UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

For the fiscal year ended March 31, 2007

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

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

Commission file number 0-12602

KABUSHIKI KAISHA MAKITA

(Exact name of registrant as specified in its charter)

MAKITA CORPORATION

(Translation of registrant’s name into English)

Japan
(Jurisdiction of incorporation or organization)

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

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

Title of Each Class		Name of each exchange on which registered
* American Depositary Shares		Nasdaq Global Market
** Common Stock

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

Title of each class		Name of each exchange on which registered
None		None

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

None

(Title of Class)

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

		Outstanding as of
		March 31, 2007				March 31, 2007
Title of Class		(Tokyo time)				(New York time)
Common Stock, excluding 307,481 shares of Treasury Stock			143,701,279
American Depositary Shares, each representing one share of Common Stock							2,485,634

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

þ Yes       o No

If this report is an annual or transition report, indicate by mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o Yes       þ No

Note – Checking the box above will not relieve any registrant required to the file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

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

þ Yes      o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ       Accelerated filer o      Non-accelerated filero

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

Item 17 o      Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes       þ No

Table of Contents

		Page
Cautionary Statement with Respect to Forward-Looking Statements			1
PART I
Item 1. Identity of Directors, Senior Management and Advisers			3
Item 2. Offer Statistics and Expected Timetable			3
Item 3. Key Information			3
A. Selected financial data			3
B. Capitalization and indebtedness			4
C. Reasons for the offer and use of proceeds			4
D. Risk factors			5
Item 4. Information on the Company			8
A. History and development of the Company			8
B. Business overview			9
C. Organizational structure			13
D. Property, plant and equipment			14
Item 4A. Unresolved Staff Comments			15
Item 5. Operating and Financial Review and Prospects			16
A. Operating results			16
B. Liquidity and capital resources			31
C. Research and development, patents and licenses, etc.			35
D. Trend information			36
E. Off-balance sheet arrangements			37
F. Tabular disclosure of contractual obligations			37
G. Safe harbor			37
Item 6. Directors, Senior Management and Employees			37
A. Directors and senior management			37
B. Compensation			41
C. Board practices			42
D. Employees			44
E. Share ownership			44
Item 7. Major Shareholders and Related Party Transactions			45
A. Major shareholders			45
B. Related party transactions			47
C. Interest of experts and counsel			47
Item 8. Financial Information			47
A. Consolidated Financial statements and other financial information			47
B. Significant changes			48
Item 9. The Offer and Listing			48
A. Offer and listing details			48
B. Plan of distribution			49
C. Markets			49
D. Selling shareholders			49
E. Dilution			49
F. Expenses of the issue			49
Item 10. Additional Information			50
A. Share capital			50
B. Memorandum and articles of association			50
C. Material contracts			59
D. Exchange controls			59
E. Taxation			60
F. Dividends and paying agents			66
G. Statement by experts			66

		Page
H. Documents on display			66
I. Subsidiary information			66
Item 11. Quantitative and Qualitative Disclosures about Market Risk			66
Item 12. Description of Securities Other than Equity Securities			69
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies			69
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			69
Item 15. Controls and Procedures			69
Item 16A. Audit Committee Financial Expert			70
Item 16B. Code of ethics			70
Item 16C. Principal Accountant Fees and Services			70
Item 16D. Exemptions from the Listing Standards for Audit Committees			72
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchases			72
PART III
Item 17. Financial Statements			72
Item 18. Financial Statements			73
Item 19. Exhibits			73
EX-12.1 302 Certification of President and Representative Director
EX-12.2 302 Certification of Director, General Manager of Administration Headquarters
EX-13.1 906 Certifications of President and Representative Director and Director, General Manager of Administration Headquarters

As used in this annual report, the term “fiscal” preceding a year means the twelve-month period ended March 31 of the year referred to. For example, “fiscal 2007” or “FY 2007” refers to the twelve-month period ended March 31, 2007. All other references to years refer to the applicable calendar year.

All information contained in this annual report is as of March 31, 2007 unless otherwise specified.

In parts of this annual report, amounts reported in Japanese yen have been translated into U.S. dollars for the convenience of readers. Unless otherwise noted, the rate used for this translation was ¥118 = U.S.$1.00, the approximate exchange rate of the noon buying rate for yen in New York City as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2007. On June 9, 2007 the noon buying rate for yen cable transfer in New York City as reported by the Federal Reserve Bank of New York was ¥123.34= $1.00.

As used herein, the “Company” refers to Makita Corporation and “Makita” or “Makita Group” refer to Makita Corporation and its consolidated subsidiaries unless the context otherwise indicates.

Cautionary Statement with Respect to Forward-Looking Statements

This annual report contains “forward-looking statements” that are based on current expectations, estimates, strategies and projections of the Company’s management in light of the information currently available to it. The Company and its representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission and in its reports to shareholders, with respect to Makita’s current plans, estimates, strategies and beliefs and other statements that are not historical. Generally, the inclusion of the words “plan,” “strategy,” “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “may,” “might” and similar expressions identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. All statements addressing operating performance, events, or developments that Makita expects or anticipates to occur in the future, including statements relating to sales growth, earnings or earnings per share growth, and market share, as well as statements expressing optimism or pessimism about future operating results, are forward-looking statements. Makita undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons. Such risks and uncertainties are generally set forth in Item 3.D “Risk Factors” of this Form 20-F and include but not limited to:

•		The levels of construction activities and capital investments in its markets
•		Fluctuations in currency exchange rates
•		Intense competition in global power tools market for professional use
•		Makita’s ability to develop attractive products
•		Geographic concentration of Makita’s main facilities
•		Makita’s overseas activities and entry into overseas markets
•		Failure to maintain cooperative relationship with significant customers
•		Failure to deliver materials or parts required for production as scheduled
•		Procurement of raw materials or their escalating prices
•		Product liability litigation or recalls
•		Fluctuations in stock market prices
•		Failure to protect intellectual property right or infringing the intellectual property of third parties
•		Environmental or other government regulations
•		Failure to protect intellectual property rights unintentional infringements of the intellectual property of third parties
•		The effects of attestation on internal control over financial reporting expressed by the Company’s auditors

The foregoing list is not exhaustive. There can be no assurance that Makita has correctly identified and appropriately assessed all factors affecting its business or that the publicly available and other information with respect to these matters is complete and correct. Additional risks and uncertainties not presently known to Makita or that it currently believes to be immaterial also may adversely impact Makita. Should any risks and uncertainties develop into actual events, these developments could have material adverse effects on Makita’s business, financial condition, and results of operations.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable

Item 2. Offer Statistics and Expected Timetable

Not applicable

Item 3. Key Information

A. Selected financial data

The following data for each of the five fiscal years ended March 31, 2007 have been derived from Makita’s audited consolidated financial statements. They should be read in conjunction with Makita’s audited consolidated balance sheets as of March 31, 2006 and 2007, the related consolidated statements of income, shareholder’s equity and cash flows for each of the three years ended March 31, 2007, and the notes thereto that appear elsewhere in this annual report. Makita’s consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, and were included in its Japanese Securities Reports filed with the Director of the Kanto Local Finance Bureau.

		Yen																				U.S. Dollars
		(millions )																				(thousands)
		Fiscal year ended March 31,
Income Statement Data:		2003				2004				2005				2006				2007				2007
Net sales		¥	175,603			¥	184,117			¥	194,737			¥	229,075			¥	279,933			$	2,372,314
Operating income			12,468				14,696				31,398				45,778				48,176				408,271
Net income			6,723				7,691				22,136				40,411				36,971				313,314

Net income per share of Common stock and per																						U.S.
ADS:		Yen																				Dollars
Basic			45.3				53.2				153.9				281.1				257.3				2.18
Diluted			44.2				51.9				148.8				281.1				257.3				2.18

		Yen																				U.S. Dollars
		(millions )																				(thousands)
		Fiscal year ended March 31,
Balance Sheet Data:		2003				2004				2005				2006				2007				2007
Total assets		¥	278,600			¥	278,116			¥	289,904			¥	326,038			¥	368,494			$	3,122,831
Cash and cash equivalents, time deposits and marketable securities			64,083				92,616				91,189				88,672				102,211				866,195
Net working capital			141,759				147,822				149,666				181,808				212,183				1,798,161
Short-term borrowings			2,892				14,128				9;060				1,728				1,892				16,034
Long-term indebtedness			19,843				7,364				88				104				53				449
Common stock			23,803				23,803				23,805				23,805				23,805				201,737
Treasury stock			(5,110	)			(3,316	)			(3,517	)			(258	)			(298	)			(2,525	)
Shareholders’ equity			182,400				193,348				219,640				266,584				302,675				2,565,042
Total number of shares outstanding			145,967,876				143,893,191				143,777,607				143,711,766				143,701,279				143,701,279

Note: Net working capital equals current assets less current liabilities.

Exchange rates (Japanese Yen amounts per U.S. Dollars)

The following table sets forth information concerning the exchange rates for Japanese yen and U.S. dollars based on the noon buying rates for cable transfers in Japanese yen in New York City as certified for customs purposes by the Federal Reserve Bank of New York. The average Japanese yen exchange rates represent average noon buying rates on the last business day of each month during the previous period.

		(Japanese Yen per U.S. $1.00)
Fiscal year ended March 31,		High				Low				Average				Year-end
2003			115.71				133.40				121.94				118.07
2004			104.18				120.55				113.07				104.18
2005			102.26				114.30				107.47				107.22
2006			104.41				120.93				113.15				117.48
2007			110.07				121.81				116.92				117.56
2008 (through September 24, 2007)			113.43				124.09				119.40				114.92

		(Japanese Yen per U.S. $1.00)
2007		April				May				June				July				August				September (until 24)
High			117.69				119.77				121.08				118.41				113.81				113.43
Low			119.84				121.79				124.09				123.34				119.76				116.21

On September 24, 2007 the noon buying rate for yen cable transfer in New York City as reported by the Federal Reserve Bank of New York was ¥114.92 = U.S. $1.00

Cash dividends declared per share of common stock and per ADS:

		Yen								U.S. Dollars
Fiscal year ended March 31,		Interim				Year-end				Interim				Year-end
2003			9.0				9.0				0.07				0.07
2004			9.0				13.0				0.09				0.11
2005			11.0				36.0				0.10				0.34
2006			19.0				38.0				0.16				0.32
2007			19.0				55.0				0.16				0.47

Makita’s basic dividend policy on the distribution of profits is to maintain a dividend payout ratio of 30% or greater, with a lower limit on annual cash dividends of 18 yen per share. However, in the event special circumstances arise, computation of the amount of dividends will be based on consolidated net income after certain adjustments.

Note:		Cash dividends in U.S. dollars are based on the exchange rates 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

Not applicable

C. Reasons for the offer and use of proceeds

Not applicable

D. Risk factors

The following is a summary of some of the significant risks that could affect Makita. Other risks that could affect Makita are also discussed elsewhere in this annual report. Additionally, some risks that may be currently unknown to Makita and other risks that are currently believed to be immaterial, may become material. Some of these statements are forward-looking statements that are subject to the “Cautionary Statement with Respect to Forward-Looking Statements” appearing elsewhere in this annual report.

Makita’s sales are affected by the levels of construction activities and capital investments in its markets.

The demand for power tools, Makita’s main products, is affected to a large extent by the levels of construction activities and capital investments in the relevant regions. Generally speaking, the levels of construction activities and capital investment depend largely on the economic conditions in the market. As a result, when economic conditions weaken in the principal markets for Makita’s activities, including Japan, Europe, North America, Asia, Central and South America, the Middle East, Africa, and Oceania, this may have an adverse impact on Makita’s consolidated financial condition and results of operations.

Currency exchange rate fluctuations may adversely affect Makita’s financial results.

The functional currency for all of Makita’s significant foreign operations is the local currency. The results of transactions denominated in local currencies of Makita’s subsidiaries around the world are translated into yen using the average market conversion rate during each financial period. Assets and liabilities denominated in local currencies are converted into yen at the rate prevailing at the end of each financial period. As a result, Makita’s operating results, assets, liabilities and shareholders’ equity are affected by fluctuation in values of the Japanese yen against these local currencies. In an effort to minimize the impact of short-term exchange rate fluctuations between major currencies, mainly the U.S. dollar, the euro, and the yen, Makita engages in hedging transactions. However, medium-to-long-term fluctuations of exchange rates may make it difficult for Makita to execute procurement, production, logistics, and sales activities as planned and may have an adverse impact on Makita’s consolidated financial condition and results of operations.

Makita faces intense competition in the global market for its power tools for professional use.

The global market for power tools for professional use is highly competitive. Factors that affect competition in the markets for Makita’s products include the quality, functionality of products, technological developments, the pace of new product development, price, reliability, durability, after-sales service and the rise of new competitors. While Makita strives to ensure its position as a leading international supplier of power tools for professional use, there is no guarantee that it will be able to compete effectively in the future. If Makita is unable to compete effectively, it may lose market share and its earnings may be adversely affected. Moreover, if Makita is unable to compete effectively, Makita’s sales volumes may decrease and inventories may increase, resulting in a downward pressure on the prices for Makita’s products, which in turn could have an adverse impact on Makita’s consolidated financial condition and results of operations.

If Makita is not able to develop attractive products, Makita’s sales activities may be adversely affected.

Makita’s principal competitive strengths are its diverse range of high-quality, high-performance power tools for professional use, and the strong reputation of the MAKITA brand, both of which depend in part on Makita’s ability to continue to develop attractive and innovative products that are well received by the market. There is no assurance that Makita will be able to continue to develop such products. If Makita is no longer able to quickly develop new products that meet the changing needs of the market for high-end, professional users, it may have an adverse impact on Makita’s consolidated financial condition and results of operations.

Geographic concentration of Makita’s main facilities may have adverse effects on Makita’s business activities.

Makita’s principal management functions, including its headquarters, and the companies on which it relies for supplying major parts are located in Aichi Prefecture (“Aichi”), Japan. Makita’s manufacturing facilities in Aichi and Kunshan, Jiangsu Province, China, collectively account for approximately 80% of Makita’s total production volume on a consolidated basis during the year under review. Due to this geographic concentration of Makita’s major functions, including plants and other operations in Japan and China, Makita’s performance may be significantly affected by major natural disasters and other catastrophic events, including earthquakes, floods, fires, power outages, and suspension of water supplies. In addition, Makita’s facilities in China may also be affected by changes in political and legal environments, changes in economic conditions, revisions in tariff rates, currency appreciation, labor disputes, emerging infectious diseases, power outages resulting from inadequacies in infrastructure, and other factors. In the event that such developments cannot be foreseen or measures taken to alleviate their damaging impact are inadequate, Makita’s consolidated financial condition and results of operations may be adversely affected.

Makita’s overseas activities and entry into overseas markets entail risks, which may have a material adverse effect on Makita’s business activities.

Makita derives a majority of its sales in markets located outside of Japan, including Europe, North America, Asia, Oceania, the Middle East, Central and South America, and emerging markets such as Russia and Eastern Europe. During the year under review, approximately 83% of Makita’s consolidated net sales were derived from products sold overseas. The high percentage of overseas sales gives rise to a number of risks. If such risks occur, they may have a material adverse impact on Makita’s consolidated financial condition and results of operations. Such risks include the following:

(1)		Unexpected changes in laws and regulations;
(2)		Disadvantageous political and economic factors;
(3)		The outflow of technical know-how and knowledge due to personnel turnover enabling Makita’s competitors to strengthen their position;
(4)		Potentially unfavorable tax systems; and
(5)		Terrorism, war, and other factors that lead to social turbulence.

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

Makita has a number of significant customers. If Makita loses these customers and is unable to develop new sales channels to take their place, sales may decline and have an adverse impact on Makita’s business performance and financial position. In addition, if major customers of Makita select power tools and other items made in China and sell them under their own brand, this may have an adverse impact on Makita’s consolidated financial condition and results of operations.

If any of Makita’s suppliers fail to deliver materials or parts required for production as scheduled, Makita’s production activities may be adversely affected.

