,957,906
 F-44




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##### Table of Contents



20.
    
    RELATED PARTY TRANSACTIONSOne of the Companys consolidated subsidiaries has long-term borrowings from Maruwa Co., Ltd.
(Maruwa), for which a director of the Company and certain of his family members have a majority
of the voting rights. The amount of these borrowings was ¥500 million as of March 31, 2004, and
2005. In 2005, the Nagoya District Court approved a civil rehabilitation plan for the subsidiary,
and it was released from its obligation for the long-term borrowings
of ¥501 million ($4,282
thousand), including accrued interest. In addition, the transactions between Makita and Maruwa for
the year ended March 31, 2004, and 2005, amounted to ¥3 million for interest on the subsidiarys
borrowings and ¥2 million for advertising expenses. For the year ended March 31, 2006, advertising
expenses amounted to ¥2 million.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 ¥199 million and ¥215 million, respectively, during the year ended March 31, 2004, ¥55 million
and ¥145 million, respectively, during the year ended March 31, 2005, and ¥11 million and ¥211
million, respectively, during the year ended March 31, 2006. The accounts payable of the Company
related to these transactions were ¥79 million as of March 31, 2004, ¥19 million as of March 31,
2005, and ¥10 million as of March 31, 2006.
 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 ¥33 million and ¥118 million, respectively, from January 1, 2006 to
March 31, 2006. The accounts payable by the Company related to these transactions were ¥53 million
as of March 31, 2006.
 F-45




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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, 2004, 2005 AND 2006
 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
    
    
    year2004:Allowance for doubtful receivables
    
    
    1,456
    
    
    
    136
    
    
    
    
    
    
    
    (135
    )
    
    
    (111
    )
    
    
    1,346Deferred income tax assets
valuation allowance
    
    
    6,694
    
    
    
    2,938
    
    
    
    
    
    
    
    (459
    )
    
    
    (345
    )
    
    
    8,8282005:Allowance for doubtful receivables
    
    
    1,346
    
    
    
    98
    
    
    
    
    
    
    
    (326
    )
    
    
    60
    
    
    
    1,178Deferred income tax assets
valuation allowance
    
    
    8,828
    
    
    
    234
    
    
    
    
    
    
    
    (929
    )
    
    
    78
    
    
    
    8,2112006:Allowance for doubtful receivables
    
    
    1,178
    
    
    
    114
    
    
    
    
    
    
    
    (356
    )
    
    
    80
    
    
    
    1,016Deferred income tax assets
valuation allowance
    
    
    8,211
    
    
    
    698
    
    
    
    
    
    
    
    (6,228
    )
    
    
    292
    
    
    
    2,973
 F-46