UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 under

the Securities Exchange Act of 1934

For the month of February, 2014

COMMISSION FILE NUMBER: 1-7239

 

 

KOMATSU LTD.

(Translation of registrant’s name into English)

  

 

3-6 Akasaka 2-chome, Minato-ku, Tokyo, 107-8414, Japan

(Address of principal executive office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  x            Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

 

 

 

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INFORMATION INCLUDED IN THIS REPORT

Quarterly Report for the Third Quarter of the 145th Fiscal Year filed on February 12, 2014

On February 12, 2014, the registrant filed its Quarterly Report (Shihanki Houkokusho) with the Director of the Kanto Local Finance Bureau of Japan pursuant to the Financial Instruments and Exchange Act of Japan. This Quarterly Report contains, among other information, Quarterly Consolidated Financial Statements for the nine months ended December 31, 2013 and the three months ended December 31, 2013.

Material information in the report, other than the Quarterly Consolidated Financial Statements, has already been reported by the registrant in its press release dated January 29, 2014, a copy of which was submitted under cover of Form 6-K on January 30, 2014 by the registrant.

Attached is an English translation of the registrant’s Quarterly Consolidated Financial Statements for the nine months ended December 31, 2013 and the three months ended December 31, 2013.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

						KOMATSU LTD.
						(Registrant)
Date: February 13, 2014				By:		/s/ Mikio Fujitsuka
						Mikio Fujitsuka
						Director and Senior Executive Officer
						Chief Financial Officer

 

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[Quarterly Consolidated Financial Statements]

Consolidated Balance Sheets (Unaudited)

Komatsu Ltd. and Consolidated Subsidiaries

December 31, 2013 and March 31, 2013

 

		December 31, 2013								March 31, 2013
		Millions of yen				Component ratio (%)				Millions of yen				Component ratio (%)
Assets
Current assets
Cash and cash equivalents (Note 11)		¥	110,890							¥	93,620
Time deposits (Note 11)			132								217
Trade notes and accounts receivable, net (Notes 3 and 11)			591,975								606,904
Inventories (Note 4)			728,217								633,647
Deferred income taxes and other current assets (Notes 10, 11 and 12)			171,164								157,668
Total current assets			1,602,378				58.9				1,492,056				59.3
Long-term trade receivables, net (Notes 3 and 11)			251,320				9.2				235,825				9.4
Investments
Investments in and advances to affiliated companies			20,403								19,404
Investment securities (Notes 5, 11 and 12)			69,572								59,279
Other			2,111								2,574
Total investments			92,086				3.4				81,257				3.2
Property, plant and equipment—less accumulated depreciation and amortization of ¥740,534 million at December 31, 2013 and ¥706,297 million at March 31, 2013			645,957				23.7				585,220				23.2
Goodwill			36,124				1.3				34,703				1.4
Other intangible assets — less accumulated amortization			58,798				2.2				58,523				2.3
Deferred income taxes and other assets (Notes 10, 11 and 12)			34,691				1.3				30,273				1.2
		¥	2,721,354				100.0			¥	2,517,857				100.0

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

 

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		December 31, 2013								March 31, 2013
		Millions of yen				Component ratio (%)				Millions of yen				Component ratio (%)
Liabilities and Equity
Current liabilities
Short-term debt (Note 11)		¥	254,988							¥	205,156
Current maturities of long-term debt (Notes 11 and 12)			108,536								130,793
Trade notes, bills and accounts payable (Note 11)			234,886								226,275
Income taxes payable			25,411								33,227
Deferred income taxes and other current liabilities (Notes 10, 11 and 12)			232,384								232,125
Total current liabilities			856,205				31.5				827,576				32.8
Long-term liabilities
Long-term debt (Notes 11 and 12)			341,133								343,814
Liability for pension and retirement benefits			51,598								49,912
Deferred income taxes and other liabilities (Notes 10, 11 and 12)			54,773								43,860
Total long-term liabilities			447,504				16.4				437,586				17.4
Total liabilities			1,303,709				47.9				1,265,162				50.2
Commitments and contingent liabilities (Note 9)
Equity
Komatsu Ltd. shareholders’ equity
Common stock:
Authorized 3,955,000,000 shares
Issued 983,130,260 shares
Outstanding 953,195,700 shares at December 31, 2013 and 952,778,859 shares at March 31, 2013			67,870								67,870
Capital surplus			139,370								138,818
Retained earnings:
Appropriated for legal reserve			39,944								38,230
Unappropriated			1,097,588								1,034,504
Accumulated other comprehensive income (loss) (Notes 5, 6, 10 and 12)			52,021								(43,440	)
Treasury stock at cost, 29,934,560 shares at December 31, 2013 and 30,351,401 shares at March 31, 2013			(42,211	)							(42,788	)
Total Komatsu Ltd. shareholders’ equity			1,354,582				49.8				1,193,194				47.4
Noncontrolling interests			63,063				2.3				59,501				2.4
Total equity			1,417,645				52.1				1,252,695				49.8
		¥	2,721,354				100.0			¥	2,517,857				100.0