Makita’s production activities are greatly dependent on the on-schedule delivery of materials and parts from its suppliers. Purchases of production-use materials from Chinese manufacturers have increased in recent years. When launching new products, sales commencement dates can slip if Chinese manufacturing technology does not satisfy our demands, or if it takes an inordinate amount of time in order to satisfy our demands. There is a concern that this can result in lost sales opportunities. Makita purchases some of its component parts from sole suppliers. There is no assurance that Makita will be able to find alternate suppliers that can provide materials and parts of similar quality and price in a sufficient quantity and in a timely manner. In the event that any of these suppliers cannot deliver the required quality and quantity of parts on schedule, this will have an adverse effect on Makita’s production schedules and cause a delay in Makita’s own product deliveries. This may cause Makita to lose some customers or require Makita to purchase replacement materials or parts from alternate sources at a

higher price. Any of these occurrences may have a detrimental effect on Makita’s consolidated financial condition and results of operations.

When the procurement of raw materials used by Makita becomes difficult or prices of these raw materials rise sharply, this may have an adverse impact on performance.

In manufacturing power tools, Makita purchases raw materials and components, including silicon steel plates, aluminum, steel products, copper wire, and electronic parts. In recent years, demand for these materials in China and the rest of the world has risen substantially, and some suppliers are experiencing a shortage of capacity. Under these circumstances, if the Makita is unable to obtain the necessary quantities of these materials, this may have an effect on production schedules. In addition, the shortage of capacity among suppliers is a factor leading to increased prices of production materials. If the Makita experiences increases in prices of production materials, greater than what can be absorbed by increased productivity or through other internal efforts and prices of final products cannot be raised sufficiently, such circumstance may have a detrimental impact on the performance and financial position of the Makita.

Product liability litigation or recalls may harm Makita’s financial statements and reputation.

Makita manufactures a wide range of power tools at factories worldwide according to ISO internationally accepted quality control standards. However, Makita cannot be certain that all of its products will be free of defects nor that it will be subject to product recalls in the future. A large-scale recall or a substantial product liability suit brought against Makita may result in severe damage to Makita’s brand image and reputation. In addition, a major product recall or product liability lawsuit is likely to be very costly and would require a significant amount of management time and attention. Any of these occurrences may have a major adverse impact on Makita’s consolidated financial condition and results of operations.

Fluctuations in stock market prices may adversely affect Makita’s financial statements.

Makita holds certain Japanese equities and equity-linked financial products and records these securities as marketable securities and investment securities on its consolidated financial statements. The values of these investments are influenced by fluctuations in the quoted market prices. A significant depreciation in the value of these securities will have an adverse impact on Makita’s consolidated financial condition and results of operations.

Makita may be unable to protect its intellectual property rights and could suffer significant liabilities, litigation costs or licensing expenses or be prevented from selling its products if it is infringing the intellectual property of third parties.

Makita relies on patents, utility models, design rights, trademarks and copyrights obtained in various countries to actively protect its proprietary rights. However, in general, it is difficult for Makita to detect, and investigate, the products believed to infringe its intellectual property rights and therefore Makita cannot ensure that its intellectual property rights will provide meaningful protection of its proprietary rights. In addition, Makita may be unknowingly infringing the intellectual property rights of third parties and may be held responsible for that infringement, which may require Makita to pay significant damages or license fees or modify its products or processes, stop making products or stop using processes. If such risks occur, they may have a material adverse impact in Makita’s consolidated financial condition and results of operations.

Environmental or other government regulations may have a material adverse impact on Makita’s business activities.

Makita maintains strict compliance with environmental, commercial, export and import, tax, safety and other regulations that are applicable to its activities in all the countries in which Makita operates. If Makita is unable to continue its compliance with existing regulations or is unable to comply with any new or amended regulations, it may be subject to fines and other penalties and its activities may be significantly restricted. The costs related to compliance with any new or amended regulations may also result in significant increases in overall costs.

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

The Securities and Exchange Commission, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring public companies to include a report in its Annual Report that contains an assessment by management of the effectiveness of the company’s internal control over financial reporting. In addition, the company’s independent registered public accounting firm must attest to and report on management’s assessment of the effectiveness of the company’s internal control over financial reporting. If Makita’s management concludes that Makita’s internal control over financial reporting is not effective, or if Makita’s independent registered public accounting firm is not satisfied with Makita’s internal control over its financial reporting or the level at which its controls are documented, designed, operated or reviewed, and declines to attest to management’s assessment or issues a report that is qualified, there could be an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of Makita’s financial statements, which ultimately could negatively impact the market price of Makita’s ADRs and ordinary shares.

Item 4. Information on the Company

A. History and development of the Company

The Company traces its origin to an electrical repair workshop founded in Nagoya in 1915 and was incorporated under the Commercial Code of Japan on December 10, 1938 under the name of Makita Electric Works, Ltd. as a joint stock corporation. Under the presidency of Mr. Jujiro Goto, Makita commenced the manufacture of electric power tools in 1958 and, by 1969, had reached its present leading position in the Japanese market. In 1970, the Company decided to take advantage of the large potential for growth in overseas markets for its products and established its first subsidiary in the United States. Since then, Makita has expanded its export activity and has established other overseas subsidiaries. In April 1991, the Company changed its name from Makita Electric Works, Ltd. to Makita Corporation. In April 1995, Makita established a holding company in the United Kingdom to better coordinate the overall activities of its European subsidiaries. At present, Makita sells its products in over 150 countries around the world.

As part of its efforts to minimize trade friction, Makita started manufacturing operations in Canada, Brazil and the United States in 1980, 1981 and 1985 respectively. Makita established a manufacturing subsidiary in the United Kingdom in 1989. In January 1991, Makita acquired all of the shares of Sachs-Dolmar GmbH, a German company, subsequently renamed Dolmar GmbH (Dolmar), which is primarily engaged in manufacturing engine driven chain saws. Makita established two manufacturing subsidiaries in China, Makita (China) Co., Ltd. and Makita (Kunshan) Co., Ltd. in December 1993 and in November 2000 respectively.

In May 2005, Makita established a new subsidiary, Makita EU S.R.L. in Romania, as a location from which it can serve growing markets in Eastern Europe, Russia, Western Europe and the Middle East.

As a result, the number of consolidated subsidiaries is 45.

Makita presently manufactures power tools in eight countries globally: Japan, China, the United Kingdom, the United States, Germany, Brazil, Canada and Romania. During this fiscal year, Makita expanded production capacity of its China factory by constructing another new building. In addition, starting in April 2007, a new factory in Romania commenced productions which should have the effect of reducing foreign exchange risks, and de-concentrating, the current high production volume in China and to seek stable supply capacity for the growing European market. Makita financed these investments through internal sources.

On March 20, 2007, Makita announced that it would, through a tender offer and a series of subsequent procedures, acquire all of the issued and outstanding shares of Fuji Robin Industries Ltd., or Fuji Robin. By the close of the tender offer on May 15, 2007, Makita had acquired 10,279,375 shares of Fuji Robin at a price of ¥260 per share for an aggregate purchase price of approximately ¥2.7 billion, bringing its total shareholding in Fuji Robin to 11,579,375 shares, or 89.35%. On May 25, 2007, Makita entered into a share exchange agreement with Fuji Robin to acquire all of the remaining shares of Fuji Robin effective August 1, 2007, and Makita’s Board of Directors resolved to approve such share exchange. Under the terms of the share exchange agreement, Makita issued 0.059 shares of its common stock in return for each remaining Fuji Robin share. A total of 81,456 Makita shares held by Makita as treasury stock was delivered in connection with the share exchange. Following the effectiveness of the share exchange, Fuji Robin’s name was changed to Makita Numazu Corporation.

Fuji Robin’s principal activity is to manufacture engines, agricultural and forestry machinery, construction machinery and firefighting pumps. Fuji Robin also engages in the wholesale of these products and supplies. For the fiscal year ended March 31, 2007, Fuji Robin had net sales under Japanese GAAP of ¥11,138 million, operating income of ¥52 million, ordinary profit of ¥37 million and posted a net loss of ¥138 million. Makita’s purpose for acquiring Fuji Robin is to strengthen its lineup of gardening and engine-powered gardening tools.

Makita Corporation’s registered office is located at 3-11-8, Sumiyoshi-cho, Anjo, Aichi 446-8502, Japan, and its telephone number is +81-566-98-1711.

B. Business overview

Makita’s principal activity is the manufacturing and sale of a wide range of power tools for professional users worldwide. Makita’s power tools consist of drills, grinders and sanders and portable woodworking tools, primarily saws and planers. Makita also produces gardening and household products and provides parts, repairs and accessory. For the fiscal year ended March 31, 2007, approximately 83% of Makita’s sales were outside of Japan. Makita estimates that most of its sales worldwide were made to commercial and professional users such as those engaged in timber and metal processing, carpentry, and concrete and masonry works.

Makita focuses on creating user and environment-friendly products that enhance the work environment, and have features such as low vibration, low noise and dust concentration.

Products

The following table sets forth Makita’s consolidated net sales by product categories for the periods presented:

Effective FY 2007, the following changes were made to product group classifications.

Makita specializes in power tools manufacturing and sales, as a single line of business, and conducts its business globally. Until FY 2006, we classified our power tools into “Portable woodworking tools” and “Portable general purpose tools.” However, this classification based on the type of materials on which the power tools are used is no longer appropriate, due to the ongoing diversification of building materials, and the fact that “Portable woodworking tools” and “Portable general purpose tools” are increasingly becoming a single line of business. In addition, demand for “Stationary woodworking machines,” a product group classification used until FY 2006, is declining due mainly to changes in Japanese construction methods, contributing less than 1%, in terms of Makita’s net sales in and after FY 2006. For these reasons, “Portable woodworking tools,” “Portable general purpose tools,” and “Stationary woodworking machines” were recategorized as “Power tools,” effective FY 2007. In addition, the product group formerly classified as “Other products” was changed to “Gardening and Household Products” based on the mainstay products in that product category.

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

Power Tools

Power Tools consist mainly of drills, grinders and sanders, rotary hammers, hammer drills, demolition hammers and electric breakers, cordless impact drivers, circular saws, slide compound saws, and cutters.

Drills are typical power tools used for drilling in metals, woods and plastics. They are classified into pistol-grip drills, D-handle drills, spade-handle drills and angle drills, according to their configuration. Makita also manufactures various kinds of cordless drills. Some of them are equipped with a screwdriving mechanism and are called cordless driver drills.

Grinders and sanders are used for smoothing and finishing. Sanders may also be used for polishing. Grinders are used on metal and sanders are used on metal, wood, stone and concrete. Grinders are divided into portable disc grinders and bench grinders and sanders are classified into portable disc sanders and belt sanders.

Rotary hammers, which are used exclusively on concrete in the construction industry, are equipped with a rotary function, but can also be used as ordinary hammers. Hammer drills are equipped with a hammering function, but can also be used as conventional drills; these drills are used principally on metal and masonry in the civil engineering and electrical contracting industries. Demolition hammers and electric breakers are used for shattering hard surfaces, principally concrete. Makita believes it is making strong contributions, especially in Europe, to improving the working environment by combining Makita’s proprietary low vibration mechanisms with hammers, hammer drills, demolition hammers, and electric breakers to meet the strong demand for drilling holes in stone and concrete, and for other uses.

Cordless impact drivers are particularly in high demand across Japanese construction sites. In February 2005, Makita introduced cordless impact drivers powered by lithium-ion batteries instead of conventional nickel- metal-hydride batteries for the first time in the industry. Cordless impact drivers employing lithium-ion batteries are smaller and lighter, and batteries last much longer. Combined with Makita’s proprietary Optimum Charging System, this new product has been well received within Japan by professional users. The Optimal Charge System communicates with individual batteries, when charging, and recognizes the use history of each battery, and analyzes the condition, such as heating of a battery, over-discharging, or weakening through cycle age. This is Makita’s original technology, which can prolong the life of a battery through optimal and gradual charge carrying out “Active Current Control,” “Active Thermal Control”, and “Active Voltage Control” based the analysis result gathered at the time of charge. It marks a strong addition to our Japanese product line-up of new 14.4V cordless power tools powered by lithium-ion batteries including cordless circular saws, cordless angle grinders, cordless nailers, cordless four-mode impact drivers, cordless hammer drills, cordless percussion drills, and cordless recipro saws. Makita began offering cordless power tools powered by lithium-ion batteries in the United States through major home centers in the fall of 2005. In addition to 14.4V cordless power tools available in Japan and the United States, Makita offers 18V Combo kits of cordless drills, cordless percussion drills, cordless circular saws, and cordless lights for users in the United States demanding, more powerful tools. Makita is also rolling out its 18V cordless power tools powered by lithium–ion batteries across major European markets since the summer of 2006, amid a strong construction industry interest.

Circular saws, which are primarily sold to carpenters in the homebuilding industry, account for a substantial portion of Makita’s sales of saws. The balance of saw sales is made up of jigsaws, sold primarily to carpenters and other woodworkers for delicate work, and recipro saws used for working in confined spaces unsuitable for conventional saws.

Cutters and cutting machines have similar functions, although cutters are designed to be hand-held and cutting machines are

stationary. Cutters have a diamond cutting surface and are used on tile, brick, concrete and stone. Cutting machines have a carborundum cutting surface and are used principally on metal. Our angle cutters, used for precision wood cutting at construction sites, feature functions designed to meet precision carpentry needs in Japan.

Subsequent to taking over the operations of Kanematsu-NNK Corp. in January 2006, Makita has successfully introduced into the Japanese market its Red Series of high-pressure air nailer, which are as popular as cordless impact drivers used in housing construction, completing our mainstay product line-up.

Gardening and Household Products

Gardening household products consist mainly of chain saws, hand-held vacuum cleaners for home use, industrial vacuum cleaners, submersible pumps and garden tools, such as hedge trimmers. There is a strong need for dust collectors at construction sites because cutting, drilling and grinding work using power tools generates debris. Small, light and high-suction power cleaners offered to home users are increasingly popular. Makita also offers engine-equipped grass cutters, lawn mowers in addition to gardening tools for trimming tree fences and cutting grass. Makita expects that its acquisition of Fuji Robin will strengthen its lineup of gardening and engine-powered garden tools.

Makita manufactures and markets a variety of parts and accessories for its products and performs repair work as part of its after-sale services. In particular, Makita offers a variety of parts and accessories with respect to high-quality and durable professional power tools, and at the same time commits major management resources to enhancing post-sales services. Makita is working hard toward strengthening its parts supply system and three-day repair program, while developing a worldwide sales network. Makita is also working to strengthen its range of authentic Makita accessories such as saw blades, drill bits, and grinding wheels.

Principal Markets, Distribution and After-Sale Services

The following table sets forth Makita’s consolidated net sales by geographic area based on customers locations for the periods presented:

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

Japan

Makita believes that most of its domestic sales are made to commercial users. The Japanese Do-It-Yourself, or DIY, market for power tools is growing but the pace of growth is slow. Makita has maintained its leading position in the Japanese market to the close and frequent contact that it maintains with retailers and users of Makita products. While Makita’s major competitors rely primarily on wholesalers for all aspects of distribution and servicing, Makita has approximately 810 employees directly responsible for the promotion, sale and delivery and after-sale servicing of its products. These employees, operating from 113 sales offices throughout Japan, are assigned sales territories and visit retail outlets in their area on an average of once a week.

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

The majority of Makita’s products are sold through its 14 independent wholesalers. Each wholesaler bears the risk of any bad debts of the retailers for which, it has responsibility. The payments by the wholesalers to Makita are in most cases made within 30 to 60 days after sale. In FY 2007, Makita sold its products, directly or through wholesalers, to approximately 30,000 retail outlets, and no single retailer accounted for more than 2% of Makita’s domestic sales. In FY 2007, Makita’s three largest wholesalers accounted, in the aggregate, for approximately 35% of Makita’s domestic net sales.

