Makita Corporation

Consolidated Financial Results
for the six months
ended September 30, 2009
(U.S. GAAP Financial Information)

(English translation of “KESSAN TANSHIN”

originally issued in Japanese)

CONSOLIDATED FINANCIAL RESULTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2009

October 30, 2009

Makita Corporation
Stock code: 6586
URL: http://www.makita.co.jp/
Masahiko Goto, President & CEO

1. Operating results of the six months ended September 30, 2009(From April 1, 2009 to September 30, 2009)

  (1) CONSOLIDATED OPERATING RESULTS

 

		Yen (millions)
		For the six months ended								For the six months ended
		September 30, 2008								September 30, 2009
						%								%
Net sales			175,558				3.6				118,681				(32.4	)
Operating income			36,047				6.3				14,866				(58.8	)
Income before income taxes			34,710				0.2				17,271				(50.2	)
Net income attributable to Makita Corporation			24,851				5.3				10,622				(57.3	)
		Yen
Earning per share (Basic)
Net income attributable to Makita Corporation common shareholders			175.60								77.10

Notes:

	1.		Amounts of less than one million yen have been rounded.
	2.		The table above shows the changes in the percentage ratio of net sales, operating income, income before income taxes, and net income attributable to Makita Corporation against the corresponding period of the previous year.
	3.		Certain reclassifications have been made to the previous years’ consolidated financial statements to conform with the presentation used for the six months ended September 30, 2009. The meaning of “Net income attributable to Makita Corporation” is the same as the former “Net income”.

  (2) CONSOLIDATED FINANCIAL POSITION

 

		Yen (millions)
		As of March 31, 2009				As of September 30, 2009
Total assets			336,644				335,361
Shareholders’ equity			283,485				285,830
Shareholders’ equity ratio to total assets (%)			84.2%				85.2%
		Yen
Shareholders’ equity per share			2,057.76				2,074.81

Note: The meaning of “Shareholders’ equity” is the same as the “Total Makita Corporation shareholders’ equity”.

2. Dividend Information

 

		Yen
		For the year ended				For the year ending
		March 31, 2009				March 31, 2010
						(forecast)
Cash dividend per share:
Interim			30.00				15.00
Year-end			50.00			(Note)
Total			80.00			(Note)

Notes:

	1.		The forecast for cash dividend announced on April 28, 2009 has not been revised.
	2.		While the Company has set forth under the Articles of Corporation of the Company that the record date for the payment of dividend shall be the last day of a relevant period, at the present time, the projected amount of dividends as of the said record date has not been determined yet.
			For further details, refer to “Explanation regarding proper use of business forecasts, and other significant matters” on page 2.

		1
English translation of “KESSAN TANSHIN” originally issued in Japanese

3. Consolidated Financial Forecast for the year ending March 31, 2010 (From April 1, 2009 to March 31, 2010)

 

		Yen (millions)
		For the year ending March 31, 2010
						%
Net sales			230,000				(21.8	)
Operating income			26,000				(48.1	)
Income before income taxes			28,000				(37.0	)
Net income attributable to Makita Corporation			16,700				(49.8	)
		Yen
Earning per share (Basic)
Net income attributable to Makita Corporation common shareholders		121.22

Note:

	1.		The consolidated financial forecast announced on October 27, 2009 for the year ending March 31, 2010 has not been revised.
	2.		The meaning of “Net income attributable to Makita Corporation” is the same as the former “Net income”.