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

 

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Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Unaudited)

Komatsu Ltd. and Consolidated Subsidiaries

Nine months ended December 31, 2013 and 2012

Consolidated Statements of Income

 

		Nine months ended December 31, 2013								Nine months ended December 31, 2012
		Millions of yen				Component ratio (%)				Millions of yen				Component ratio (%)
Net sales		¥	1,389,514				100.0			¥	1,350,578				100.0
Cost of sales (Note 10)			991,363				71.3				986,846				73.1
Selling, general and administrative expenses (Note 7)			234,442				16.9				212,663				15.7
Other operating income (expenses), net			1,923				0.1				(578	)			(0.0	)
Operating income			165,632				11.9				150,491				11.1
Other income (expenses), net
Interest and dividend income			3,060				0.2				3,209				0.2
Interest expense			(6,634	)			(0.5	)			(6,155	)			(0.5	)
Other, net (Notes 5, 10 and 12)			8,073				0.6				(1,957	)			(0.1	)
Total			4,499				0.3				(4,903	)			(0.4	)
Income before income taxes and equity in earnings of affiliated companies			170,131				12.2				145,588				10.8
Income taxes
Current			42,946								47,039
Deferred			6,588								1,219
Total			49,534				3.6				48,258				3.6
Income before equity in earnings of affiliated companies			120,597				8.7				97,330				7.2
Equity in earnings of affiliated companies			1,633				0.1				1,007				0.1
Net income			122,230				8.8				98,337				7.3
Less: Net income attributable to noncontrolling interests			6,893				0.5				7,241				0.5
Net income attributable to Komatsu Ltd.		¥	115,337				8.3			¥	91,096				6.7
		Yen
		Nine months ended December 31, 2013								Nine months ended December 31, 2012
Net income attributable to Komatsu Ltd. per share (Note 8)
Basic		¥	121.01							¥	95.66
Diluted			120.88								95.57
Cash dividends per share (Note 14)			53.00								45.00

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

 

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Consolidated Statements of Comprehensive Income

 

		Nine months ended December 31, 2013				Nine months ended December 31, 2012
		Millions of yen				Millions of yen
Net income		¥	122,230			¥	98,337
Other comprehensive income (loss), for the period, net of tax
Foreign currency translation adjustments (Note 6)			89,561				36,186
Net unrealized holding gains (losses) on securities available for sale (Notes 5 and 6)			8,171				125
Pension liability adjustments (Note 6)			832				1,611
Net unrealized holding gains (losses) on derivative instruments (Notes 6 and 10)			361				(18	)
Total			98,925				37,904
Comprehensive income (loss)			221,155				136,241
Less: Comprehensive income (loss) attributable to noncontrolling interests			10,378				9,442
Comprehensive income (loss) attributable to Komatsu Ltd.		¥	210,777			¥	126,799

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

 

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Three months ended December 31, 2013 and 2012

Consolidated Statements of Income

 

