Annual Report 2007 - Komatsu

Notes to Consolidated Financial Statements
Komatsu Ltd. and Consolidated Subsidiaries
21. The Fair Value of Financial Instruments
(1) Cash and Cash Equivalents, Time Deposits, Trade Notes
and Accounts Receivables, Other Current Assets, Short-
Term Debt, Trade Notes and Accounts Payables, and
Other Current Liabilities
The carrying amount approximates fair value because of the
short maturity of these instruments.
(2) Investment Securities
The fair values of investment securities available for sale for
which it is practicable to estimate fair value are based on quoted
market prices.
(3) Installment Receivables
The fair values of installment receivables are based on the present
value of future cash flows through maturity, discounted
using estimated current interest rates. The fair values computed
on such a basis approximate the carrying amounts (Note 5).
(4) Long-Term Debt
The fair values of each of the long-term debts are based on the
quoted price in the most active market or the present value of
future cash flows associated with each instrument discounted
using the current borrowing rate for similar debt of comparable
maturity.
(5) Derivative Financial Instruments
The fair values of derivative financial instruments, consisting
principally of foreign currency contracts and interest swap agreements,
are estimated by obtaining quotes from brokers.
The carrying amounts and the estimated fair values of the
financial instruments, including financial instruments not qualifying
as hedge, as of March 31, 2007 and 2006, are summarized
as follows:
Millions of yen
Thousands of U.S. dollars
2007 2006 2007
Carrying Estimated Carrying Estimated Carrying Estimated
amount fair value amount fair value amount fair value
Investment securities ¥108,590 ¥108,590 ¥ 95,159 ¥ 95,159 $ 920,254 $ 920,254
Long-term debt, including current portion 246,826 244,921 279,783 276,630 2,091,746 2,075,602
Derivatives:
Forwards and options
Assets 614 614 367 367 5,203 5,203
Liabilities 1,079 1,079 1,446 1,446 9,144 9,144
Interest rate swap, cross-currency swap and
interest rate cap agreements
Assets 285 285 1,511 1,511 2,415 2,415
Liabilities 2,192 2,192 3,041 3,041 18,576 18,576
Limitations
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial
instrument. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in
assumptions could affect the estimates.
22. Business Segment Information
Under SFAS No. 131, “Disclosures about Segments of an
Enterprise and Related Information,” operating segments are
defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by
the chief operating decision maker, in deciding how to allocate
resources and in assessing performance. The operating
segments are managed separately because each operating segment
represents a strategic business unit that offers different
products and services.
Komatsu operates on a worldwide basis with three operating
segments: 1) Construction and mining equipment, 2) Industrial
Machinery, Vehicles and Others, 3) Electronics.
82 Annual Report 2007