4. Other

	(1)		Changes in important subsidiaries during the period (Changes in specific subsidiaries accompanied by changes in scope of consolidation): None
	(2)		Adoption of simplified accounting methods and accounting methods that are specific to the preparation of quarterly consolidated financial statements:
			Note: Refer to [Qualitative Information and Financial Statements] section 4 “Other” on page 4.
	(3)		Changes in principles, procedures and representation of the accounting policies concerning quarterly consolidated financial statements preparation:
			Note: Refer to [Qualitative Information and Financial Statements] section 4 “Other” on page 4.
	(4)		Number of shares outstanding (common stock)

1. Number of shares issued (including treasury stock):		As of September 30, 2009:			140,008,760
		As of March 31, 2009:			140,008,760
2. Number of treasury stock:		As of September 30, 2009:			2,246,906
		As of March 31, 2009:			2,244,755
3. Average number of shares outstanding:		For the six months ended September 30, 2009:			137,762,814
		For the six months ended September 30, 2008:			141,521,162

Explanation regarding proper use of business forecasts, and other significant matters

	1.		The consolidated financial forecast for the year ending March 31, 2010 has not been revised.
			The financial forecasts given above are based on information as available at the present time, and include potential risks and uncertainties. As a consequence of the factors above and other, actual results may vary from the forecasts provided above.
	2.		Makita’s basic policy on the distribution of profits is to maintain a consolidated 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 attributable to Makita Corporation after certain adjustments.
			The Board of Directors plans to meet in April 2010 for a report on earnings for the year ending March 31, 2010. At the time, in accordance with the basic policy regarding profit distribution mentioned above, the Board of Directors plans to propose a dividend equivalent to at least 30% of net income attributable to Makita Corporation. The Board of Directors will submit this proposal to the General Meeting of Shareholders scheduled for June 2010.
			The consolidated dividend payout ratio is calculated as annual dividends per share divided by consolidated net income attributable to Makita Corporation per share (after adjustments for special circumstances) and multiplied by 100.

		2
English translation of “KESSAN TANSHIN” originally issued in Japanese

[Qualitative Information and Financial Statements]
1. Qualitative Information on Consolidated Operating Results

    During the six months (“period”) ended September 30, 2009, the housing markets slowed down in Western Europe. Capital expenditures and individual consumption decreased due to the shrinkage of economic activity in Eastern Europe and Russia. In North America, stimulus packages and other measures resulted in improvement in individual consumption and corporate production. Nevertheless, economic conditions remained severe with the recovery of business confidence being hindered by a sense of excess capacity among corporations. In Asia, economies showed a moderate recovery trend: the Chinese economy recovered and exports and individual consumption in Southeast Asia improved. In Japan, the government’s stimulus package spurred production in some industries, but general economic conditions remained severe as evidenced from a high unemployment rate and shrinking public investment.

    In the power tools market, some emerging countries showed signs of recovery due to active public investment and resource development. However, developed countries such as Japan, Europe and the United States continued to suffer a slump in demand with housing starts remaining at low levels and competition becoming even fiercer.

    Under these circumstances, Makita directed our development efforts toward introducing smaller and lighter tools. At the same time, we strove to enhance our existing products. For example, we incorporated our proprietary low-vibration technology, which had originally been used for large drilling tools for stone and very well received, into our medium and small drilling tools. In production side, we curtailed production volume at each factory in order to improve inventory level. We also exerted efforts toward establishing a global production system of the group in order to quickly and flexibly respond to rapid changes in demand. In sales side, Makita strove to expand sales of our gardening tools, such as ones incorporating the environmentally friendly compact four-stroke engine. We also stepped up efforts to maintain and improve the quality of our sales and services based on direct communication with customers, which remains one of our group’s fortes.

    With the aim of promoting the development and expansion of engine-powered gardening tools, Makita established Tokyo Technical Center in Tachikawa, Tokyo on October 1, 2009. The Center will conduct R&D for improving environmental performance, which is the major challenge facing the two-stroke engine.