		Three months ended December 31, 2013								Three months ended December 31, 2012
		Millions of yen				Component ratio (%)				Millions of yen				Component ratio (%)
Net sales		¥	464,393				100.0			¥	419,729				100.0
Cost of sales (Note 10)			330,822				71.2				308,761				73.6
Selling, general and administrative expenses (Note 7)			78,955				17.0				71,179				17.0
Other operating income (expenses), net			2,070				0.4				(562	)			(0.1	)
Operating income			56,686				12.2				39,227				9.3
Other income (expenses), net
Interest and dividend income			774				0.2				941				0.2
Interest expense			(2,271	)			(0.5	)			(1,649	)			(0.4	)
Other, net (Notes 5, 10 and 12)			2,481				0.5				1,685				0.4
Total			984				0.2				977				0.2
Income before income taxes and equity in earnings of affiliated companies			57,670				12.4				40,204				9.6
Income taxes
Current			14,202								10,805
Deferred			5,212								2,737
Total			19,414				4.2				13,542				3.2
Income before equity in earnings of affiliated companies			38,256				8.2				26,662				6.4
Equity in earnings of affiliated companies			689				0.1				439				0.1
Net income			38,945				8.4				27,101				6.5
Less: Net income attributable to noncontrolling interests			2,418				0.5				2,117				0.5
Net income attributable to Komatsu Ltd.		¥	36,527				7.9			¥	24,984				6.0
		Yen
		Three months ended December 31, 2013								Three months ended December 31, 2012
Net income attributable to Komatsu Ltd. per share (Note 8)
Basic		¥	38.32							¥	26.23
Diluted			38.28								26.21
Cash dividends per share (Note 14)			29.00								24.00

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

 

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Consolidated Statements of Comprehensive Income

 

		Three months ended December 31, 2013				Three months ended December 31, 2012
		Millions of yen				Millions of yen
Net income		¥	38,945			¥	27,101
Other comprehensive income (loss), for the period, net of tax
Foreign currency translation adjustments (Note 6)			66,293				80,008
Net unrealized holding gains (losses) on securities available for sale (Notes 5 and 6)			4,378				6,638
Pension liability adjustments (Note 6)			330				409
Net unrealized holding gains (losses) on derivative instruments (Notes 6 and 10)			(423	)			(1,398	)
Total			70,578				85,657
Comprehensive income (loss)			109,523				112,758
Less: Comprehensive income (loss) attributable to noncontrolling interests			6,060				7,250
Comprehensive income (loss) attributable to Komatsu Ltd.		¥	103,463			¥	105,508

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

 

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Consolidated Statements of Equity (Unaudited)

Komatsu Ltd. and Consolidated Subsidiaries

 

Nine months ended December 31, 2013																										Millions of yen
		Common stock				Capital surplus				Retained earnings								Accumulated other comprehensive income (loss)				Treasury stock				Total Komatsu Ltd. shareholders’ equity				Noncontrolling interests				Total equity
										Appropriated for legal reserve				Unappropriated
Balance at March 31, 2013		¥	67,870			¥	138,818			¥	38,230			¥	1,034,504			¥	(43,440	)		¥	(42,788	)		¥	1,193,194			¥	59,501			¥	1,252,695
Cash dividends (Note 14)															(50,539	)											(50,539	)			(5,574	)			(56,113	)
Transfer to retained earnings appropriated for legal reserve											1,714				(1,714	)											—								—
Other changes							(112	)											21								(91	)			(1,242	)			(1,333	)
Net income															115,337												115,337				6,893				122,230
Other comprehensive income(loss), for the period, net of tax (Note 6)																			95,440								95,440				3,485				98,925
Issuance and exercise of stock acquisition rights (Note 7)							322																				322								322
Purchase of treasury stock																							(41	)			(41	)							(41	)
Sales of treasury stock							342																618				960								960
Balance at December 31, 2013		¥	67,870			¥	139,370			¥	39,944			¥	1,097,588			¥	52,021			¥	(42,211	)		¥	1,354,582			¥	63,063			¥	1,417,645
Nine months ended December 31, 2012																														Millions of yen
		Common stock				Capital surplus				Retained earnings								Accumulated other comprehensive income (loss)				Treasury stock				Total Komatsu Ltd. shareholders’ equity				Noncontrolling interests				Total equity
										Appropriated for legal reserve				Unappropriated
Balance at March 31, 2012		¥	67,870			¥	138,384			¥	37,954			¥	951,395			¥	(142,389	)		¥	(43,518	)		¥	1,009,696			¥	47,761			¥	1,057,457
Cash dividends (Note 14)															(42,877	)											(42,877	)			(5,689	)			(48,566	)
Transfer to retained earnings appropriated for legal reserve											268				(268	)											—								—
Other changes																											—				(47	)			(47	)
Net income															91,096												91,096				7,241				98,337
Other comprehensive income(loss), for the period, net of tax (Note 6)																			35,703								35,703				2,201				37,904
Issuance and exercise of stock acquisition rights (Note 7)							499																				499								499
Purchase of treasury stock																							(26	)			(26	)							(26	)
Sales of treasury stock															(54	)							107				53								53
Balance at December 31, 2012		¥	67,870			¥	138,883			¥	38,222			¥	999,292			¥	(106,686	)		¥	(43,437	)		¥	1,094,144			¥	51,467			¥	1,145,611