Repairs, including free repair service and after-sale services are carried out by Makita’s sales offices.

To strengthen its business in Pneumatic Tools, Makita purchased the nailer business of Kanematsu NNK Corp in January 2006.

Overseas

In the fiscal year ended March 31, 2007, 83% of Makita’s net sales were made outside of Japan.

Overseas sales, distribution, and service are carried out through a network of 36 sales subsidiaries and 125 branch offices or service centers located in the United States, Canada, Brazil, Mexico, Argentina, Chile, Australia, New Zealand, Singapore, Taiwan, China, Korea, the United Kingdom, France, The Netherlands, Belgium, Italy, Greece, Germany, Denmark, Austria, Poland, the Czech Republic, Hungary, Spain, the United Arab Emirates, Romania, Switzerland, Finland, Russia, Ukraine and Slovakia. In addition, the Company exports directly, as well as through trading companies, to various countries throughout the world. Makita products are sold principally under the “Makita” brand name and the remaining products are sold under the “Dolmar” or “Maktec” brand names.

Makita offers warranties to overseas customers. After-sale services and repairs overseas are provided by local sales subsidiaries, service depots designated by Makita, or by service stores designated by the applicable local importers. As of March 31, 2007, Makita had over 100 service depots outside of Japan. As of the fiscal year ended March 31, 2007, 28 of these service depots were located in the United States and 22 of these service depots were located in China. The labor costs of service and repairs to products under warranty for overseas customers are borne by Makita and the local service agents, and parts are provided by Makita.

Seasonality

Makita’s business has no significant seasonality that affects sales or profits.

Competition

Both in Japan and overseas, the markets in which Makita sells its products are highly competitive. Makita believes that competition in the portable electric power tool market is based on price, product reliability, design and after-sale services and that its products are generally competitive as to price and enjoy competitive advantage due to their reputation for quality, product reliability and after-sale services. Makita is the largest manufacturer of portable electric power tools in Japan and, together with one other Japanese competitor, accounts for a substantial majority of the total sales of such products in Japan.

In overseas markets, Makita competes with a number of manufacturers, some of which are well established in their respective local markets as well as internationally. In recent years, in the U.S. power tool industry, some leading home centers have introduced their own brands of power tools for professionals, and a high level of M&A activity is in progress within the power tool industry. Moreover, in the Japanese market, U.S. and Japanese companies are forming business alliances, and

competition is becoming more intense within a saturated market. Makita has also experienced increasing competition, particularly in countries with lower purchasing power, from China-based power tool manufacturers who often offer lower-priced products.

Raw Materials and Sources of Supply

Makita purchases raw materials and parts to manufacture its products. The principal raw materials and parts purchased by Makita include plastics, pressed steel plates, aluminum castings, copper wires, switches, gears, blades, batteries, and bearings. The Company procures most of its raw materials from multiple sources, although most parts are obtained from single suppliers. The procurement cost of aluminum, copper, and certain other raw materials is affected by fluctuations in international commodity markets, and these material prices appreciated during fiscal 2007.

Makita’s purchases of raw materials and parts in the fiscal year ended March 31, 2007, amounted to ¥ 131,415 million. Raw materials and parts are purchased from approximately 250 suppliers in Japan and a number of local suppliers in each country in which Makita performs manufacturing operations, with the largest single source accounting for approximately 6% of Makita’s total purchases of raw materials and parts.

Makita also purchases from outside sources finished products such as vacuum cleaners, electric generators, petrol brushcutter, and laser level.

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

Government Regulations

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

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

Intellectual Property Rights

As of March 31, 2007, Makita owned 432 patents and 24 utility model registrations in Japan and 477 patents and 105 utility model registration outside Japan. A utility model registration is a right granted under Japanese law to inventions having a practical utility in terms of form, composition or assembly, but embodying less originality than that required for patents. As of March 31, 2007, Makita had made 555 applications for additional patents and utility model registrations in Japan as well as 374 patent applications outside Japan. While Makita considers all of its intellectual property to be important, it does not consider any one or group of patents, trademarks or utility model registrations to be so significant that their expiration or termination would materially affect Makita’s business.

Legal Proceedings

Makita has various legal actions and other claims pending against it. Based on information currently available to Makita, Makita believes that its losses from these matters, if any, would not have a material adverse effect on Makita’s financial position, operating results or cash flows.

C. Organizational structure

As of March 31, 2007, the Makita Group consisted of 45 consolidated subsidiaries. Makita Corporation (“the Company”) is the parent company of the Makita Group. The Company heads the development of products. Domestic sales are made by the Company and overseas sales are made almost entirely through sales subsidiaries and wholesalers. The following is a list of significant subsidiaries of the Makita Group.

				Proportion of
		Country of		Ownership and
Company Name		Incorporation		Voting Interest
Makita U.S.A., Inc.		U.S.A			100.0	%
Makita Corporation of America		U.S.A			100.0
Makita Canada Inc.		Canada			100.0
Makita International Europe Ltd.		U.K.			100.0
Makita (U.K.) Ltd.		U.K.			100.0
Makita Manufacturing Europe Ltd.		U.K.			100.0
Makita France S.A.		France			55.0
Makita Benelux B.V.		The Netherlands			100.0
S.A. Makita N.V.		Belgium			100.0
Makita S.p.A.		Italy			100.0
Makita Werkzeug GmbH		Germany			100.0
Dolmar GmbH		Germany			100.0
Makita Werkzeug Gesellschaft m.b.H.		Austria			100.0
Makita Sp. z o. o.		Poland			100.0
Makita SA		Switzerland			100.0
Makita Oy		Finland			100.0
Makita (China) Co., Ltd.		China			100.0
Makita (Kunshan) Co., Ltd.		China			100.0
Makita (Australia) Pty. Ltd.		Australia			100.0
Makita Gulf FZE		U.A.E.			100.0

D. Property, plant and equipment

The following table sets forth information relating to Makita’s principal production facilities as of March 31, 2007.

		Floor space
Location		(Square meters)				Principal products manufactured
In Japan;
Makita Corporation
Okazaki Plants			111,989			Electric power tools, etc.
Makita Ichinomiya Corporation			5,387			Stationary woodworking machines
Overseas;
Makita Corporation of America			24,053			Electric power tools, etc.
Makita (China) Co., Ltd.			50,512			Electric power tools, etc.
Makita (Kunshan) Co., Ltd.			17,969			Electric power tools, etc.
Makita Manufacturing Europe Ltd.			11,520			Electric power tools, etc.
Dolmar GmbH			17,747			Engine powered equipment
Makita EU S.R.L			6,975			Electric power tools, etc.. (Commencement of production: April 2007)

In addition, the Company owns an aggregate of 154,541square meters of floor space occupied by the head office, warehouse facilities, a training center, dormitories and sales offices.

Makita’s overseas manufacturing operations are conducted in the United States, Canada, Brazil, United Kingdom, Germany and China. All buildings and land in these countries, except for land in China, are owned by Makita.

None of the buildings or land that Makita owns in Japan is subject to any mortgage or lien. Makita leases 88 sales offices in Japan and all of its overseas sales offices and premises, except for the following locations, are owned by the respective subsidiary companies;

	•		Head office and certain branch offices of Makita U.S.A., Makita Canada, and Makita Australia; and Head office of Makita Germany, Makita France, Makita Benelux (The Netherlands), Makita Belgium,
	•		Makita Italy, Makita Brazil, Makita Taiwan, and Makita Singapore.

Makita considers all of its principal manufacturing facilities and other significant properties to be in good condition and adequate to meet the needs of its operations. Makita adjusts production capacity based on its assessment of markets demands and prospects for demands, according to market conditions and Makita’s business objectives, by opening, closing, expanding or downsizing manufacturing facilities or by increasing or decreasing output from the facilities accordingly. Makita, therefore, believes that it is difficult and would require unreasonable effort to determine the exact productive capacity and the extent of utilization of each of its manufacturing facilities with a reasonable degree of accuracy. Makita, however, believes that its manufacturing facilities are currently operating at a normal capacity of production facility.

During FY 2007, construction is underway to rebuild our Okazaki Plant, and the R&D and office complexes at Makita’s head office in Japan, to meet earthquake resistance standards. This reconstruction work is being done to enhance resistance to seismic activities, and represents no significant change in production capacity. Earthquake resistance rebuilding work at the R&D and office complexes at the head office is scheduled to be completed by January 2008.

Makita believes that there are no material environmental issues that may affect Makita’s current use of its assets.

Item 4A. Unresolved Staff Comments

None

Item 5. Operating and Financial Review and Prospects

A. Operating results

The following table sets forth a summary of Makita’s operations results for each of the years ended March 31, 2005, 2006 and 2007.

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

General Overview

Economic conditions in fiscal 2007 were as follows. In addition to the high growth achieved in the Eastern Europe and Russian economies, both capital investment and consumer spending were brisk in Western Europe, and yet business conditions extended their recovery trend. While there were signs of weakening in the U.S. housing market, the decline in the price of oil from earlier highs supported consumer spending and other aspects of domestic demand. Further, business conditions in Asia tended to be favorable, led by China’s economic performance. Meanwhile in Japan, investment in plants and equipment rose, and the job market improved, on the strength of improved corporate earnings, and overall conditions exhibited moderate growth.

The principal business of Makita is the manufacture and sale of power tools. Principal products include drills, rotary hammers, hammer drills, demolition hammers, grinders and cordless impact drivers. Makita has eleven manufacturing centers, three located in Japan, two in China and one each in the United States, Canada, Brazil, the United Kingdom, Germany, and Romania.

Makita focused its product development efforts on meeting marketplace needs, creating new lithium ion battery products, and expanding its lineup of high-pressure pneumatic tools. In the production area, Makita expanded capacity in China by constructing another factory building, and started the production in April 2007 at the factory the Company has built in Romania, whereby Makita can reduce its exposure to foreign exchange risks and the danger of concentrating too much production in China, while establishing a stable supply capacity for the growing European market. On the sales side, the Company built a base for operations in Estonia where the market is growing, and made other efforts to further strengthen its global sales and after-service capabilities.

On a consolidated basis, Makita’s net sales in fiscal 2007 amounted to ¥279,933 million, up 22.2% from the previous fiscal year. This is Makita’s third consecutive term of record-high results. In fiscal 2006, the Company recorded a gain of ¥8,479 million from the sale of its golf course, and a benefit of ¥5,238 million from the decrease in valuation allowance on a deferred income tax asset. In fiscal 2007, Makita’s subsidiary in the U.S. recorded a benefit of ¥1,704 million from the decrease in valuation allowance on a deferred income tax asset. Accordingly, year-on-year operating income climbed by 5.2%, to ¥48,176 million and net income amounted to ¥36,971 million, 8.5% lower than the previous fiscal year.

On May 15, 2007 Makita acquired 79.32% of the outstanding shares of Fuji Robin, a manufacturer of agricultural and forestry machinery, engines and firefighting pumps that also engages in the wholesale of similar products and supplies, through a tender offer for an aggregate purchase price of approximately ¥2.7 billion, bringing its total shareholding in Fuji Robin to 89.35%. Makita acquired the remaining shares of Fuji Robin through a share exchange, which became effective August 1, 2007. A total of 81,456 Makita shares held by Makita as treasury stock was delivered in connection with the share exchange. For the fiscal year ended March 31, 2007, Fuji Robin had net sales under Japanese GAAP of ¥11,138 million, operating income of ¥52 million, ordinary profit of ¥37 million and posted a net loss of ¥138 million. Makita’s purpose for acquiring Fuji Robin is to strengthen its lineup of gardening and engine-powered gardening tools. Makita does not expect the acquisition of Fuji Robin will have a material impact on its result of operations for the next fiscal year.

Fiscal Year 2007 compared to FY 2006

Net sales

Makita’s consolidated net sales for the fiscal year ended March 31, 2007(“FY 2007”) amounted to ¥279,933 million, an increase of 22.2%, or ¥50,858 million, from the fiscal year ended March 31, 2006(“FY 2006”). In FY 2007, the average yen-dollar exchange rate was ¥116.97 for $1.00, representing a 3.2% depreciation of the yen compared with that in FY 2006. The average level of the yen-euro exchange rate in FY 2007 was ¥150.02 for 1.00 euro, representing an 8.8% depreciation of the yen compared with that in FY 2006. Excluding the effect of currency fluctuations, consolidated net sales would have increased by 16.0% in FY 2007.

While Makita’s consolidated net sales increased by 22.2% in FY 2007, the overall number of units of products sold also increased in FY 2007. Excluding the effect of the decrease in prices of products and the currency fluctuations, Makita’s consolidated net sales would have increased by 14.5%, or ¥ 33,311 million. The significant increase in the quantity of goods sold in FY 2007 primarily reflected strong sales of Makita’s power tools, such as drills, grinders and rotary hammers, hammer drills. In Europe, competitiveness has improved due to the strength of euro against the yen. Further, demand for the rotary hammer in Europe has been strong. In North America, sales increased in part due to the sales of lithium ion battery products.

The average price of Makita’s products declined in FY 2007, and excluding the effect of the increase in the number of units sold, the price cutting would have decreased Makita’s net sales by 0.6%, or ¥ 1,347 million.

Sales of new products comprised 10.4% of consolidated net sales of Makita in FY 2007, or ¥29,209 million.

In terms of product type, there was an increase in the sales of power tools by 23.1% or ¥39,518 million, Gardening and household products increased by 20.0% or ¥4,689 million and income from parts, repairs and accessories increased by 19.4% or ¥ 6,651 million. In particular, sales of drills, grinders, rotary hammers and cordless impact drivers increased.

Sales by region

The increase in consolidated net sales in FY 2007 can be attributed to an increase in sales in Japan by 12.6%, or ¥5,260 million, to ¥46,860 million, an increase in sales in Europe by 37.0%, or ¥33,516 million, to ¥124,020 million and, an increase in sales in North America, by 8.0%, or ¥3,799 million, to ¥51,472 million, increased sales in Asia (excluding Japan) by 14.6%, or ¥2,476 million, to ¥19,469 million and an increase in sales in other regions including Australia, Latin America and Middle East by 18.0% or ¥5,807 million, to ¥38,112 million.

The increased sales in Japan in FY 2007 primarily reflected strong sales of lithium ion battery based impact drivers. In addition, the automatic nailer business acquired from Kanematsu-NNK Corp in January 2006, contributed to the increased sales in Japan.

The increased sales in Europe in FY 2007 primarily reflected the appreciation of the euro against the yen in addition to higher building demand in construction due to an unusual warm winter. Net sales in yen terms increased in Russia and Eastern Europe by 63.6%, in the United Kingdom by 27.0%, in Germany by 38.4% and in France by 30.3% compared to FY 2006. In addition, the introduction of new products, particularly lithium ion battery products contributed to the increase of sales in Europe. Excluding the effect of fluctuations of the local currencies, net sales in Europe would have increased by 26.0%, or ¥23,493 million in FY 2007.

The increased sales in North America in FY 2007 primarily reflected strong sales of lithium ion battery products despite the decline of new housing starts. Excluding the effect of fluctuations of the local currencies, net sales in North America would have increased by 3.7%, or ¥1,786 million in FY 2007, compared with FY 2006.

The increased sales in Asia excluding Japan in FY 2007 primarily reflected the increased sales in Singapore and Indonesia, particularly with respect to power tools, such as grinders, hammer drills and rotary hammers. Excluding the effect of fluctuations of the local currencies, net sales in Asia would have increased by 11.4%, or ¥1,937 million in FY 2007.

The increased sales in Other regions including Australia, Latin America and the Middle East in FY 2007 were primarily due to an increased number of units sold, particularly with respect to power tools such as grinders, hammer drills and rotary hammers sold. In FY 2007 Makita saw success in its sales efforts to new markets in the Middle East and Africa. The introduction of new products also contributed to the increase of sales in Other regions, in particular, grinders. Excluding the effect of fluctuations of the local currencies, other net sales would have increased by 13.0%, or ¥4,203 million in FY 2007.