    Consolidated net sales for the period decreased by 32.4% to 118,681 million yen from the same period of the previous year, mainly due to the decrease in demand for power tools in the face of the worldwide slowdown in economic growth and the unfavorable impact of the stronger yen against other currencies. Incomes were affected by the decline in the rate of operation of our production site. This decline resulted from the production volume reduction carried out in response to the decrease in demand and in order to improve inventory level. As a result, the ratio of cost of sales increased. Our selling, general, administrative and other expenses decreased by only 18.9% compared with the same period of the previous year despite our group-wide cost reduction efforts. As a result, operating income decreased by 58.8% to 14,866 million yen (operating income ratio: 12.5%). Income before income taxes decreased by 50.2% from the same period of the previous year to 17,271 million yen (income before income taxes ratio: 14.6%). Net income attributable to Makita Corporation decreased by 57.3% to 10,622 million yen (net income attributable to Makita Corporation ratio: 9.0%).

    Net sales by geographic area were as follows:

    Net sales in Japan decreased by 14.6% from the same period of the previous year to 20,831 million yen, affected by the housing market remaining sluggish. Sales in gardening tools were robust but insufficient to compensate for the decreased demand for power tools.

    In Europe, net sales decreased by 37.9% from the same period of the previous year to 51,652 million yen. Construction demand declined in Western Europe. Demand for power tools also decreased due to the slowdown of the Russian economy and the financial recession in Eastern Europe.

    Net sales in North America decreased by 31.1% to 17,789 million yen. This decrease resulted mainly from the continuing weakness in inventory investment by sales agents caused by the sluggish U.S. housing market and the financial recession.

    Net sales in Asia decreased by 34.5% from the same period of the previous year to 8,620 million yen. Construction demand improved but not to the extent required to substantially compensate for the decrease in demand for power tools.

    Net sales in Central and South America and Oceania were sluggish mainly due to the appreciation of the yen against local currencies from the same period of the previous year, although demand on a local currency basis was robust in Brazil and Australia, the hubs of the regional economies. Net sales in Central and South America decreased by 30.1% from the same period of the previous year to 7,398 million yen. Net sales in Oceania decreased by 23.2% from the same period of the previous year to 6,533 million yen. Net Sales in the Middle East and Africa decreased by 41.2% to 5,858 million yen from the same period of the previous year, due to a decline in construction demand.

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English translation of “KESSAN TANSHIN” originally issued in Japanese

2. Qualitative Information on Consolidated Financial Position

    The total assets as of September 30, 2009 decreased by 1,283 million yen to 335,361 million yen compared with that as of March 31, 2009. The principal factor causing this decline was the decrease in inventories resulting from production volume adjustment partly set off by the increase in cash and other financial assets.

    The total liabilities as of September 30, 2009 decreased by 3,606 million yen to 47,292 million yen, compared with that as of March 31, 2009. This decrease was mainly due to the decline in trade notes and accounts payable from production volume adjustment.

    Total equity as of September 30, 2009 increased by 2,323 million yen to 288,069 million yen, compared with that as of March 31, 2009. The reason for this increase is that the increase in retained earnings exceeded the increase in other comprehensive losses.

3. Qualitative Information on Consolidated Financial Forecast

    Refer to [Revision of Forecasts for Performance] announced on October 27, 2009.

4. Other

	(1)		Changes in important subsidiaries during the period (Changes in specific subsidiaries accompanied by changes in scope of consolidation): None
	(2)		Adoption of simplified accounting methods and accounting methods that are specific to the preparation of quarterly consolidated financial statements:
			With regard to the income tax expenses, the Company computes interim income tax expense by multiplying reasonably estimated annual effective tax rate, which includes the effects of deferred taxes, by year-to-date income before income taxes for the reporting period.
	(3)		Changes in principle, procedure and representation of the accounting policies concerning quarterly consolidated financial statements preparation:
			Starting with this fiscal year, the Company has adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) 810, “Consolidation” (former Statement of Financial Accounting Standards (“SFAS”) No.160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No.51”). This statement establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of noncontrolling interests (minority interests) as equity in the consolidated financial statements. The amount of net income attributable to noncontrolling interests will be included in consolidated net income on the face of the consolidated income statement.
			This statement also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. The adoption did not give rise to any material effect on the Company’s consolidated results of operations and financial condition. These financial statements presentation requirements have been adopted retrospectively and previous year amounts in the consolidated financial statements have been reclassified or adjusted to conform to this statement.