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

 

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Consolidated Statements of Cash Flows (Unaudited)

Komatsu Ltd. and Consolidated Subsidiaries

Nine months ended December 31, 2013 and 2012

 

		Millions of yen
		Nine months ended December 31, 2013				Nine months ended December 31, 2012
Operating activities
Net income		¥	122,230			¥	98,337
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			64,028				64,597
Deferred income taxes			6,588				1,219
Impairment loss and net loss (gain) from sale of investment securities			(1,605	)			97
Net loss (gain) on sale of property			(4,329	)			(435	)
Loss on disposal of fixed assets			2,271				1,045
Pension and retirement benefits, net			1,645				569
Changes in assets and liabilities:
Decrease (increase) in trade receivables			61,729				59,788
Decrease (increase) in inventories			(36,017	)			(16,669	)
Increase (decrease) in trade payables			(1,570	)			(71,360	)
Increase (decrease) in income taxes payable			(8,579	)			(7,225	)
Other, net			(17,397	)			(875	)
Net cash provided by (used in) operating activities			188,994				129,088
Investing activities
Capital expenditures			(130,987	)			(104,356	)
Proceeds from sale of property			19,776				6,402
Proceeds from sale of available for sale investment securities			4,332				595
Purchases of available for sale investment securities			(35	)			(11	)
Acquisition of subsidiaries and equity investees, net of cash acquired			(4,539	)			(5,752	)
Collection of loan receivables			225				613
Disbursement of loan receivables			(16	)			(50	)
Decrease (increase) in time deposits, net			860				788
Net cash provided by (used in) investing activities			(110,384	)			(101,771	)
Financing activities
Proceeds from debt issued (Original maturities greater than three months) (Note 2)			153,316				286,620
Payment on debt (Original maturities greater than three months) (Note 2)			(167,531	)			(268,534	)
Short-term debt - net (Original maturities three months or less) (Note 2)			10,870				21,914
Repayments of capital lease obligations			(2,552	)			(5,057	)
Sale (purchase) of treasury stock, net			(26	)			44
Dividends paid			(50,539	)			(42,877	)
Other, net			(6,068	)			(7,002	)
Net cash provided by (used in) financing activities			(62,530	)			(14,892	)
Effect of exchange rate change on cash and cash equivalents			1,190				(503	)
Net increase (decrease) in cash and cash equivalents			17,270				11,922
Cash and cash equivalents, beginning of year			93,620				83,079
Cash and cash equivalents, end of period		¥	110,890			¥	95,001

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

 

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Notes to Quarterly Consolidated Financial Statements (Unaudited)

Komatsu Ltd. and Consolidated Subsidiaries

Nine months ended December 31, 2013 and 2012

1. Basis of Quarterly Financial Statement Presentation and Summary of Significant Accounting Policies

Basis of Quarterly Financial Statement Presentation

Komatsu Ltd. (“Company”) and its consolidated subsidiaries (together “Komatsu”) prepare and present the accompanying quarterly consolidated financial statements in accordance with generally accepted accounting principles in the United States of America.

Summary of Significant Accounting Policies

(1) Adoption of new accounting standards

Komatsu adopted the Accounting Standards Update (“ASU”) 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”, starting in the first quarter period of FY2013, ending March 31, 2014. This update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component, and to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. ASU 2013-02 being a disclosure regulation, such adoption did not have any impact on Komatsu’s financial position and results of operations. The disclosures required by ASU2013-02 are provided in Note 6. Other Comprehensive Income (Loss).

(2) Change in depreciation method

The Company and some of its consolidated subsidiaries which had adopted the declining balance method for depreciation of property, plant and equipment changed the depreciation method to the straight-line method beginning April 1, 2013.