Review of Performance by Product Group

Power Tools
Power Tools group offers a wide range of dependable drills, rotary hammers, hammer drills, demolition hammers, grinders, cordless impact driver and sanders. This group generates the largest portion of Makita’s consolidated net sales. In FY 2007, sales of power tools grew by 23.1%, to ¥210,894 million, accounting for 75.3% of consolidated net sales. In Japan, sales of power tools increased by 7.2%, to ¥25,268 million, accounting for 53.9% of total domestic sales. Overseas sales of power tools increased by 25.6%, to ¥185,626 million, or 79.6% of total overseas sales.

Gardening and Household Products
Principal products in Makita’s Gardening and household products group include chain saws, petrol brushcutter, vacuum cleaners and cordless cleaners. In FY 2007, Makita recorded a 20.0% increase in sales of Gardening and household products, to ¥28,123 million, or 10.0% of consolidated net sales. Domestic sales of Gardening and household products increased by 8.5%, to ¥9,079 million, accounting for 19.4% of total domestic sales. Makita recorded a 26.4% increase in overseas sales of Gardening and household products, to ¥19,044 million, which accounted for 8.2% of total overseas sales in FY 2007.

Parts, Repairs and Accessories
Makita’s after-sales services include the sales of parts, repairs and accessories. In FY 2007, parts, repairs and accessories sales increased by 19.4%, to ¥40,916 million, accounting for 14.7% of consolidated net sales. Domestic sales of parts, repairs, and accessories increased by 29.4% to ¥12,513 million accounted for 26.7% of total domestic sales. Overseas sales of parts, repairs, and accessories grew by 15.5%, to ¥28,403 million, accounting for 12.2% of total overseas sales.

Cost of Sales
Cost of sales increased by 23.3% (¥31,012 million) from FY 2006 to ¥163,909 million. The sales cost ratio increased by 0.6 points from 58.0% in FY 2006 to 58.6% as a result of the rise in materials costs and depreciation expenses.

Gross Profit
Gross profit on sales increased by 20.6% (¥19,846 million) to ¥116,024 million. Gross profit margin fell by 0.6 points from 42.0% in FY 2006 to 41.4%, due to increasing cost of sales. The increasing cost of sales was primarily a result of rising raw material costs, which were subject to price fluctuation in the global market, partially offset by the positive effect of the weak yen.

Selling, General and Administrative Expenses
Selling, general and administrative expenses for FY 2007 increased by 13.8% (¥8,076 million) from FY 2006 to ¥66,802 million. The main causes were increased personnel costs due to an increase in the number of employees, a rise in shipping costs due to increased sales, and increased advertising costs due to activities of sales promotion in overseas subsidiaries. Further, the decline of yen caused the yen conversion rate of selling expenses and administrative expenses of overseas subsidiaries to rise. Selling, general and administrative expenses excluding the effects of the low yen rose 8.7%.

On the other hand, the ratio of selling, general and administrative expenses to sales fell by 1.7 points from 25.6% to 23.9%, due to increased sales.

Losses (Gains) on disposal or sales of property, plant and equipment
In FY 2007, the expenses for demolishing some of the Company’s headquarters buildings are recorded as loss on disposal of property, plant and equipment. Additionally, land and buildings selling with the review of American subsidiary’s sales office are recorded as gain on disposal of property, plant and equipment. Accordingly, Makita recognized net gains on disposal or sales of property, plant and equipment of ¥249 million, a 97% decrease from ¥8,326 in FY 2006. The main reason for the decrease from FY 2006 was a gain from the sale of the golf course of the Joyama Kaihatsu Ltd. subsidiary.

Impairment of Long lived assets
In FY 2007, the Company decided to transfer the manufacturing business (stationary woodworking machines) of its consolidated subsidiary, Makita Ichinomiya Corporation to Makita’s Okazaki plant in order to streamline the production function in Japan no later than December 2007. As a result of this decision, the Company performed an impairment assessment pursuant to the provisions of SFAS No. 144 and estimated the carrying amounts would not be recovered by the future cash flows. Consequently, the Company recorded an impairment charge totaling ¥1,295 million to reflect the estimated fair value of the assets.

Operating Income
As a result of the above, operating income for FY 2007 increased by 5.2% to ¥48,176 million. Operating income margin decreased by 2.8points, from 20.0% in FY 2006 to 17.2% in FY 2007.

Other Income (Expenses)
In FY 2007, Other income was ¥1,147 million, a 65.9% decrease from FY 2006. The reasons for the decrease were as follows:

(1) Realized gains on securities decreased by ¥2,000 million to¥918 million due to the gain on securities, net, in the amount of ¥2,528 million resulting from the merger of UFJ Holdings Co., Ltd., and Mitsubishi Tokyo Financial Group Co., Ltd., in FY 2006 that did not reoccur in FY 2007.

(2) The amount of foreign exchange losses increased by ¥160 million, to ¥418 million in FY 2007 due to foreign exchange losses in China caused by the appreciation of yuan against the U.S. dollar.

Income before income taxes

Income before income taxes for FY 2007 increased by 0.4% (¥180 million) as compared with the previous fiscal year to ¥49,323 million, while the ratio of income before income taxes to sales for current year decreased by 3.9 points, from 21.5% in FY 2006 to 17.6% in FY 2007.

Provision for income taxes
Provision for income taxes for FY 2007 amounted to ¥12,352 million, an increase of 41.5% (¥3,620 million) as compared with the previous year due mainly to an increase in taxable income of Makita. In FY 2007, Makita reversed the valuation allowance on deferred tax assets in the amount of ¥2,701 million related to certain subsidiaries based on both improved performance in recent years and a steady outlook for the future performance of these subsidiaries, and thus the valuation allowance decreased by ¥2,655 million, including the effect of translation. However, in FY 2006, the valuation allowance of ¥5,782 million was reversed related to the sale of the golf course. As a result, the effective tax rate for FY 2007 was 25.0%, a 7.2% increase from 17.8% for FY 2006, due mainly to the above mentioned decrease in the reversal of the valuation allowance.

Net income

Primarily, as a result of a gain of ¥8,479 million from the sale of the golf course in FY 2006, net income for FY 2007 fell by ¥3,440 million to ¥36,971 million, which is an 8.5% decrease from the previous fiscal year.

Earnings per share
Basic earnings per share of common stock amounted to ¥257.3, compared with ¥281.1 in FY 2006. Diluted earnings per share amounted to ¥257.3, compared with ¥281.1 in FY 2006.

Regional Segments
Segment information described below is based on the location of the Company and its relevant subsidiaries.

Japan Segment
In FY 2007, sales in the Japan segment grew by 12.7%, to ¥125,816 million. Sales to external customers increased by 14.9% to ¥61,776 million, which accounted for 22.1% of consolidated net sales. The increase reflects a 12.6% rise in sales in the domestic market as well as a 22.4% increase in export sales mainly to Asia. Even though segment operation expenses increased by 23.9%, to ¥108,403 million, operating income decreased by 27.9%, to ¥17,413 million in FY 2007. This was attributable to the ¥8,479 million gain on the sale of the golf course in FY 2006 and increase of depreciation cost in FY 2007.

Europe Segment
In FY 2007, sales in the Europe segment grew by 33.9% to ¥130,633 million. Sales to external customers increased by 36.9%, to ¥124,924 million, which accounted for 44.6% of consolidated net sales. This increase is mainly due to strong sales of the rotary hammer, and the high growth achieved in the Eastern Europe and Russian economies, both investment in plant and equipment, and consumer spending were brisk in Western Europe. Segment operating income increased by 49.8%, to ¥18,056 million.

North America Segment
In FY 2007, sales in the North America segment climbed by 8.5%, to ¥56,729 million. Sales to external customers increased by 7.2% to ¥51,432 million, which accounted for 18.4% of consolidated net sales. This increase in sales to external customers was mainly due to better sales of lithium ion battery products. As a result, operating income for FY 2007 increased by 34.8%, to ¥2,512 million.

Asia Segment (excluding Japan)
In FY 2007, sales in the Asia segment increased by 45.8% to ¥76,719 million. The increase in sales in this segment is primarily due to higher sales in inter-segment from two factories in China to Europe. Sales to external customers increased by 12.2%, to ¥9,698 million, which accounted for 3.5% of consolidated net sales. This increase is primarily due to an increase in sales in Singapore. Segment operating income grew by 53.3%, to ¥9,904 million in FY 2007.

Other Segment
In FY 2007, sales in the Other segment increased by 16.9% to ¥32,252 million. Sales to external customers increased by 17.1%, to ¥32,103 million, which accounted for 11.4% of consolidated net sales. Sales increase in this segment is primarily due to an increase in sales in Latin America and Middle East. Segment operating income grew by 36.1%, to ¥3,466 million, in FY 2007. The reason for this increase is mainly improved cost of sales in Latin America.

Fiscal Year 2006 Compared to FY 2005

Net sales
Makita’s consolidated net sales for the fiscal year ended March 31, 2006 amounted to ¥229,075 million, an increase of 17.6%, or ¥ 34,338 million, from the fiscal year ended March 31, 2005 (“FY 2005”). In FY 2006, the average yen-dollar exchange rate was ¥113.3 for $1.00, representing a 5.4% depreciation of the yen compared with the average level in FY 2005. The average level of the yen-euro exchange rate in FY 2006 was ¥137.8 for 1.00 euro, representing a 2.0% depreciation of the yen compared with the average level in FY 2005. Excluding the effect of currency fluctuations, consolidated net sales would have increased by 13.4% in FY 2006.

While Makita’s consolidated net sales increased by 17.6% in FY 2006, the overall number of units of products sold also increased in FY 2006. Excluding the effect of the decrease in prices of products and the currency fluctuations, Makita’s consolidated net sales would have increased by 14.0%, or ¥ 27,276 million. The significant increase in the quantity of goods sold in FY 2006 primarily reflected strong sales of Makita’s power tools, such as grinders, rotary hammers and hammer drills. In Europe, competitiveness has improved due to the strength of euro against the yen. Further, demand for the rotary hammer in Europe has been strong. In North America, the sales has increased in part due to the introduction of lithium ion battery products, which were introduced as a major sales item to major hardware retailers during the Christmas sales season.

The average price of Makita’s products declined in FY 2006, and excluding the effect of the increase in the number of units sold, the drop of prices would have decreased Makita’s net sales by 1.9%, or ¥ 3,704 million.

Sales of new products comprised 15.9% of consolidated net sales of Makita in FY 2006, or ¥ 36,378 million. Among others, a new series of rechargeable products combining lithium ion batteries with the Company’s proprietary optimum charging system and new products such as rotary hammers featuring newly developed low-vibration designs, were introduced during FY 2006 and contributed to the increase in Makita’s net sales in FY 2006. In North America in particular, the line of tools with rechargeable lithium battery was popular at major hardware retailers. The distinctive designs as well as the ability to develop new products quickly to match the changing needs of the market contributed to the popularity of these products. In Japan, due to the increasing demand for renovation-related products in the market, among the line of tools with rechargeable lithium ion battery, the sales of impact drivers and circular saws have been strong.

In terms of product type, there was an increase in the sales of power tools by 20.3% or ¥28,899 million, Gardening and household products increased by 11.1% or ¥2,332 million and income from parts, repairs and accessories increased by 10.0% or ¥ 3,107 million. In particular, sales of cordless impact drivers, circular saws and rotary hammers increased.

Sales by region
The increase in consolidated net sales in FY 2006 can be attributed to an increase in sales in Japan by 5.6%, or ¥2,221 million, to ¥41,600 million, an increase in sales in North America, by 23.9%, or ¥9,183 million, to ¥47,673 million, an increase in sales in Europe by 20.3%, or ¥15,241 million, to ¥90,504 million and, to a lesser extent, increased sales in Asia (excluding Japan) by 4.0%, or ¥652 million, to ¥16,993 million and an increase in sales in other regions including Australia, Latin America and the Middle East by 27.9% or ¥7,041 million, to ¥32,305 million.

The increased sales in Japan in FY 2006 primarily reflected the increased number of units sold with respect to its power tools such as lithium ion battery based impact drivers and circular saws, partially offset by the decline in the number of units sold in stationary woodworking machines. In addition, the automatic nailer business acquired from Kanematsu-NNK Corp. contributed to the increased sales in Japan.

The increased sales in North America in FY 2006 primarily reflected strong sales of lithium ion battery based products to major home centers in North America. Excluding the effect of fluctuations of the local currencies, net sales in North America would have increased by 16.4%, or ¥6,325 million in FY 2006, compared with FY 2005.

The increased sales in Europe in FY 2006 primarily reflected the appreciation of the euro against the yen. Net sales in yen terms increased in Russia and Eastern Europe by 34.6%, in the United Kingdom by 10.4%, in Germany by 18.4% and in France by 24.0% compared to FY 2005. Among others, Makita’s products such as drills and rotary hammers were particularly popular in countries such as Germany and the United Kingdom, partly reflecting the lower sales price resulting from the strength of the euro. Drills and rotary hammers increased by 17.5% and 22.8% respectively. In addition, the introduction of new products, particularly drills and rotary hammers contributed to the increase of sales in Europe. Excluding the effect of fluctuations of the local currencies, net sales in Europe would have increased by 17.2%, or ¥12,920 million in FY 2006.

The increased sales in Asia (excluding Japan) in FY 2006 primarily reflected the increased sales in China and Taiwan, particularly with respect to power tools, such as grinders and hammer drills. Net sales in yen terms increased in China by 18.8% over amounts recorded in FY 2005. The establishment of six branch stores and 15 direct sales service centers in China greatly improved the after-sales service and was a factor, contributing to the increase of sales in China. . Excluding the effect of fluctuations of the local currencies, net sales in Asia excluding Japan would have increased by 0.6%, or ¥98 million in FY 2006.

The increased sales in other regions including Australia, Latin America and the Middle East in FY 2006 were primarily due to an increased number of units sold in Other regions, particularly with respect to power tools such as grinders, impact drivers and rotary hammers sold. In FY 2006 Makita saw success in its sales efforts to new markets in the Middle East and Africa. The introduction of new products also contributed to the increase of sales in Other regions, in particular rotary hammers. The increased number of products sold in other regions was partially offset by the decreased price per product resulting from the reduced cost of production, especially in grinders. Overall, net sales of grinders increased by 33.0% from FY 2005. Excluding the effect of fluctuations of the local currencies, other net sales would have increased by 17.7%, or ¥4,471 million in FY 2006.

Review of Performance by Product Group

Power Tools
In FY 2006, sales of power tools grew by 20.3%, to ¥171,376 million, accounting for 74.8% of consolidated net sales. In Japan, sales of power tools increased by 8.5%, to ¥23,564 million, accounting for 56.7% of total domestic sales. Overseas sales of power tools increased by 22.4%, to ¥147,812 million, or 78.8% of total overseas sales.

Gardening and household products

In FY 2006, Makita recorded a 11.1% increase in sales of Gardening and household products, to ¥23,434 million, or 10.2% of consolidated net sales. Domestic sales of Gardening and household products decreased by 1.3%, to ¥8,365 million, accounting for 20.1% of total domestic sales. Makita recorded a 19.3% increase in overseas sales of Gardening and household products, to ¥15,069 million, which accounted for 8.0% of total overseas sales in FY 2006.

Parts, Repairs and Accessories

In FY 2006, parts, repairs, and accessories sales increased by 10.0%, to ¥34,265 million, accounting for 15.0% of consolidated net sales. Domestic sales of parts, repairs, and accessories increased by 5.3% to ¥9,671 million accounted for

23.2% of total domestic sales. Overseas sales of parts, repairs, and accessories rose by 11.9%, to ¥24,594 million, accounting for 13.2% of total overseas sales.

Cost of Sales
Cost of sales increased by 17.3% (¥19,574 million) from FY2005 to ¥132,897 million. In terms of overseas sales, despite the rise in materials costs, the sales cost ratio improved slightly from 58.2% in FY2005 to 58.0% as a result of sales increase after yen conversion, reflecting the declining yen against the euro and the U.S. dollar.