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English translation of “KESSAN TANSHIN” originally issued in Japanese

5. Consolidated Financial Statements

(1) Consolidated Balance Sheets

 

		Yen (millions)
		As of March 31, 2009								As of September 30, 2009
		Composition ratio								Composition ratio
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			34,215								41,948
Time deposits			2,623								5,351
Marketable securities			29,470								34,101
Trade receivables-
Notes			2,611								2,420
Accounts			43,078								43,825
Less- Allowance for doubtful receivables			(1,129	)							(1,097	)
Inventories			111,002								95,299
Deferred income taxes			7,264								6,226
Prepaid expenses and other current assets			11,269								8,574
Total current assets			240,403				71.4%				236,647				70.6%
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land			18,173								18,433
Buildings and improvements			65,223								67,111
Machinery and equipment			74,458								74,480
Construction in progress			4,516								4,763
			162,370								164,787
Less- Accumulated depreciation			(89,674	)							(91,130	)
Total net property, plant and equipment			72,696				21.6%				73,657				22.0%
INVESTMENTS AND OTHER ASSETS:
Investment securities			11,290								12,783
Goodwill			1,987								1,980
Other intangible assets, net			2,280								4,814
Deferred income taxes			5,050								3,763
Other assets			2,938								1,717
Total investments and other assets			23,545				7.0%				25,057				7.4%
Total assets			336,644				100.0%				335,361				100.0%

 

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English translation of “KESSAN TANSHIN” originally issued in Japanese

		Yen (millions)
		As of March 31, 2009								As of September 30, 2009
		Composition ratio								Composition ratio
LIABILITIES
CURRENT LIABILITIES:
Short-term borrowings			239								628
Trade notes and accounts payable			14,820								12,519
Other payables			4,397								4,517
Accrued expenses			5,642								4,741
Accrued payroll			7,361								7,408
Income taxes payable			2,772								1,621
Deferred income taxes			50								82
Other current liabilities			5,536								5,063
Total current liabilities			40,817				12.1%				36,579				10.9%
LONG-TERM LIABILITIES:
Long-term indebtedness			818								566
Accrued retirement and termination benefits			7,116								6,294
Deferred income taxes			548								853
Other liabilities			1,599								3,000
Total long-term liabilities			10,081				3.0%				10,713				3.2%
Total liabilities			50,898				15.1%				47,292				14.1%
EQUITY
MAKITA CORPORATION SHAREHOLDERS’
EQUITY:
Common stock			23,805								23,805
Additional paid-in capital			45,420								45,420
Legal reserve			5,669								5,669
Retained earnings			257,487								261,221
Accumulated other comprehensive income (loss)			(42,461	)							(43,845	)
Treasury stock, at cost			(6,435	)							(6,440	)
Total Makita Corporation shareholders’ equity			283,485				84.2%				285,830				85.2%
NONCONTROLLING INTEREST			2,261				0.7%				2,239				0.7%
Total equity			285,746				84.9%				288,069				85.9%
Total liabilities and equity			336,644				100.0%				335,361				100.0%

		As of March 31, 2009				As of September 30, 2009
Total number of shares authorized			496,000,000				496,000,000
Number of shares issued			140,008,760				140,008,760
Number of shares issued (excluding treasury stock)			137,764,005				137,761,854
Number of treasury stock			2,244,755				2,246,906

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English translation of “KESSAN TANSHIN” originally issued in Japanese

 