Komatsu promotes continuous innovation of technologies by concentrating the production of high-value added and technologically important key components in Japan, and also undertakes integrated development and production under the Mother Plant system. As a general rule, Komatsu engages in local production in different parts of the world where there is sufficient market demand for its products. With respect to mainstay products, however, Komatsu has facilitated effective use of its global production capacities by cross sourcing finished products after producing them at its most cost-effective plants and exporting them in light of changes in market demand and foreign exchange rate. Komatsu is establishing its production efficiency, standardization of production and stable operation of production facilities through renewing its old factory buildings in Japan, reassessing logistics and reforming production process by technology innovation as well as cutting down electric power consumption to half at its plants in Japan. With respect to capital investment, Komatsu continues to invest in its production facilities for renovation at a constant level. In light of those activities, Komatsu expects stable production and facility utilization within its production capacity, and is able to receive economic benefits from those facilities at a constant rate throughout their durable periods.

As a result of reviewing its depreciation method, Komatsu concluded that the straight-line method would be an appropriate depreciation method to reflect its usage of property, plants and equipment and to allocate the costs in earnings.

The effect of the change in depreciation method is recognized prospectively as a change in accounting estimate in accordance with the FASB Accounting Standards Codification (ASC) 250 “Accounting Changes and Error Corrections”.

As a result of the change in depreciation method, depreciation expense for the nine months ended December 31, 2013 decreased by ¥8,651 million. Net Income attributable to Komatsu Ltd. for the nine months ended December 31, 2013 increased by ¥5,355 million. Basic and Diluted net income attributable to Komatsu Ltd. per common share for the nine months ended December 31, 2013 increased by ¥5.62, and ¥5.61, respectively.

Excluding the above, there is no material change for Summary of Significant Accounting Policies stated in annual report for the year ended March 31, 2013.

 

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2. Supplemental Cash Flow Information

Additional cash flow information and noncash investing and financing activities for the nine months ended December 31, 2013 and 2012 are as follows:

 

		Millions of yen
		Nine months ended December 31, 2013				Nine months ended December 31, 2012
Additional cash flow information:
Interest paid		¥	7,168			¥	6,824
Income taxes paid			60,280				48,693
Noncash investing and financing activities:
Capital lease obligations incurred		¥	1,340			¥	3,258

In the consolidated statements of cash flow, Komatsu disclosed its cash flow of short-term debt in financing activities on a net amount basis in the nine months ended December 31, 2012. Komatsu discloses its cash flow on a net amount basis for the debts whose original maturities are three months or less in the nine months ended December 31, 2013. The consolidated statements of cash flow for the nine months ended December 31, 2012 have been re-presented to be consistent with the December 31, 2013 presentation. This change does not have any impact on the reported total cash flow from financing activities.

 

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3. Allowance for Doubtful Receivables

At December 31, 2013 and at March 31, 2013, allowances for doubtful receivables deducted from Trade notes and accounts receivable, net and Long-term trade receivables, net are ¥18,723 million and ¥17,994 million, respectively.

 

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4. Inventories

At December 31, 2013 and at March 31, 2013, inventories comprised the following:

 

		Millions of yen
		December 31, 2013				March 31, 2013
Finished products, including finished parts held for sale		¥	520,137			¥	437,729
Work in process			148,740				141,166
Materials and supplies			59,340				54,752
Total		¥	728,217			¥	633,647

 

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5. Investment Securities

Investment securities at December 31, 2013 and at March 31, 2013, primarily consisted of securities available for sale.

Unrealized holding gains and losses are included as a component of accumulated other comprehensive income (loss) until realized.

The cost, gross unrealized holding gains and losses, and fair value for such investment securities by major security types at December 31, 2013 and at March 31, 2013, are as follows:

 

		Millions of yen
						Gross unrealized holding
		Cost				Gains				Losses				Fair value
At December 31, 2013
Investment securities:
Marketable equity securities available for sale		¥	15,667			¥	45,621			¥	1			¥	61,287
Other investment securities at cost			8,285
		¥	23,952
At March 31, 2013
Investment securities:
Marketable equity securities available for sale		¥	17,915			¥	33,047			¥	8			¥	50,954
Other investment securities at cost			8,325
		¥	26,240

Other investment securities primarily include non-marketable equity securities.