Gross Profit
Gross profit on sales increased by 18.1% (¥14,764 million) to ¥96,178 million. Gross profit margin improved by 0.2 points from 41.8% in FY2005 to 42.0%, due to the weak yen and sales of high value-added products.

Selling, General and Administrative Expenses
Selling, general and administrative expenses for FY 2006 increased by 11.5% (¥6,080 million) from FY2005 to ¥58,726 million. The main causes were increased personnel costs due to an increase in the number of employees, a rise in shipping costs due to increased sales and the sharp increase in the price of crude oil, and increased advertising costs due to a sponsorship contract in North America. Further, the decline of yen caused the yen conversion rate of selling expenses and administrative expenses of overseas subsidiaries to rise. Selling, general and administrative expenses excluding the effects of the low yen rose by 9.7%.

On the other hand, the ratio of selling, general and administrative expenses to sales fell by 1.5 points from 27.1% to 25.6%, due to increased sales.

Losses (Gains) on disposal or sales of property, plant and equipment
In FY 2004, Joyama Kaihatsu Ltd., the company’s subsidiary that owned a golf course, wrote down the value of the golf course to its fair value, thereby recording ¥5,996 million in impairment losses. On April 11, 2005, the Nagoya District Court approved the civil rehabilitation plan for Joyama Kaihatsu Ltd. and such plan was affirmed on May 7, 2005. On May 31, 2005, Makita transferred its ownership interest in Joyama Kaihatsu Ltd., including the golf course property, to a third party. As a result, in FY 2006, a gain of ¥8,479 million from the sale of the golf course was recognized, which included the release from its obligation for club membership of ¥ 6,461 million. In addition, the Company and certain subsidiaries recognized losses on disposal or sales of property, plant and equipment of ¥153 million. Accordingly, Makita recognized net gains on disposal or sales of property, plant and equipment of ¥8,326.

Transfer to the government of a substitutional portion of pension plan
A substitutional portion of pension plan was transferred to the Japanese government on June 28, 2004. As a result, the Company recognized a subsidy from the government equal to the difference between the fair value of the obligation deemed “settled” with the government and the assets required to be transferred to the government in the amount of ¥9,128 million in FY 2005. In addition, the Company recognized a settlement loss equal to the amount calculated as the ratio of the obligation settled to the total employee’s pension fund obligation immediately prior to settlement, both of which excluded the effect of future salary progression relating to the substitutional portion, times the net unrecognized gain/loss immediately prior settlement, which amounted to ¥4,687 million. The resulting net gain of ¥4,441 million was recorded in FY 2005.

As a result of the above, operating income for FY 2006 increased by 45.8% to ¥45,778 million.

Operating income margin improved by 3.9 points, from 16.1% in FY 2005 to 20.0% in FY 2006.

Other Income (Expenses)
In FY 2006, Other income was ¥3,365 million, a 175.8% increase from FY 2005.

The reasons for the increase were as follows:

(1) Realized gains on securities increased by ¥2,465 million to ¥2,918 million. As of October 1, 2005, UFJ Holdings Co., Ltd., and Mitsubishi Tokyo Financial Group Co., Ltd., merged. The shares of UFJ Holdings that the Company owned were exchanged for shares of the newly merged entity, Mitsubishi UFJ Financial Group Co., Ltd. As a result of this share exchange, the Company realized a gain on securities, net in the amount of ¥2,528 million.

(2) Interest expenses decreased by ¥224 million to ¥364 million. Interest expenses was reduced by ¥195 million due to the redemption of the Company’s 1.5% annual interest yen-based convertible bonds in the amount of ¥12,992 million in March 2005.

(3) Interest and dividend income increased by ¥144 million to ¥1,301 million. The main factor in the increase in interest and dividends income in FY 2006 was the increase of dividends from certain investments in trusts due to the recovery in Japanese stock market.

(4) The amount of foreign exchange gains and losses fell by ¥295 million, from a gain of ¥37 million in FY 2005 to a loss of ¥258 million in FY 2006 due to exchange losses in China caused by the devaluation of yuan against the U.S. dollar.

Income before income taxes

Income before income taxes for FY 2006 increased by 50.7% (¥16,525 million) as compared with the previous fiscal year to ¥49,143 million, while the ratio of income before income taxes to sales for current year increased from 16.7% in FY 2005 to 21.5% in FY 2006, an increase of 4.8%.

Provision for income taxes
Provision for income taxes for FY 2006 was reduced by 16.7% as compared with the previous year primarily due to the realization of a tax benefit on impairment losses related to Makita’s golf course.

In 2006, following the completion of the civil rehabilitation proceedings and the sale of the golf course, previously unrecognized deferred tax asset were realized in connection with the gain on sale of golf course and the related valuation allowance of ¥ 5,782 million was reversed. Makita also provided valuation allowance of ¥ 402 million for 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 FY 2006 was a decrease of ¥5,238 million, resulting in a reduction of income tax expense. This decrease in valuation allowance had the effect decreasing Makita’s effective tax rate by 14.3% to 17.8% from 32.1% for FY2005.

Net income
As a result of a gain of ¥8,479 million from the sale of the golf course, which included the gain of release from its obligation for club membership of ¥ 6,461 million and other factors, net income for FY 2006 rose by ¥18,275 million to ¥40,411 million, which is an 82.6% increase from the previous fiscal year.

Earnings per share
Basic earnings per share of common stock amounted to ¥281.1, compared with ¥153.9 in FY 2005. Diluted earnings per share amounted to ¥281.1, compared with ¥148.8 in FY 2005.

Regional Segments
Segment information described below is determined by the location of the Company and its relevant subsidiaries.

Japan Segment
In FY 2006, sales in the Japan segment grew by 13.0%, to ¥111,614 million. Sales to external customers increased by 5.6% to ¥53,788 million, which accounted for 23.5% of consolidated net sales. The increase reflects a 5.6% rise in sales in the domestic market as well as a 5.3% increase in export sales mainly to the Middle East and Africa. Even though segment operation expenses increased by 5.6%, to ¥87,468 million, operating income climbed approximately 1.5 times, to ¥24,146 million in FY 2006. This increase was attributable to the ¥8,479 million gain on the sale of the golf course in addition to strong sales of various new products with lithium ion batteries.

North America Segment
In FY 2006, sales in the North America segment climbed by 24.0%, to ¥52,300 million. Sales to external customers increased by 24.3% to ¥47,979 million, which accounted for 20.9% of consolidated net sales. This increase in sales to external customers was mainly due to better sales of lithium ion battery based products at major home centers in North America. As a result, operating income for FY 2006 increased by 15.7%, to ¥1,863 million.

Europe Segment
In FY 2006, sales in the Europe segment grew by 19.5% to ¥97,555 million. Sales to external customers increased by 20.3%, to ¥91,249 million, which accounted for 39.8% of consolidated net sales. This increase is mainly due to strong sales of the rotary hammer, and the stable and steady economic growth in Eastern Europe and Russia. Segment operating income increased by 19.0%, to ¥12,050 million.

Asia Segment (excluding Japan)
In FY 2006, sales in the Asia segment increased by 24.4% to ¥52,624 million. The increase in sales in this segment is primarily due to higher sales from two factories in China to North America and Europe, where sales were favorable. Sales to external customers increased by 17.2%, to ¥8,645 million, which accounted for 3.8% of consolidated net sales. This increase is primarily due to an increase in sales in Taiwan. Segment operating income grew by 31.2%, to ¥6,462 million in FY 2006.

Other Segment
In FY 2006, sales in the Other segment increased by 24.9% to ¥27,595 million. Sales to external customers increased by 25.0%, to ¥27,414 million, which accounted for 12.0% of consolidated net sales. Sales increase in this segment is primarily due to an increase in sales in Central and South American countries and Middle East. Segment operating income grew to approximately 2.7 times FY 2005’s to ¥2,547 million, in FY 2006. This increase is primarily due to a turnaround in Oceania resulting from cost reductions.

CRITICAL ACCOUNTING POLICIES
As disclosed in Note 3 of the Notes to the accompanying consolidated financial statements, the preparation of Makita’s consolidated financial statements in accordance with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions. These estimates and assumptions were determined by management’s judgment based on currently known facts, situations and plans for future activities, which may change in the future. Certain accounting estimates are particularly sensitive because of their significance to the consolidated financial statements and accompanying notes and due to the possibility that future events affecting the estimates may differ significantly from management’s current judgments. Accordingly, any changes in the facts, situations, future plans or other factors on which management bases its estimates may result in a significant difference between earlier estimates and the actual results achieved. Makita believes that the following are the critical accounting policies and related judgments and estimates used in the preparation of its consolidated financial statements and accompanying notes.

Revenue Recognition
Makita believes that revenue recognition is critical for its financial statements because net income is directly affected by the estimation of sales incentives. In recognizing its sales incentives, Makita is required to make estimates based on assumptions about matters that are highly uncertain at the time the estimate is made. Makita principally generates revenue through the sale of power tools. Makita’s general revenue recognition policy follows the provisions of Staff Accounting Bulletin No. 104, SAB 104, Revenue Recognition, and Emerging Issues Task Force Issue, EITF No. 01-9, Accounting for consideration Given by a Customer (including a Reseller of the Vendor’s Products). In accordance with SAB 104 and as disclosed in the consolidated financial statements, Makita recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services are rendered, the sales price is fixed and determinable and collectibility is reasonably assured. Makita believes the foregoing conditions are satisfied upon the shipment or delivery of Makita’s product.

With respect to “Revenue Recognition,” Makita offers sales incentives to qualifying customers through various incentive programs. Sales incentives primarily involve volume-based rebates, cooperative advertising and cash discounts, and are accounted for in accordance with the EITF No.01-9.

Volume-based rebates are provided to customers only if customers attain a pre-determined cumulative level of revenue transactions within a specified period of a year or less. Liabilities for volume-based rebates are recognized with a corresponding reduction to 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.

If expected sales levels are not achieved or achieved in levels higher than anticipated resulting in a greater magnitude of incentive, the result could have a material impact on Makita’s financial statements.

Cooperative advertisings are provided to certain customers as a contribution to or as sponsored funds for advertisements. Under cooperative advertising programs, Makita does not receive an identifiable benefit sufficiently separable from its customers. Accordingly, cooperative advertisings are also accounted as a reduction of revenue.

Cash discounts are provided as a certain percentage of the invoice price as predetermined by spot contracts or based on contractually agreed upon amounts with customers. Cash discounts are recognized as a reduction of revenue at the time the related revenue is recognized based on Makita’s ability to reliably estimate such future discounts to be taken. Estimates of expected cash discounts are evaluated and adjusted periodically based on actual sales transactions and historical trends.

The following table shows the changes in accruals for volume-based rebates, cooperative advertising and cash discounts for the years ended March 31, 2005, 2006 and 2007:

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

		Yen												U.S. Dollars
		(millions)												(thousands)
		For the year ended March 31,
		2005				2006				2007				2007
Cash discounts:
Actual payment for the year			(3,682	)			(4,311	)			(5,061	)			(42,890	)
Income statement impact for the year			3,684				4,371				5,315				45,042
Accrued expenses or deduction of account receivables (BS) as of March 31,			431				491				745				6,314

Inventory valuation and reserve
Inventories are valued at the lower of cost or market price, with cost determined based on the average cost method. The valuation of inventory requires Makita to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires Makita to estimate the future demand for products taking into consideration such factors as macro and microeconomic conditions, competitive pressures, technological obsolescence, changes in consumer buying habits and others. The estimates of future demand that Makita uses in the valuation of inventory are the basis for revenue forecasts, which are also consistent with short-term manufacturing plans. If demand forecast for specific products is greater than actual demand and Makita fails to reduce manufacturing output accordingly, Makita could be required to write down additional on-hand inventory, which would have a negative impact on gross profit and, consequently, a potential material adverse impact on net income. However, sales of previously written-down or written-off inventory is not significant to any of the periods presented and Makita believes that the gross profit of the resulting sales of such inventory items is similar to that realized on all of its sales for the respective periods presented. Accordingly, the impact on Makita’s consolidated gross profit margin by sales of previously written-down or written-off inventory is not material. Makita usually sells or scraps remaining inventory items within a few years after write off and/or write down.

Impairment Losses on Securities
Makita holds marketable securities and investment securities, which are accounted for in accordance with SFAS No. 115. Makita believes that impairment on securities is critical because it holds significant amounts of securities and any resulting impairment loss could have a material adverse impact on net income. Makita uses significant judgment based on subjective as well as objective factors in determining when an investment is other-than-temporarily impaired. Makita regularly reviews available-for sale securities and held-to-maturity securities for possible impairment based on criteria that include, but are not limited to, the extent to which cost exceeds market value, the duration of a market decline, Makita’s intent and ability to hold to recovery and the financial health, specific prospects and creditworthiness of the issuer. Makita performs comprehensive market research and analysis and monitors market conditions to identify potential impairments loss.

Allowance for Doubtful Receivables
Makita performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness, as determined by Makita’s review of their current credit information. Makita continuously monitors collections and payments from its customers and maintains a provision for probable estimated credit losses based upon its historical experience and any specific customer collection issues that Makita has identified. Such credit losses have historically been within Makita’s expectations and the provisions established. However, Makita cannot guarantee that it will continue to experience the similar credit loss rates that it has in the past. Changes in the underlying financial condition of its customers could result in a material impact to Makita’s consolidated results of operations and financial condition.

Impairment of Long-Lived Assets
Makita believes that impairment of long-lived assets is critical for its financial statements because Makita has significant amounts of property, plant and equipment, the recoverability of which could significantly affect its operating results and financial condition.

Makita performs an impairment review for long-lived assets held and used whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. This review is based upon Makita’s projections of expected undiscounted future cash flows. Estimates of the future cash flows are based on the historical trends adjusted to reflect the best estimate of future operating conditions. Makita believes that its estimates are reasonable. However, different assumptions regarding such cash flows could materially affect Makita’s evaluations. Recoverability of assets to be held and used is assessed by comparing the carrying amount of an asset or asset group to the expected future undiscounted cash flows of the asset or group of assets. If an asset or group of assets is considered to be impaired due to factors such as a significant decline in market value of an asset, current period operating or cash flow losses and significant changes in the manner of the use of an asset, the impairment charge to be recognized is measured as the amount by which the carrying amount of the asset or group of assets exceeds fair value. Long-lived assets meeting the criteria to be considered as held for sale, if any, are reported at the lower of their carrying amount or fair value less costs to sell.

Fair value is determined based on recent transactions involving sales of similar assets or on appraisals prepared internally or externally, or by discounting expected future cash flows, or by using other valuation techniques. If actual market and operating conditions under which assets are operated are less favorable than those projected by management, resulting in lower expected future cash flows or a shorter expected future period to generate such cash flows, additional impairment charges may be required. In addition, changes in estimates resulting in lower fair values due to unanticipated changes in business or operating assumptions could adversely affect the valuations of long-lived assets and in turn affect Makita’s consolidated results of operations and financial condition.

Accrued Retirement and Termination Benefits
Makita believes that pension accounting is critical for its financial statements because assumptions used to estimate pension benefit obligations and pension expenses can have a significant effect on its operating results and financial condition. Accrued retirement and termination benefits are determined based on consideration of the levels of retirement and termination liabilities and plan assets at the end of a given fiscal year. The levels of projected benefit obligations and net periodic benefit cost are calculated based on various annuity actuarial calculation assumptions. Principal assumptions include discount rates, expected return on plan assets, assumed rates of increase in future compensation levels, mortality rates and some other assumed rates. Discount rates employed by Makita are reflective of rates available on long-term, high quality fixed-income debt instruments.

Discount rates are determined annually on the measurement date.

The expected long-term rate of return on plan assets is determined annually based on the composition of the pension asset portfolios and the expected long-term rate of return on these portfolios. The expected long-term rate of return on plan assets is designed to approximate the long-term rate of return actually earned on the plan assets over time to ensure that funds are available to meet the pension obligations that result from the services provided by employees.