		Yen (millions)
		For the six months								For the six months
		ended September 30,								ended September 30,
		2008								2009
		Composition ratio								Composition ratio
NET SALES			175,558				100.0%				118,681				100.0%
Cost of sales			100,824				57.4%				72,454				61.0%
GROSS PROFIT			74,734				42.6%				46,227				39.0%
Selling, general, administrative and other expenses			38,687				22.1%				31,361				26.5%
OPERATING INCOME			36,047				20.5%				14,866				12.5%
OTHER INCOME (EXPENSES):
Interest and dividend income			954								356
Interest expense			(169	)							(48	)
Exchange gains (losses) on foreign currency transactions, net			(1,462	)							1,946
Realized gains (losses) on securities, net			(660	)							151
Total			(1,337	)			(0.7)%				2,405				2.1%
INCOME BEFORE INCOME TAXES			34,710				19.8%				17,271				14.6%
PROVISION FOR INCOME TAXES:
Current			7,686								4,964
Deferred			1,916								1,544
Total			9,602				5.5%				6,508				5.5%
NET INCOME			25,108				14.3%				10,763				9.1%
Less: Net income attributable to the noncontrolling interest			(257	)			(0.1)%				(141	)			(0.1)%
NET INCOME ATTRIBUTABLE TO MAKITA CORPORATION			24,851				14.2%				10,622				9.0%

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English translation of “KESSAN TANSHIN” originally issued in Japanese

(3) Consolidated Statements of Shareholders’ Equity

	For the six months ended September 30, 2008
				Total equity										Makita Corporation shareholders’ equity																														Noncontr- olling interest
														Common stock					Additional paid-in capital					Legal reserve					Retained earnings					Accumulated other comprehensive income (loss)					Treasury stock
				Yen (millions)
	Beginning balance				319,014					316,498					23,805					45,753					5,669					249,191					(7,657)					(263)					2,516
	Comprehensive income
	Net income				25,108					24,851																				24,851															257
	Foreign currency translation adjustment				(2,245)					(2,098)																									(2,098)										(147)
	Unrealized holding gains (losses) on available-for-sale securities				(1,147)					(1,147)																									(1,147)
	Pension liability adjustment				(6)					(6)																									(6)
	Comprehensive income				21,710					21,600					-					-					-					24,851					(3,251)					-					110
	Cash dividends				(9,867)					(9,632)																				(9,632)															(235)
	Purchases and disposal of treasury stock				(11,947)					(11,947)										(1)																				(11,946)
	Ending balance				318,910					316,519					23,805					45,752					5,669					264,410					(10,908)					(12,209)					2,391

	For the six months ended September 30, 2009
				Total equity										Makita Corporation shareholders’ equity																														Noncontr- olling interest
														Common stock					Additional paid-in capital					Legal reserve					Retained earnings					Accumulated other comprehensive income (loss)					Treasury stock
				Yen (millions)
	Beginning balance				285,746					283,485					23,805					45,420					5,669					257,487					(42,461)					(6,435)					2,261
	Comprehensive income
	Net income				10,763					10,622																				10,622															141
	Foreign currency translation adjustment				(3,103)					(3,137)																									(3,137)										34
	Unrealized holding gains (losses) on available-for-sale securities				1,762					1,762																									1,762
	Pension liability adjustment				(9)					(9)																									(9)
	Comprehensive income				9,413					9,238					-					-					-					10,622					(1,384)					-					175
	Cash dividends				(7,085)					(6,888)																				(6,888)															(197)
	Purchases and disposal of treasury stock				(5)					(5)																														(5)
	Ending balance				288,069					285,830					23,805					45,420					5,669					261,221					(43,845)					(6,440)					2,239

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English translation of “KESSAN TANSHIN” originally issued in Japanese

(4) Condensed Consolidated Statements of Cash Flows

		Yen (millions)
		For the six months				For the six months
		ended September 30,				ended September 30,
		2008				2009
Net cash provided by operating activities			14,222				28,314
Net cash provided by (used in) investing activities			3,132				(10,976	)
Net cash used in financing activities			(22,511	)			(6,954	)
Effect of exchange rate changes on cash and cash equivalents			1,529				(2,651	)
Net change in cash and cash equivalents			(3,628	)			7,733
Cash and cash equivalents, beginning of period			46,306				34,215
Cash and cash equivalents, end of period			42,678				41,948