Proceeds from the sales of investment securities available for sale during the nine months ended December 31, 2013 and 2012, amounted to ¥4,332 million and ¥595 million, respectively.

Impairment loss and net gain (loss) from sale of investment securities available for sale during the nine months ended December 31, 2013 and 2012, amounted to gains of ¥1,605 million and losses of ¥97 million, respectively. Impairment loss and net gain (loss) from sale of investment securities available for sale during the three months ended December 31, 2013 and 2012, amounted to gains of ¥107 million and losses of ¥16 million, respectively. Such gains and losses were included in other income (expenses), net in the accompanying consolidated statements of income.

The cost of the investment securities sold was computed based on the average-cost method.

Gross unrealized holding losses and the fair value of available-for-sale securities, aggregated by length of time that individual securities have been in a continuous unrealized loss position at December 31, 2013 and at March 31, 2013, are as follows:

 

		Millions of yen
		Less than 12 months								12 months or longer								Total
		Fair value				Gross unrealized holding losses				Fair value				Gross unrealized holding losses				Fair value				Gross unrealized holding losses
At December 31, 2013
Investment securities:
Marketable equity securities available for sale		¥	28			¥	1			¥	—			¥	—			¥	28			¥	1
At March 31, 2013
Investment securities:
Marketable equity securities available for sale		¥	190			¥	8			¥	—			¥	—			¥	190			¥	8

Komatsu judged the decline in fair value of investment securities at December 31, 2013 and at March 31, 2013, to be temporary, by considering such factors as financial and operating conditions of issuer, the industry in which the issuer operates and other relevant factors.

 

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6. Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) for the nine months ended December 31, 2013 and the three months ended December 31, 2013 are as follows:

 

		Millions of yen
		Nine months ended December 31, 2013
		Foreign currency translation adjustments				Net unrealized holding gains (losses) on securities available for sale				Pension liability adjustments				Net unrealized holding gains (losses) on derivative instruments				Total
Balance, beginning of year		¥	(38,833	)		¥	21,519			¥	(24,835	)		¥	(1,291	)		¥	(43,440	)
Other comprehensive income (loss) before reclassifications			91,851				9,079				(185	)			(6,729	)			94,016
Amounts reclassified from accumulated other comprehensive income (loss)			(2,290	)			(908	)			1,017				7,090				4,909
Net current-period other comprehensive income (loss)			89,561				8,171				832				361				98,925
Less: Other comprehensive income (loss) attributable to noncotrolling interests			3,404				—				(5	)			86				3,485
Other comprehensive income (loss) attributable to Komatsu Ltd.			86,157				8,171				837				275				95,440
Equity transactions with noncontrolling interests			21				—				—				—				21
Balance, end of period		¥	47,345			¥	29,690			¥	(23,998	)		¥	(1,016	)		¥	52,021

All amounts are net of tax.

 

		Millions of yen
		Three months ended December 31, 2013
		Foreign currency translation adjustments				Net unrealized holding gains (losses) on securities available for sale				Pension liability adjustments				Net unrealized holding gains (losses) on derivative instruments				Total
Balance, beginning of period		¥	(15,359	)		¥	25,312			¥	(24,330	)		¥	(538	)		¥	(14,915	)
Other comprehensive income (loss) before reclassifications			66,293				4,378				47				(3,696	)			67,022
Amounts reclassified from accumulated other comprehensive income (loss)			—				—				283				3,273				3,556
Net current-period other comprehensive income (loss)			66,293				4,378				330				(423	)			70,578
Less: Other comprehensive income (loss) attributable to noncotrolling interests			3,589				—				(2	)			55				3,642
Other comprehensive income (loss) attributable to Komatsu Ltd.			62,704				4,378				332				(478	)			66,936
Equity transactions with noncontrolling interests			—				—				—				—				—
Balance, end of period		¥	47,345			¥	29,690			¥	(23,998	)		¥	(1,016	)		¥	52,021

All amounts are net of tax.