A number of factors are used to determine the reasonableness of the expected long-term rate of return, including actual historical returns on the asset classes of the plans’ portfolios and independent projections of returns of the various asset classes.

Accordingly, these assumptions are evaluated annually and retirement and termination liabilities are recalculated at the end of each fiscal year based on the latest assumptions. In accordance with U.S.GAAP, actual results that differ from the assumptions are accumulated and amortized over the average remaining service periods and therefore, generally affect Makita’s results of operations in such future periods.

Makita has a contributory retirement plan in Japan, which covers substantially all of the employees of the Company.

The discount rate assumed to determine the pension obligation for the pension plan was 2.5% as of March 31, 2007.

As of March 31, 2007, Makita allocated 54.9% and 31.2% of plan assets to equity securities and debt securities, respectively. The value of these plan assets are influenced by fluctuations in world securities market. Significant depreciation or appreciation will have corresponding impact on future expenses.

The following table illustrates the sensitivity to changes in the discount rate and the expected return on pension plan assets, while holding all other assumptions constant, for Makita’s pension plans as of March 31, 2007.

		Change in				Change in
		projected benefit				pre-tax pension
Change in assumption		obligation				expenses
		Yen (millions)
50 basis point increase / decrease in discount rate			-2,200 / +2,500				-5 / +4
50 basis point increase / decrease in expected return on assets			—				-150 / +150

While Makita believes that the assumptions are appropriate, significant differences in its actual experience or significant changes in its assumptions may materially affect Makita’s accrued retirement and termination benefits and future expenses.

Realizability of Deferred Income Tax Assets
Makita is required to estimate its income taxes in each of the jurisdictions in which Makita operates. This process involves estimating Makita’s current tax provision together with assessing temporary differences resulting from differing treatment of items for income tax reporting and financial accounting and reporting purposes. Such differences result in deferred income tax assets and liabilities, which are included within Makita’s consolidated balance sheets. Makita must then assess the likelihood that Makita’s deferred income tax assets will be recovered from future taxable income and, to the extent Makita believes that recovery is not more likely than not, Makita must establish a valuation allowance.

Significant management judgment is required in determining Makita’s provision for income taxes, deferred income tax assets and liabilities and any valuation allowance recorded against Makita’s gross deferred income tax assets. During FY 2006 and FY 2007 Makita reversed the valuation allowance, which amounted to ¥6,228 million and ¥2,701 million, respectively. Makita has recorded a valuation allowance of ¥318 million as of March 31, 2007 due to uncertainties about its ability to utilize certain deferred income tax assets mainly for net operating loss carry forwards before they expire. For the balance of deferred income taxes, although realization is not assured, management believes, judging from an authorized business plan, it is more likely than not that all of the deferred income tax assets, less the valuation allowance, will be realized. The amount of such net deferred income tax assets that are considered realizable, however, could change in the near term and any such change may have a material effect on Makita’s consolidated results of operations and financial position if estimates of future taxable income are different.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal periods beginning after December 15, 2006 and is required to be adopted by Makita, in the fiscal year beginning April 1, 2007.

Makita is currently evaluating the effect that the adoption of FIN 48 will have on its consolidated results of operations and financial condition but does not expect FIN 48 to have a material impact.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which provides a definition of fair value measurements. SFAS No 157 is effective for fiscal periods beginning after November 15, 2007 and is required to be adopted by Makita, in the fiscal year beginning April 1, 2008. Makita does not expect the adoption of SFAS No. 157 will have a material impact on its consolidated results of operations and financial condition.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115”, which permits an entity to measure many financial assets and financial liabilities at fair value that are not currently required to be measured at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings. SFAS No 159 is effective for fiscal periods beginning after November 15, 2007 and is required to be adopted by Makita, in the fiscal year beginning April 1, 2008. Makita is currently evaluating the effect that the adoption of SFAS No. 159 will have on its consolidated results of operations and financial condition but does not expect SFAS No. 159 to have a material impact.

B. Liquidity and capital resources

Makita’s principal sources of liquidity are cash on hand, cash provided by operating activities and borrowings within credit lines. As of March 31, 2007, Makita held cash and cash equivalents amounting to ¥37,128 million and the Company’s subsidiaries have credit lines up to ¥20,616 million, of which ¥1,816 million was used and ¥18,800 million was unused and available. As of March 31, 2007, Makita had ¥1,892 million in short-term borrowing, which included bank borrowings and the current portion of capital lease obligations. Short-term borrowing was mainly used for daily operations at overseas subsidiaries. The amount excluding current maturities of long-term indebtedness was ¥1,816 million, increased by 10.9% (¥178 million) from FY 2006 due to the expansion of overseas business activities. For further information regarding Makita’s short-term borrowings, including the average interest rates see Note 11 to the accompanying consolidated financial statements.

As of March 31, 2007, Makita’s total short-term borrowings and long-term indebtedness amounted to ¥1,945 million, representing an increase from ¥1,832 million reported for the previous fiscal year-end. Makita’s ratio of indebtedness to shareholders’ equity declined by 0.1 points to 0.6%.

Makita expects to continue to incur additional debt from time to time as required to finance working capital needs. Makita has no potentially significant refinancing requirements in fiscal 2007.

Makita has historically maintained a high level of liquid assets. Management estimates that the cash and cash equivalents level of ¥37,128 million as of March 31, 2007, together with Makita’s available credit facilities, cash flow from operations and funds available from long-term and short-term debt financing, will be sufficient to satisfy its future working capital needs, capital expenditure, research and development and debt service requirements through fiscal 2008 and thereafter.

Makita requires operating capital mainly to purchase materials required for production, to conduct research and development, to respond to cash flow fluctuations related to changes in inventory levels and to cover the payment cycle of receivables from wholesalers. Makita further requires funds for capital expenditures, mainly to expand production facilities and purchase metal molds. Makita also requires funds for financial expenditures, primarily to pay dividends and to repurchase treasury stock. Maintaining the level of Makita’s production and marketing activities requires capital investments of approximately ¥7 billion annually. Please see “– Fiscal Year 2007 – Capital Expenditures” below in this section for a description of

Makita’s principal capital expenditures for fiscal 2007 and the main planned expenditures for fiscal 2007. At the Regular General Meeting of Shareholders held in June 2007, the Company’s shareholders approved a cash dividend of ¥55 per share. The total cash dividend payments amount to ¥7,904 million, and were made in June 2007. On May 15, 2007, Makita acquired 10,279,375 shares of Fuji Robin at a price of ¥260 per share for an aggregate purchase price of approximately ¥2.7 billion, bringing its total shareholding in Fuji Robin to 11,579,375 shares, or 89.35%. Makita financed this amount from internal sources.

Makita believes it will continue to be able to access the capital markets on terms and for amounts that will be satisfactory to it and as necessary to support the business and to engage in hedging transactions on commercially acceptable terms.

Makita is rated at “A+” by Standard & Poor’s at March 31, 2007.

Fiscal year 2007

Cash Flows
Cash flow provided by operating activities is primarily composed of cash received from customers, and cash used in operating activities, principally payments by Makita for parts and materials, selling, general and administrative expenses, and income taxes.

For FY 2007, cash received from customers increased by 22.1% to ¥273,535 million, as a result of an increase in net sales.

This increase was within the range of the increase in all regions’ net sales, as there were no significant changes in Makita’s collection rates.

Cash used in operating activities increased by 21.2% to ¥241,175 million. This increase was caused by greater purchases of parts and raw materials, increased production as well as the increase in sales and administrative expenses, and the increase in income taxes paid.

As a result of these factors, net cash provided by operating activities increased by 29.1% (¥7,293 million) from ¥25,067 million in FY 2006 to ¥32,360 million in FY 2007.

In FY 2007, cash outflow for capital expenditures increased by ¥1,597 million to ¥12,980 million. This increase was caused by the followings:

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

The Company purchased available-for-sale securities and held-to-maturity securities with the money left over used for financing activities and capital expenditures. Purchase of securities increased by ¥6,049 million to ¥27,297 million this year from ¥21,248 million last year.
As a result, net cash outflow resulting from investing activities were ¥27,276 million in FY 2007 compared to net cash inflow of ¥7,655 million in FY 2006.

Cash used for the payment of dividends increased by ¥285 million from ¥7,907 million during the previous fiscal year to ¥ 8,192 million in FY 2007. During FY 2006, Makita made aggregate payments of ¥12,525 million related to outstanding debt amounting to ¥6,375 million in connection with the civil rehabilitation proceedings of Joyama Kaihatsu, Ltd. and repayment of long-term indebtedness amounting to ¥6,150 million of the financing subsidiary company. There were no such payments in FY 2007.

As a result, net cash used in financing activities decreased by ¥11,241 million from ¥19,548 million in FY 2006 to ¥8,307 million this year.

As a result of these activities as well as the effect of exchange rate changes, Makita’s cash and cash equivalents as of March 31, 2007 amounted to ¥37,128 million, dropped by ¥1,926 million from the end of fiscal 2006.

Capital Expenditures

Makita has continued to allocate sizable amounts of funds for capital expenditures, which it believes is crucial for sustaining long-term growth. In light of the severity of the current market competition, however, Makita has focused its capital investments on expanding its plant in China and purchasing metal molds for new products to be manufactured, which required Makita to increase the amount of its capital expenditures in FY 2007 compared to FY 2006. Total capital expenditures amounted to ¥6,655 million, ¥11,383 million and ¥12,980 million for FY 2005, 2006 and 2007, respectively.

Capital expenditures in FY 2007 were mainly for expansion and rebuilding of the Okazaki factory, improvements to the Company’s headquarter buildings, construction of the Romania factory, and for the purchase of metal molds for new products, acquisition of production equipment in connection with facilities, such as Chinese factories and Makita Romania S.R.L. Capital investments of the Company amounted to approximately ¥7.3 billion, while overseas subsidiaries amounted to approximately ¥5.7 billion. All of Makita’s capital expenditures in FY 2007 were funded through internal sources.

Under its investment plans for FY 2008, the Makita Group is scheduled to make capital investments totaling ¥17.7 billion, 36% higher than for FY 2007. Of this total, the Company plans to make direct investments of ¥10.8 billion and its consolidated subsidiaries will invest ¥6.9 billion.

In continuation from FY 2007, the Company’s main capital investment plan is to rebuild the Okazaki factory and some of its headquarters buildings. The main facilities investments by consolidated subsidiaries include production facilities for Makita (China) Co., Ltd., and Makita Romania S.R.L, and the purchase of metal molds for new products. These are all scheduled to be funded with internal capital.

Fiscal year 2006

Cash Flows

Cash flow provided by operating activities is primarily composed of cash received from customers, and cash used in operating activities, principally payments by Makita for parts and materials, selling, general and administrative expenses, and income taxes.

For FY 2006, cash from cash received from customers increased by 16.3% to ¥224,064 million, as a result of an increase in net sales.

This increase was within the range of the increase in net sales, as there were no significant changes in Makita’s collection rates.

Cash used in operating activities increased by 13.1% to ¥198,997 million. This increase was caused by greater purchases of parts and raw materials, increased production as well as the increase in sales and administrative expenses.

As a result of these factors, net cash provided by operating activities increased by 48.8% (¥8,225 million) from ¥16,842 million in FY2005 to ¥25,067 million in FY 2006.

In FY 2006, cash outflow for capital expenditure increased by ¥4,728 million to ¥11,383 million. In addition, to 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 Corp. as of January 1, 2006 for a total of ¥1,853 million. Of the ¥1,853 million purchase price including related costs, the Company paid ¥1,204 million during FY 2006 and paid ¥649 million in April 2006.

The purchase of securities totaled ¥21,844 million during the previous fiscal year and ¥21,248 million during FY 2006. To engage in investing and financing activities, Makita increased its cash by ¥40,864 million from sales and maturities of securities in the amount of ¥34,350 million and the cancellation of a time deposit in the amount of ¥6,514 million. In FY 2006, net cash inflow from sales and maturities of securities increased by ¥6,168 million from ¥28,182 million. As a result, net cash flow resulting from investing activities increased by ¥7,501 million from the previous fiscal year’s ¥154 million to ¥7,655 million.

In FY 2006, following the confirmation of the civil rehabilitation plan for Joyama Kaihatsu, Ltd., the company paid ¥150 million towards ¥800 million in long-term indebtedness, and ¥6,375 million towards ¥12,836 million in club members’ deposits. In addition, the Company also repaid ¥6,000 million long-term indebtedness of its subsidiary. Cash used in repayments of long-term indebtedness and club members’ deposits totaled ¥12,525 million. This cash outflow was ¥674 million less than the ¥13,199 million cash used in repayment in FY 2005, which included a total of ¥12,990 million for redemption of convertible bonds and ¥209 million for repayment of club members’ deposits. On the other hand, cash used in the payment of dividends increased by ¥4,454 million from ¥3,453 million during the previous fiscal year to ¥7,907 million. As a result, net cash used in financial activities increased by ¥3,371 million from ¥16,177 million during previous fiscal year to ¥19,548 million.

As a result of these activities as well as the effect of exchange rate changes, Makita’s cash and cash equivalents as of March 31, 2006 amounted to ¥39,054 million, up ¥13,670 million from the end of fiscal 2005.

Capital Expenditures

Makita focused its capital investments on expanding its plant in China and purchasing metal molds for new products to be manufactured, which required Makita to increase the amount of its capital expenditures in FY 2006 compared to FY 2005. Total capital expenditures amounted to ¥4,494 million, ¥6,655 million and ¥11,383 million for FY 2004, 2005 and 2006 respectively.

Capital expenditure in FY 2006 was mainly for expansion and remodeling to reinforce the earthquake resistance of buildings at the main production factories in Japan, and for the purchase of facilities such as Chinese factories. Capital investments of the Company amounted to approximately ¥6.4 billion, while the capital investments of overseas subsidiaries including manufacturing subsidiaries amounted to approximately ¥5.0 billion. Capital expenditures for Makita’s consolidated subsidiaries consisted primarily of the purchase of metal molds for new products of Dolmar GmbH. and the acquisition of production equipment by Makita (China) Co., Ltd. and Makita (Kunshan) Co., Ltd. All of Makita’s capital expenditures in FY 2006 were funded through internal sources.

Under its investment plans for FY 2007, the Makita Group is scheduled to make capital investments totaling ¥15.5 billion, 36% higher than for FY 2006. Of this total, the Company plans to make direct investments of ¥9.9 billion and its consolidated subsidiaries will invest ¥5.6 billion.

In continuation from the FY 2006, Makita’s main capital investment plan is to expand and renovate buildings to strengthen earthquake resistance in some of the head office buildings and main factories. The main facilities investments by consolidated subsidiaries include new factories in Europe and production facilities for Makita (China) Co., Ltd., and Makita (Kunshan) Co., Ltd. These are all scheduled to be funded with internal capital.

Financial Position

Total assets at the end of FY 2007 were ¥368,494 million, up 13.0% from the previous fiscal year-end. Total current assets increased by 17% to ¥266,499 million, owing to such factors as an increase of inventories and marketable securities.

Property, plant and equipment, at cost less accumulated depreciation, increased by 7.1%, to ¥63,380 million. Investments and other assets decreased by 1.2%, to ¥38,615 million.

Total current liabilities increased by 18.2%, to ¥54,316 million mainly due to increase in income taxes payable, trade notes and accounts payable.

Long-term liabilities decreased by 21.0%, to ¥9,368 million, mainly due to a decrease in deferred income tax liabilities incurred as a result of the decrease in unrealized gains on securities. The current ratio was 4.9 times, slightly down compared with 5.0 at March 31, 2006. Shareholders’ equity increased by 13.5%, to ¥302,675 million.

The main reasons for this increase are an increase in retained earnings, and accumulated other comprehensive income of ¥12,697 million in FY 2007, which compares to ¥5,345 at March 31, 2006.

