Annual Report 2006 - Komatsu

Notes to Consolidated Financial Statements
Komatsu Ltd. and Consolidated Subsidiaries
(13) Per Share Data
Basic net income per share has been computed by dividing net
income by the weighted-average number of common shares
outstanding during each fiscal year, after deducting treasury
shares. Diluted net income per share reflects the potential dilution
computed on the basis that all stock options were exercised
(less the number of treasury shares assumed to be purchased
from proceeds using the average market price of the Company’s
common shares) to the extent that each is not antidilutive.
Dividends per share shown in the accompanying consolidated
statements of income are based on dividends approved and paid
in each fiscal year.
(14) Consolidated Statements of Cash Flows
For the purpose of the consolidated statements of cash flows, cash
and cash equivalents include highly liquid investments with an
original maturity of three months or less at the date of purchase.
(15) Derivative Financial Instruments
The companies use various derivative financial instruments
to manage their interest rate and foreign exchange exposure.
The Company accounts for its investment in derivative financial
instruments in accordance with SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities”as amended.
SFAS No. 133 as amended requires that all derivatives, including
derivatives embedded in other financial instruments, be measured
at fair value and recognized as either assets or liabilities on
the consolidated balance sheet. Changes in the fair values of derivative
instruments not designated or not qualifying as hedges
under SFAS No. 133 and any ineffective portion of qualified
hedges are recognized in earnings in the current period.
Changes in the fair values of derivative instruments used effectively
as fair value hedges are recognized in earnings, along with
changes in the fair value of the hedged item. Changes in the fair
value of the effective portions of cash flow hedges are reported
in accumulated other comprehensive income (loss), and recognized
in earnings when the hedged item is recognized in earnings.
(16) Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of
In accordance with SFAS No. 144, long-lived assets and certain
identifiable intangibles to be held and used by the companies
are reviewed for impairment based on a cash flow analysis of related
operations whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
The assets to be held for use are considered to be impaired
when estimated undiscounted cash flows expected to
result from the use of the assets and their eventual disposition is
less than their carrying amounts. The impairment losses are
measured as the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Long-lived assets and
certain identifiable intangibles to be disposed of are reported at
the lower of carrying amount or fair value less cost to sell.
In the fiscal year ended March 31, 2004, Advanced Silicon
Materials LLC (ASiMI) which was a consolidated subsidiary in the
electronics segment re-appraised its fixed assets of the Butte
plant using present value techniques based on the estimated future
cash flows expected to result from the use of the assets and
their eventual disposition and recorded an impairment loss of
¥17,534 million based on the assumption that the business environment
will remain unfavorable due to the delay in recovery of
the demand-and-supply gap for polycrystalline silicon as well as
the intensified pricing competition.
(17) Use of Estimates
The Company’s management has made a number of estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses presented in these financial
statements prepared in conformity with U.S. generally accepted
accounting principles. Actual results could differ from the estimates
and assumptions.
The Company has identified six areas where it believes
assumptions and estimates are particularly critical to the financial
statements. These are the determination of the allowance for
doubtful receivables, impairment loss on long-lived assets and
goodwill, pension liabilities and expenses, fair value of financial
instruments, realization of deferred tax assets and securitization
of trade notes and account receivable.
(18) New Accounting Standards
In November 2004, the FASB issued SFAS No. 151, “Inventory
Costs – an amendment of ARB No. 43, Chapter 4” (“SFAS
151”). SFAS 151 amends the guidance in ARB No. 43, Chapter
4, “Inventory Pricing,” to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). Among other provisions, the new
standard requires that items such as idle facility expense, excessive
spoilage, double freight, and re-handling costs be recognized
as current-period charges regardless of whether they
meet the criterion of “so abnormal” as stated in ARB No. 43.
Additionally, SFAS 151 requires that the allocation of fixed production
overheads to the costs of conversion be based on the
normal capacity of the production facilities. SFAS 151 is effective
for fiscal years beginning after June 15, 2005 and is required to
be adopted by the Company in the fiscal year beginning April 1,
2006. The Company does not believe SFAS 151 will have a material
impact to its consolidated result of operations and financial
condition.
In December 2004, the FASB issued SFAS No. 153,
58 Annual Report 2006