 

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Reclassifications out of accumulated other comprehensive income (loss) for the nine months ended December 31, 2013 and the three months ended December 31, 2013 are as follows:

 

		Millions of yen
		Nine months ended December 31, 2013				Affected line items in consolidated statements of income
Foreign currency translation adjustments
Liquidation		¥	2,290			Other income (expenses), net: Other, net
			2,290			Total before tax
			—			Income taxes
			2,290			Net of tax
Net unrealized holding gains (losses) on securities available for sale
Gain from sale			1,498			Other income (expenses), net: Other, net
			1,498			Total before tax
			(590	)		Income taxes
			908			Net of tax
Pension liability adjustments
Amortization of actuarial loss and prior service cost			(1,838	)		*1
			(1,838	)		Total before tax
			821			Income taxes
			(1,017	)		Net of tax
Net unrealized holding gains (losses) on derivative instruments
Forwards contracts			(11,454	)		Other income (expenses), net: Other, net
			(11,454	)		Total before tax
			4,364			Income taxes
			(7,090	)		Net of tax
Total reclassifications for the period		¥	(4,909	)		Net of tax
*1     This amount is included in the computation of net periodic pension cost.
		Millions of yen
		Three months ended December 31, 2013				Affected line items in consolidated statements of income
Pension liability adjustments
Amortization of actuarial loss and prior service cost		¥	(674	)		*1
			(674	)		Total before tax
			391			Income taxes
			(283	)		Net of tax
Net unrealized holding gains (losses) on derivative instruments
Forwards contracts			(5,288	)		Other income (expenses), net: Other, net
			(5,288	)		Total before tax
			2,015			Income taxes
			(3,273	)		Net of tax
Total reclassifications for the period		¥	(3,556	)		Net of tax

 

*1	This amount is included in the computation of net periodic pension cost.

 

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Tax effects allocated to each component of other comprehensive income (loss) for the nine months ended December 31, 2013 and the three months ended December 31, 2013 are as follows:

 

		Millions of yen
		Nine months ended December 31, 2013
		Before tax amount				Tax (expense) or benefit				Net of tax amount
Foreign currency translation adjustments
Foreign currency translation adjustments arising during period		¥	92,003			¥	(152	)		¥	91,851
Less: Reclassification adjustment for gains included in net income			(2,290	)			—				(2,290	)
Net foreign currency translation adjustments			89,713				(152	)			89,561
Net unrealized holding gains (losses) on securities available for sale
Unrealized holding gains arising during period			14,067				(4,988	)			9,079
Less: Reclassification adjustment for gains included in net income			(1,498	)			590				(908	)
Net unrealized gains			12,569				(4,398	)			8,171
Pension liability adjustments
Pension liability adjustments arising during period			(283	)			98				(185	)
Less: Reclassification adjustment for losses included in net income			1,838				(821	)			1,017
Net pension liability adjustments			1,555				(723	)			832
Net unrealized holding gains (losses) on derivative instruments
Changes in fair value of derivatives			(10,911	)			4,182				(6,729	)
Net losses reclassified into earnings			11,454				(4,364	)			7,090
Net unrealized gains			543				(182	)			361
Other comprehensive income (loss)		¥	104,380			¥	(5,455	)		¥	98,925
		Millions of yen
		Three months ended December 31, 2013
		Before tax amount				Tax (expense) or benefit				Net of tax amount
Foreign currency translation adjustments
Foreign currency translation adjustments arising during period		¥	66,398			¥	(105	)		¥	66,293
Less: Reclassification adjustment for gains included in net income			—				—				—
Net foreign currency translation adjustments			66,398				(105	)			66,293
Net unrealized holding gains (losses) on securities available for sale
Unrealized holding gains arising during period			6,685				(2,307	)			4,378
Less: Reclassification adjustment for gains included in net income			—				—				—
Net unrealized gains			6,685				(2,307	)			4,378
Pension liability adjustments
Pension liability adjustments arising during period			49				(2	)			47
Less: Reclassification adjustment for losses included in net income			674				(391	)			283
Net pension liability adjustments			723				(393	)			330
Net unrealized holding gains (losses) on derivative instruments
Changes in fair value of derivatives			(5,997	)			2,301				(3,696	)
Net losses reclassified into earnings			5,288				(2,015	)			3,273
Net unrealized losses			(709	)			286				(423	)
Other comprehensive income (loss)		¥	73,097			¥	(2,519	)		¥	70,578

 

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7. Share-Based Compensation

The Company has two types of stock option plans as share-based compensation for directors and certain employees and certain directors of subsidiaries.