Fluctuations in the accumulated other comprehensive income (losses) are decrease in the unrealized gains on available-for-sale securities as a result of the depreciation of the market value of the Company’s securities holding, decrease in minimum pension liability adjustment resulting from the increase in actual return on plan assets of the defined benefit pension plan and the initial application of FAS158, increase in foreign currency translation adjustments due to the decline of yen against foreign currencies.

As a result, the shareholders’ equity ratio slightly rose to 82.1%, from 81.8% at the previous fiscal year-end.

C. Research and development, patents and licenses, etc.

Approximately 500 of Makita’s employees are engaged in research and development activities and product design. Makita also employs approximately 100 trained personnel in production engineering, and has developed a number of the machine tools currently used in its factories. The majority of such personnel are engaged in research and development of mechanical innovations, and the rest are engaged in the research and development of electric, electronic and other applications.

Makita places a high priority on R&D and believes that strong capability in R&D is crucial to its continuing development of high-quality, reliable products that meet users’ needs. In FY 2007, Makita allocated ¥5,460 million to R&D, approximately 2.0% of net sales. In FY 2006, Makita allocated ¥4,826 million for R&D, up 8.5% from the ¥4,446 million allocated in FY 2005. The ratio of R&D expenses to net sales was approximately 2.3% in FY 2005.

Makita is placing higher priority on designing power tools that are smaller and lighter, featuring electronic controls, and that have internal power sources allowing a cordless operation. Additional design priorities include developing units that feature low noise, low vibration, measures to restrain dust emissions and new safety features. Still another priority is to design units

that can be recycled to address environmental concerns. In order to respond quickly to customers needs, Makita is also placing an emphasis on shortening the time needed for new product development. To strengthen initiatives that reduce costs, Makita focused development activities on a more limited range of items and set objectives for developing models that use more standard parts. New products developed in FY 2007 included straight type cordless impact driver, high-pressure air nailer and other products.

Makita developed a battery recharging system that employs digital communication functions to provide information on the state of a battery’s charge. Through the use of this new system, the total volume of work can be increased substantially by enabling batteries to be used up to their capacity. In addition, Makita adopted lithium ion batteries, which doubles the total volume of work in comparison with Makita’s batteries that must be inserted. Makita also developed an original battery checker system using the previously mentioned digital communication functions. Using this system, customers can check on the state of charge of their batteries and Makita can provide customers with information on how to make their batteries last longer.

On January 1, 2006, the company acquired the Kanematsu-NNK Corporation’s automatic nailer business to reinforce the air tools business department. Due to this transfer of business, various air tools with superior quality are being developed. Therefore, the company managed to provide high-pressure air tools in a short period of time within Japan in FY 2007.

D. Trend information

With regard to the outlook for the future, Makita anticipates a continued adjustment in the housing market in the United States, and some slowing of the economy there. Makita also believes that the environment for businesses remains opaque, largely owing to the vagaries of the market price for crude oil and for industrial raw materials, as well as the possibility of exchange rate shifts.

Given this outlook, Makita intends to further improve its business performance by increasing market share, starting with the professional-use power tools market and including the pneumatic tools and garden tools markets. On March 20, 2007, Makita announced a tender offer for shares of Fuji Robin Industries Ltd. for the purpose of making Fuji Robin a wholly-owned subsidiary. The offer was declared open on May 7, 2007. The intention in doing this was to move forward as a comprehensive supplier of professional tools, by strengthening Makita’s position in gardening tools including engine type. Makita will further improve its global sales and service arrangements as well as continue the development of high value-added products.

In forecasting performance for the year ending March 31, 2008, Makita have assumed the following:

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

E. Off-balance sheet arrangements

Makita did not have any off-balance sheet arrangements as of March 31, 2007 except for certain liability for trade notes receivable discounted with bank and operating leases entered into in the ordinary course of business. See Note 15 to the accompanying consolidated financial statements.

F. Tabular disclosure of contractual obligations

						Yen (millions)
						Expected payment date, year ending March 31,
		Total				2008				2009				2010				2011				2012				Thereafter
Capital lease			129				76				32				17				3				1				—
Interest expenses on Capital lease			12				5				4				3				—				—				—
Operating lease			2,003				603				468				294				203				138				297
Contributions to defined benefit plan			3,173				3,173				—				—				—				—				—
Derivative financial instruments			19,603				19,603				—				—				—				—				—
Purchase Obligation			12,383				12,047				336				—				—				—				—
Total		¥	37,303			¥	35,507			¥	840			¥	314			¥	206			¥	139			¥	297

						U.S. Dollars (thousands)
						Expected payment date, year ending March 31,
		Total				2008				2009				2010				2011				2012				Thereafter
Capital lease			1,093				644				271				144				26				8				—
Interest expenses on Capital lease			102				43				34				25				—				—				—
Operating lease			16,975				5,111				3,966				2,492				1,720				1,169				2,517
Contributions to defined benefit plan			26,890				26,890				—				—				—				—				—
Derivative financial instruments			166,127				166,127				—				—				—				—				—
Purchase Obligation			104,941				102,094				2,847				—				—				—				—
Total		$	316,128			$	300,909			$	7,118			$	2,661			$	1,746			$	1,177			$	2,517

Note: Calculation of contributions to defined benefit plan after 2008 is not practicable.

Item 6. Directors, Senior Management and Employees

A. Directors and senior management

The Directors and Statutory Auditors of the Company as of June 27, 2007 are as follows:

Masahiko Goto
Current Position: President, Representative Director since May 1989
Date of Birth: November 16, 1946
Director since: May 1984

Masami Tsuruta
Current Position: Managing Director, in charge of Domestic Business since June 2007

Date of Birth: December 26, 1942
Director since: June 1995
Business Experience:
June 1995: Director, Assistant General Manager of Domestic Sales Headquarters
June 1997: Director, General Manager of Domestic Sales Marketing Headquarters
June 2003: Managing Director, General Manager of Domestic Sales Marketing Headquarters

Yasuhiko Kanzaki
Current Position: Managing Director, General Manager of International Sales Headquarters (Europe Area) since
June 2007 Date of Birth: July 9, 1946
Director since: June 1999
Business Experience:
April 1995: Director of Makita International Europe Ltd.
June 1999: Director, Assistant General Manager of International Sales Headquarters 1
June 2003: Director, General Manager of International Sales Headquarters (Europe Area)

Kenichiro Nakai
Current Position: Director, General Manager of Administration Headquarters since June 2001
Date of Birth: November 17, 1946
Director since: June 2001
Business Experience:
October 2000: Assistant General Manager of Production Headquarters
April 2001: General Manager of Personnel Department

Tadayoshi Torii
Current Position: Director, General Manager of Production Headquarters since June 2003
Date of Birth: December 10, 1946
Director since: June 2001
Business Experience:
October 1998: General Manager of Production Department
June 2001: Director, General Manager of Quality Control Headquarters

Tomoyasu Kato

Current Position: Director, General Manager of Research and Development Headquarters since June 2001
Date of Birth: March 25, 1948
Director since: June 2001
Business Experience:
March 1999: General Manager of Technical Administration Department

Kazuya Nakamura
Current Position: Director, General Manager of International Sales Headquarters (Asia and Oceania Area) since June 2003
Date of Birth: April 13, 1948
Director since: June 2001

Business Experience:
October 2000: General Manager of Asia and Oceania Sales Department
June 2001: Director, General Manager of International Sales Headquarters 2

Shiro Hori
Current Position: Director, General Manager of Overseas Sales Headquarters (America Area and International Administration) since June 2003
Date of Birth: February 24, 1948
Director since: June 2003
Business Experience:
April 1997: Assistant General Manager of Europe Sales Department
March 1999: General Manager of Europe Sales Department

Tadashi Asanuma
Current Position: Director, General Manager of Domestic Sales Marketing Headquarters (Tokyo Sales Department) since June 2007
Date of Birth: January 4, 1949
Director since: June 2003
Business Experience:
April 1995: Manager of Saitama Branch Office
April 2001: General Manager of Osaka Sales Department
June 2003: Director, Assistant General Manager of Domestic Sales Marketing Headquarters

Hisayoshi Niwa
Current Position: Director, General Manager of Quality Control Headquarters since June 2003
Date of Birth: February 24, 1949
Director since: June 2003
Business Experience:
April 1995: Assistant General Manager of Production Control Department
October 1999: General Manager of Production Control Department

Zenji Mashiko
Current Position: Director, General Manager of Domestic Sales Marketing Headquarters (Nagoya Sales Department ) since June 2007
Date of Birth: May 28, 1949
Director since: June 2003
Business Experience:
April 1995: Manager of Tokyo Branch Office
June 2003: Director, Assistant General Manager of Domestic Sales Marketing Headquarters

Toshio Hyuga
Current Position: Director, General Manager of Domestic Sales Marketing Headquarters (Osaka Sales Department ) since June 2007
Date of Birth: March 14, 1948
Director since: June 2007
Business Experience:

April 1992: Manager of Takamatsu Branch Office
October 1997: Manager of Osaka Branch Office

Shinichiro Tomita
Current Position: Director, Assistant General Manager of Production Headquarters (China Plant) since June 2007
Date of Birth: January 11, 1951
Director since: June 2007
Business Experience:
October 2001: Manager of Production Engineering Department
September 2003: Transfer to Makita (China) Corporation

Tetsuhisa Kaneko
Current Position: Director, General Manager of Purchasing Headquarters since June 2007
Date of Birth: April 6, 1956
Director since: June 2007
Business Experience:
April 2004: Manager of Technical Research Department
August 2005: Manager of 2nd Production Department
October 2006: Manager of 1st Production Department

Motohiko Yokoyama
Current Position: Outside Director, since June 2005
Date of Birth: May 13, 1944
Director since: June 2005
Business Experience:
June 2004: President and Representative Director of Toyoda Machine Works, Ltd.
January 2006: Vice President and Representative Director of JTEKT Corporation, which is the entity created by the merger of Toyoda Machine Works, Ltd. with Koyo Seiko Co., Ltd.
June 2007: President and Representative Director of JTEKT Corporation

Akio Kondo
Current Position: Standing Statutory Auditor since June 2004
Date of Birth: February 3, 1946
Statutory Auditor since: June 2004
Business Experience:
October 1995: General Manager of Accounting & Finance Department

Hiromichi Murase
Current Position: Standing Statutory Auditor since June 2004
Date of Birth: April 5, 1946
Statutory Auditor since: June 2004
Business Experience:
June 1998: General Manager of General Affairs Department

Shoichi Hase
Current Position: Outside Statutory Auditor since June 2001

(Patent attorney, Hase International Patent office)
Date of Birth: March 30, 1934
Statutory Auditor since: June 2001
April 1967: Established Hase Patent Attorney Office

Masafumi Nakamura
Current Position: Outside Statutory Auditor since June 2007
Date of Birth: September 17, 1942
Statutory Auditor since: June 2007
April 2001: represent of Deloitte Touche Tohmatsu
January 2002: Started Masafumi NakamuraAccountancy Firm, Representative

The term of each director listed above expires in June 2009. The terms of Mr. Akio Kondo and Mr. Hiromichi Murase as Standing Statutory Auditors and Mr. Shoichi Hase as Outside Statutory Auditor expire in June 2008. The term of Mr. Masafumi Nakamura as Outside Statutory Auditor expires in June 2011.

There are no family relationships between any of the individuals named above. There is no arrangement or understanding with major shareholders, customers, suppliers, or others pursuant to which any person named above was selected as a Director or a Statutory Auditor.

B. Compensation

The aggregate amount of remuneration, including bonuses but excluding retirement allowances, paid by the Company during the fiscal year ended March 31, 2007 to all Directors and Statutory Auditors, who served during the fiscal year ended March 31, 2007, totaled ¥ 249 million. Remuneration paid by the Company during the fiscal year ended March 31, 2006 to all Directors and Statutory Auditors, who served during the fiscal year ended March 31, 2006, totaled ¥ 163 million. Some of the fringe benefits provided by the Company to its employees in Japan, such as medical and dental service insurance and welfare pension insurance are also made available to Directors and Standing Statutory Auditors.

The Company had an unfunded retirement and termination allowances program for Directors and Statutory Auditors. Under such program, the aggregate amount set aside as retirement allowances for Directors and Statutory Auditors was ¥490 million as of March 31, 2006 and was increased to ¥501 million as of March 31, 2007. However, this Executive retirement and termination allowances program was abolished as of the Annual General Meeting of Shareholders held on June 29, 2006, because the program featured minimal correlation with the Company’s business results while presenting strong seniority-based elements. With regard to retirement and termination allowances accrued through that day, the retirement allowance will be paid to eligible executives upon their retirement.

Beginning in July 2006, the Company introduced a new remuneration program which links the Directors’ compensation to Makita’s stock prices. Under this remuneration program, a portion or all of the directors’ monthly compensation representing their retirement allowance will be contributed to the Executive Stock Ownership Plan, which in turn will acquire the Company’s stock. The acquired stock will be retained for a duration of the Director’s tenure. The purpose of this system is to effectively link a portion of the Directors’ remuneration to the stock price, and thereby provide further transparency of directors’ managerial responsibility with respect to improving the Company’s value.

C. Board practices

Under the Company Law, the Company has elected to structure its corporate governance system as a company with a Board of Statutory Auditors as set out below.

The Company’s Articles of Incorporation provide for 15 or fewer Directors and five or fewer Statutory Auditors. All Directors and Statutory Auditors are elected at general meetings of shareholders. In general, the term of offices of Directors expires at the conclusion of the ordinary general meeting of shareholders held with respect to the last business year ending within two years from their election, and in the case of Statutory Auditors, within four years from their election; however, Directors and Statutory Auditors may serve any number of consecutive terms. With respect to each expiration date of the term of offices of current Directors and Statutory Auditors, see “A. Directors and senior management” of Item 6.A.

The Directors constitute the Board of Directors, which has the ultimate responsibility for administration of the affairs of the Company. The Board of Directors may elect from among its members a Chairman and Director, one or more Vice Chairmen and Directors, a President and Director, one or more Executive Vice Presidents and Directors, Senior Managing Directors and Managing Directors. From among the Directors referred to above, the Board of Directors elects one or more Representative Directors. Each Representative Director has the authority to individually represent the Company in the conduct of the affairs of the Company.

The Statutory Auditors of the Company are not required to be and are not certified public accountants. However, at least half of the Statutory Auditors are required to be persons who have never been in the past a director, accounting counselor, corporate executive officer, general manager or any other employee of the Company or any of its subsidiaries. The Statutory Auditors may not, while acting as such, be a director, accounting counselor, corporate executive officer, general manager or any other employee of the Company or any of its subsidiaries. Each Statutory Auditor has the statutory duty to supervise the administration by the Directors of the Company’s affairs and also to examine the Company’s annual consolidated and non-consolidated financial statements and business report proposed to be submitted by a Representative Director at the general meeting of shareholders and, based on such examination and a report of an Accounting Auditor referred to below, to individually prepare their audit reports. They are required to attend meetings of the Board of Directors but are not entitled to vote. In addition to Statutory Auditors, independent certified public accountants or an audit corporation must be appointed by a general meeting of shareholders as Accounting Auditors. Such Accounting Auditors have, as their primary statutory duties, a duty to examine the Company’s annual consolidated and non-consolidated financial statements proposed to be submitted by a Representative Director to general meetings of shareholders and to report their opinion thereon to certain Statutory Auditors designated by the Board of Statutory Auditors to receive such report (if such Statutory Auditors are not designated, all Statutory Auditors) and the Directors designated to receive such report (if such Directors are not designated, the Directors who prepared the financial statements). The Statutory Auditors constitute the Board of Statutory Auditors. The Board of Statutory Auditors has a statutory duty to, based upon the reports prepared by respective Statutory Auditors, prepare its audit report and Statutory Auditors designated by the Board of Statutory Auditors to submit such report (if such Statutory Auditors are not designated, all Statutory Auditors) submit such report to the Accounting Auditors and Directors designated to receive such report (if such Directors are not designated, the Directors who prepared the financial statements and the business report). A Statutory Auditor may note his or her opinion in the audit report of the Board of Statutory Auditors if his or her opinion expressed in his or her audit report is different from the opinion expressed in the audit report of the Board of Statutory Auditors. The Board of Statutory Auditors shall elect one or more full-time Statutory Auditors from among its members. The Board of Statutory Auditors is empowered to establish audit principles, the method of examination by Statutory Auditors of the Company’s affairs and financial position, and other matters concerning the performance of the Statutory Auditors’ duties. For names of the Statutory Auditors that constitute the current Board of Statutory Auditors, see Item 6. A. There are no

contractual arrangements providing for benefits to Directors upon termination of service. Also see “B. Memorandum and articles of association - Directors” in Item 10.