(5) Notes on the preconditions for a going concern: None

(6) Condensed Operating Segment Information

		Yen (millions)
		For the six months ended September 30, 2008
		Japan				Europe				North America				Asia				Other				Total				Corporate and elimi- nations				Consoli- dated
Sales:
(1) External customers			35,371				83,192				26,062				6,009				24,924				175,558				-				175,558
(2) Inter-segment			33,454				2,792				2,809				51,597				79				90,731				(90,731	)			-
Total			68,825				85,984				28,871				57,606				25,003				266,289				(90,731	)			175,558
Operating expenses			59,925				70,438				27,726				50,201				20,881				229,171				(89,660	)			139,511
Operating income (loss)			8,900				15,546				1,145				7,405				4,122				37,118				(1,071	)			36,047

 

 

		Yen (millions)
		For the six months ended September 30, 2009
		Japan				Europe				North America				Asia				Other				Total				Corporate and elimi- nations				Consoli- dated
Sales:
(1) External customers			26,695				51,977				17,681				4,341				17,987				118,681				-				118,681
(2) Inter-segment			14,093				1,189				884				25,308				44				41,518				(41,518	)			-
Total			40,788				53,166				18,565				29,649				18,031				160,199				(41,518	)			118,681
Operating expenses			42,567				47,224				18,380				25,592				16,752				150,515				(46,700	)			103,815
Operating income (loss)			(1,779	)			5,942				185				4,057				1,279				9,684				5,182				14,866

(7) Note in case there is any significant change in the shareholders’ equity: None

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English translation of “KESSAN TANSHIN” originally issued in Japanese

 

2. Consolidated Net Sales by Geographic Area

		Yen (millions)
		For the six months								For the six months								For the six months
		ended September								ended September								ended September
		30, 2007								30, 2008								30, 2009
		(%)								(%)								(%)
Japan			25,649				11.9				24,378				(5.0	)			20,831				(14.6	)
Europe			78,865				39.4				83,131				5.4				51,652				(37.9	)
North America			28,942				18.1				25,836				(10.7	)			17,789				(31.1	)
Asia			11,021				12.7				13,163				19.4				8,620				(34.5	)
Other regions			25,060				38.3				29,050				15.9				19,789				(31.9	)
Central and South America			8,134				37.1				10,579				30.1				7,398				(30.1	)
Oceania			8,276				38.3				8,507				2.8				6,533				(23.2	)
The Middle East and Africa			8,650				39.4				9,964				15.2				5,858				(41.2	)
Total			169,537				28.5				175,558				3.6				118,681				(32.4	)

Note:		The table above sets forth Makita’s consolidated net sales by geographic area based on the customer’s location for the periods presented. Accordingly, it differs from operating segment information on page 9. The table above shows the changes in the percentage ratio of Net sales the corresponding period of the previous year.

3. Exchange Rates

		Yen
		For the six				For the six				For the six				For the six				For the year
		months ended				months ended				months ended				months ending				ending
		September 30,				September 30,				September 30,				March 31,				March 31,
		2007				2008				2009				2010				2010
														(Forecast)				(Forecast)
Yen/U.S. Dollar			119.40				106.12				95.53				90				93
Yen/Euro			162.33				162.80				133.21				130				132

4. Sales Growth in local currency basis (Major countries)

		For the six months
		ended September
		30, 2009
		(%)
U.K.			(29.3	)
Germany			(2.5	)
France			(5.9	)
Russia			(46.7	)
U.S.A.			(23.7	)
China			(16.1	)
Brazil			(1.0	)
Makita Gulf (UAE) *			(31.5	)
Australia			1.4

*Including export sales for the Middle East and Africa.

		11
English translation of “KESSAN TANSHIN” originally issued in Japanese