Exemptions from certain NASDAQ Corporate Governance Rules

Pursuant to exemptions granted by the National Association of Securities Dealers Automated Quotations (the “NASDAQ”), the Company is permitted to follow certain corporate governance practices complying with Japanese laws, regulations, stock exchange rules, or generally accepted business practices in lieu of the NASDAQ rules on corporate governance (the “NASDAQ Rules”). Set forth below are the corporate governance exemptions the Company currently receives from NASDAQ.

1. Directors. The Company is exempt from the NASDAQ requirement relating to directors that currently requires the Company’s Board of Directors to be comprised of a majority of independent directors. Unlike the NASDAQ Rules, the Company Law of Japan and related legislation do not require Japanese companies with boards of statutory auditors such as the Company to have any independent directors on its board of directors.

2. Audit Committee. The Company is relying on paragraph (c)(3) of Rule 10A-3 of the Securities Exchange Act of 1934, as amended, which provides a general exemption from the audit committee requirements to a foreign private issuer with a board of statutory auditors, subject to certain requirements which continue to be applicable under Rule 10A-3. The Company is exempt from the NASDAQ requirement relating to audit committees that currently requires the Company to have, and certify that it has and will continue to have, an audit committee of at least three members, each of whom must be independent. Unlike the NASDAQ Rules, under the Company Law, at least half of the statutory auditors are required to be persons who have not been a director, accounting counselor, corporate executive officer, general manager or any other employee of the Company or any of its subsidiaries at any time prior to such statutory auditor’s election. Statutory auditors may not at the same time be a director, accounting counselor, corporate executive officer, general manager, or any other employee of the Company or any of its subsidiaries.

3. Meetings of Ordinary Shareholders. The Company is exempt from the quorum requirement of the NASDAQ, which currently requires each issuer to provide for a quorum as specified in its by-laws for any meeting of the holders of common stock, which shall in no case be less than 33 1/3 percent of the outstanding shares of a company’s common voting stock. In keeping with the Company Law and generally accepted business practices in Japan, the Company’s Articles of Incorporation provide that except as otherwise provided by law or by the Articles of Incorporation, a resolution can be adopted at a general meeting of shareholders by a majority of the total number of voting rights of all the shareholders represented at the meeting. The Company Law and the Company’s Articles of Incorporation provide, however, that the quorum for the election of Directors and Statutory Auditors shall not be less than one-third of the total number of voting rights of all the shareholders. The Company Law and the Company’s Articles of Incorporation also provide that the quorum shall be one-third of the total number of voting rights of all the shareholders, and the approval by at least two-thirds of the voting rights of all the shareholders represented at the meeting is required in order to amend the Company’s Articles of Incorporation and in certain other instances, including:

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

(8)		dissolution, merger, consolidation or corporate split with certain exceptions in which a shareholders’ resolution is not required;
(9)		the transfer of the whole or a material part of the business with certain exceptions in which a shareholders’ resolution is not required;
(10)		the taking over of the whole of the business of any other corporation with certain exceptions in which a shareholders’ resolution is not required; or
(11)		share exchange or share transfer for the purpose of establishing 100 percent parent-subsidiary relationships with certain exceptions in which a shareholders’ resolution is not required.

D. Employees

The following table sets forth information about number of employees:

		As of March 31,
		2005				2006				2007
Categorized by Geographic Areas
Japan			2,996				3,038				3,007
Overseas			5,564				5,591				6,055
Total			8,560				8,629				9,062

During the fiscal year ended March 31, 2007, the Company hired on average approximately 1,600 temporary employees in China, and approximately 280 temporary employees in Japan who were not entitled to retirement or certain other fringe benefits which regular full-time employees receive.

The Company has a labor contract with the Makita Workers’ Union covering wages and conditions of employment. All full-time employees of the Company in Japan, except management and certain other employees, must be union members. The Makita Union is affiliated with the Japanese Electrical Electronic & Information Union. The Company has not been materially affected by any work stoppages or difficulties in connection with labor negotiations in the past.

The Company’s employees are members of the labor union formed on September 13, 1947 that comprises, starting February 9, 1989, the Japanese Electrical Electronic & Information Union. As of March 31, 2007, there are 2,712 members of the labor union and Makita considers its relationship with the labor union to be good.

E. Share ownership

The total number of shares of the Company’s Common Stock owned by the Directors and Statutory Auditors as a group as of March 31, 2007 is as follows:

Identity of

Number of

Percentage of

Person or Group

Shares Owned

voting right

Directors and Statutory Auditors

2,121,016

1.47 %

The following table lists the number of shares owned by the Directors and Statutory Auditors of the Company as of March 31, 2007.

Name		Position				Number of shares
Masahiko Goto		President, Representative Director					1,975,543
Masami Tsuruta		Managing Director					16,722
Yasuhiko Kanzaki		Director					11,869

Based on information made publicly available on or after April 1, 2003, the following table describes transactions resulting in a 1% or more change in the percentage ownership held by major beneficial owners of the Company’s common stock.

						Shares Owned								Number of				Shares Owned
		Date of				Prior to								Shares				After the
Name of Shareholder		Transaction				Transaction				Percentage				Changed				Transaction				Percentage
Nippon Life Insurance Company		April 30, 2004					—				—				—				7,601,503				5.14	%
Barclays Global Investors, N.A.		June 30, 2004					—				—				—				7,855,003				5.31	%
Silchester International Investors Limited		September 29, 2004					9,267,000				6.06	%			1,212,000				10,479,000				7.08	%
Goldman Sachs International		September 30, 2004					6,332,900				4.14	%			2,567,079				8,899,979				6.01	%
Barclays Global Investors, N.A.		December 31, 2004					7,855,003				5.31	%			(293,559	)			7,561,444				5.11	%
Nippon Life Insurance Company		January 31, 2005					7,601,503				5.14	%			(3,503,000	)			4,098,503				2.77	%
Silchester International Investors Limited		February 15, 2005					10,479,000				7.08	%			(1,520,000	)			8,959,000				6.05	%
Barclays Global Investors, N.A.		March 31, 2005					7,561,444				5.11	%			222,000				7,783,444				5.26	%
Barclays Global Investors, N.A.		June 30, 2005					7,783,444				5.26	%			(2,915,000	)			4,868,444				3.29	%
Silchester International Investors Limited		September 23, 2005					8,959,000				6.05	%			(1,017,000	)			7,942,000				5.37	%
Goldman Sachs International		September 30, 2005					8,899,979				6.01	%			1,591,162				10,491,141				7.08	%
Mitsubishi UFJ Financial Group		October 31, 2005					—				—				—				8,164,923				5.52	%
Goldman Sachs International		November 30, 2005					10,491,141				7.08	%			(3,909,960	)			6,581,181				4.45	%
Silchester International Investors Limited		January 6, 2006					7,942,000				5.37	%			(588,400	)			7,353,600				4.97	%
Mitsubishi UFJ Financial Group		January 31, 2006					8,164,923				5.52	%			857,200				9,022,123				6.10	%
Barclays Global Investors, N.A.		March 31, 2006					4,868,444				3.38	%			4,161,108				9,029,552				6.27	%
Mitsubishi UFJ Financial Group		April 30, 2006					9,022,123				6.26	%			1,556,200				10,578,323				7.35	%
Barclays Global Investors, N.A.		June 30, 2006					9,029,552				6.27	%			(905,026	)			8,124,526				5.64	%
Mitsubishi UFJ Financial Group		July 31, 2006					10,578,323				7.35	%			(625,100	)			9,953,223				6.91	%
Barclays Global Investors, N.A.		September 30, 2006					8,124,526				5.64	%			(2,089,460	)			6,035,066				4.19	%
Nomura Asset Management		January 15, 2007					—				—				—				7,528,400				5.23	%
Mitsubishi UFJ Financial Group		January 22, 2007					9,953,223				6.91	%			(1,408,800	)			8,544,423				5.93	%

As of March 31, 2007 the Company had 143,701,279, outstanding shares of common stock, excluding 307,481 shares of Treasury Stock. According to the Bank of New York, depositary for the Company’s ADSs, as of March 31, 2007, 2,485,634 shares of the Company’s common stock were held in the form of ADRs and there were 48 ADR holders of record in the United States. According to the Company’s register of shareholders and register of beneficial owners as of March 31, 2007, there were 10,619 holders of common stock of record worldwide and the number of record holders in the United States was 84.

The major shareholders do not have voting rights that are different to the other shareholders of the Company.

As far as is known to the Company, there is no arrangement, the operation of which may at a subsequent date result in a change in control of the Company.

To the knowledge of the Company, it is not directly or indirectly owned or controlled by any other corporation or by the Japanese or any foreign government.

B. Related party transactions

On March 20, 2007, Makita announced that it would, through a tender offer and a series of subsequent procedures, acquire all of the issued and outstanding shares of Fuji Robin. Prior to the announcement of the tender offer, Makita owned 10.03% of the outstanding shares of Fuji Robin. By the close of the tender offer on May 7, 2007, Makita had acquired 10,279,375 additional shares of Fuji Robin at a price of ¥260 per share for an aggregate purchase price of approximately ¥2.7 billion, bringing its total shareholding in Fuji Robin to 11,579,375 shares, or 89.35%. On May 25, 2007, Makita entered into a share exchange agreement with Fuji Robin to acquire all of the remaining shares of Fuji Robin effective August 1, 2007. Under the terms of the share exchange agreement, Makita issued 0.059 shares of its common stock in return for each remaining Fuji Robin share. A total of 81,456 Makita shares held by Makita as treasury stock was delivered in connection with the share exchange. Makita sells and purchases products, materials, supplies and services to and from affiliated companies in the ordinary course of business.

No Director or Statutory Auditor has been indebted to the Company or any of its subsidiaries at any time during the latest three fiscal years. Neither the Company nor any of its subsidiaries expects to make any loans to Directors or Statutory Auditors in the future.

See Note 19 to the consolidated financial statements.

C. Interest of experts and counsel

     Not applicable

Item 8. Financial Information

A. Consolidated Financial statements and other financial information

1-3. Consolidated Financial Statements.
Makita’s audited consolidated financial statements are included under “Item 18 — Financial Statements.” Except for Makita’s consolidated financial statements included under Item 18, no other information included in this annual report has been audited by Makita’s Independent Registered Public Accounting Firm.

4. Not applicable.

5. Not applicable.

6. Export Sales.
See “Information on the Company — Business Overview — Principal Markets, Distribution and After-Sale Services.”

7. Legal or arbitration proceedings
There are no material pending legal or arbitration proceedings to which Makita is a party and which may have, or have had in the recent past, significant effects on Makita’s financial position or profitability.

8. Dividend Policy
Makita’s basic policy on the distribution of profits is to maintain a dividend payout ratio of 30% or greater, with a lower limit on annual cash dividends of 18 yen per share. However, in the event special circumstances arise, computation of the amount of dividends will be based on consolidated net income after certain adjustments. In addition, Makita aims to implement a flexible capital policy, augment the efficiency of its capital employment, and thereby boost shareholder profit. Makita

continues to consider repurchases of its outstanding shares in light of trends in stock prices. The Company intends to retire treasury stock when necessary based on consideration of the balance of treasury stock and its capital policy.

Makita intends to maintain a financial position strong enough to withstand the challenges associated with changes in its operating environment and other changes and allocate funds for strategic investments aimed at expanding its global operations.

According to this basic policy, the Company paid interim cash dividends in fiscal 2007 of ¥19.0 per share and ADS. The Company has declared a cash dividend of ¥55.0 per share and ADS, which was approved by the shareholders’ meeting held on June 27, 2007.

The following table sets forth cash dividends per share of Common Stock declared in Japanese yen and as translated into U.S. dollars, the U.S. dollar amounts being based on the exchange rates at the respective payment date, using the noon buying rates for cable transfers in yen in New York City as certified for customs purposes by the Federal Reserve Bank of New York:

		In Yen								In U.S. Dollars
Fiscal year ended March 31		Interim				Year-end				Interim				Year-end
2002			9.0				9.0				0.07				0.07
2003			9.0				9.0				0.07				0.07
2004			9.0				13.0				0.09				0.11
2005			11.0				36.0				0.10				0.34
2006			19.0				38.0				0.16				0.32
2007			19.0				55.0				0.16				0.47

Note: Cash dividends in U.S. dollars are based on the exchange rates at the respective payment date, using the noon buying rates for cable transfers in yen in New York City as certified for customs purposes by the Federal Reserve Bank of New York.

B. Significant changes

To Makita’s knowledge, except as a disclosed in this annual report, no significant change has occurred since the date of the annual financial statements and/or since the date of the most recent interim financial statements.

Item 9. The Offer and Listing

A. Offer and listing details

The shares of common stock of the Company were listed on the First Section of the Tokyo Stock Exchange, the Osaka Securities Exchange and the Nagoya Stock Exchange in 1970. The Company decided to discontinue its listing on the Osaka Securities Exchange due to the low level of trading volume in its shares on that exchange, and it was delisted from that exchange at the end of February 2003. The shares of common stock of the Company were listed on the Amsterdam Stock Exchange (Euronext Amsterdam) in 1973, initially in the form of Continental Depositary Receipts. The Company decided to discontinue its listing on the Euronext Amsterdam Stock Exchange due to the extremely low level of trading volume in its shares on that exchange, and it was delisted from that exchange at the end of January 2005.

The Company’s American Depositary Shares, each representing one share (prior to April 1, 1991, five shares) of common stock and evidenced by American Depositary Receipts (“ADRs”), have been quoted since 1977 through the National Association of Securities Dealers Automated Quotation (“NASDAQ”) System under “MKTAY”.

The following table shows the high and low sales prices of the Common Stock on the Tokyo Stock Exchange for the periods indicated and the reported high and low bid prices of American Depositary Shares through the NASDAQ system.

		Tokyo Stock Exchange Price								NASDAQ Price
		Per Share of Common Stock								Per American Depositary Share
		(Yen)								(U.S. Dollars)
Fiscal year ended March 31,		High				Low				High				Low
2003			909				654				7.55				5.35
2004			1,343				834				15.45				10.00
2005			2,115				1,315				20.27				12.00
2006			3,820				1,755				34.19				16.15
2007			4,630				2,995				39.00				26.03
Quarterly
Fiscal year 2006
1 st quarter ended June 30, 2005			2,355				1,755				21.75				16.15
2 nd quarter ended September 30, 2005			2,540				2,150				21.59				19.06
3 rd quarter ended December 31, 2005			3,070				2,255				24.40				19.55
4 th quarter ended March 31, 2006			3,820				2,830				34.90				24.22
Fiscal year 2007
1 st quarter ended June 30, 2006			3,830				2,995				34.34				26.03
2 nd quarter ended September 30, 2006			3,830				3,210				33.16				27.56
3 rd quarter ended December 31, 2006			3,730				3,110				31.49				26.78
4 th quarter ended March 31, 2007			4,630				3,570				39.00				30.23
Fiscal year 2008
1 st quarter ended June 30, 2007			5,650				4,210				45.30				35.64
Monthly
March 2007			4,570				4,070				39.00				34.54
April 2007			4,600				4,210				38.44				35.64
May 2007			5,060				4,540				41.99				37.64
June 2007			5,650				4,920				45.30				40.34
July 2007			5,820				5,010				46.20				41.29
August			5,680				4,030				47.44				35.20