The stock option plans resolved by the Board of Directors’ meetings held in and before June 2010

The right to purchase the Company’s shares is granted at a predetermined price to directors and certain employees and certain directors of subsidiaries. The purchase price is the amount calculated by taking the average of the closing prices applicable to ordinary transactions of shares of the Company on the Tokyo Stock Exchange on all days for a month immediately preceding the month in which the date of grant of the right falls and multiplying by 1.05, provided that the exercise price shall not be less than the closing price of the shares of the Company on the Tokyo Stock Exchange on the date of the grant.

The stock option plans resolved by the Board of Directors’ meetings held in and after July 2010

The right to purchase the Company’s shares is granted at an exercise price of ¥1 per share to directors and certain employees and certain directors of subsidiaries.

Based on the resolutions of the shareholders’ meeting on June 23, 2010 and the Board of Directors on July 12, 2012, the Company issued 843 rights of its share acquisition rights to directors. Based on the resolutions of the shareholders’ meeting on June 20, 2012 and the Board of Directors on July 12, 2012, the Company also issued 2,555 rights of its share acquisition rights to certain employees and certain directors of subsidiaries during the year ended March 31, 2013. The options vest 100% on each of the grant dates and are exercisable from August 1, 2015.

In addition, based on the resolutions of the shareholders’ meeting on June 23, 2010 and the Board of Directors on July 17, 2013, the Company issued 561 rights of its share acquisition rights to directors. Based on the resolutions of the shareholders’ meeting on June 19, 2013 and the Board of Directors on July 17, 2013, the Company also issued 2,358 rights of its share acquisition rights to certain employees and certain directors of subsidiaries during the year ending March 31, 2014. The options vest 100% on each of the grant dates and are exercisable from August 1, 2016.

The number of shares subject to one share acquisition rights is 100 shares.

The Company recognizes compensation expense using the fair value method. Compensation expenses during the nine months ended December 31, 2013 and 2012 were ¥564 million and ¥500 million, respectively, and were recorded in selling, general and administrative expenses. Compensation expenses during the three months ended December 31, 2013 and 2012 were ¥338 million and ¥300 million, respectively, and were recorded in selling, general and administrative expenses.

The Company transfers treasury stock without issuance of new stock when the share acquisition rights are exercised.

 

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8. Net Income Attributable to Komatsu Ltd. per Share

A reconciliation of the numerators and denominators of the basic and diluted net income attributable to Komatsu Ltd. per share computations is as follows:

 

		Millions of yen
		Nine months ended December 31, 2013				Nine months ended December 31, 2012
Net income attributable to Komatsu Ltd.		¥	115,337			¥	91,096
		Number of shares
		Nine months ended December 31, 2013				Nine months ended December 31, 2012
Weighted average common shares outstanding, less treasury stock			953,113,777				952,321,093
Dilutive effect of:
Stock options			1,030,276				843,019
Weighted average diluted common shares outstanding			954,144,053				953,164,112
		Yen
		Nine months ended December 31, 2013				Nine months ended December 31, 2012
Net income attributable to Komatsu Ltd. per share:
Basic		¥	121.01			¥	95.66
Diluted		¥	120.88			¥	95.57
		Millions of yen
		Three months ended December 31, 2013				Three months ended December 31, 2012
Net income attributable to Komatsu Ltd.		¥	36,527			¥	24,984
		Number of shares
		Three months ended December 31, 2013				Three months ended December 31, 2012
Weighted average common shares outstanding, less treasury stock			953,193,946				952,324,598
Dilutive effect of:
Stock options			1,102,548				958,077
Weighted average diluted common shares outstanding			954,296,494				953,282,675
		Yen
		Three months ended December 31, 2013				Three months ended December 31, 2012
Net income attributable to Komatsu Ltd. per share:
Basic		¥	38.32			¥	26.23
Diluted		¥	38.28			¥	26.21

 

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9. Contingent Liabilities

At December 31, 2013 and at March 31, 2013, Komatsu was contingently liable for discounted and transferred receivables on a recourse basis with the financial institutions of ¥314 million and ¥406 million, respectively.

Komatsu provides guarantees to third parties of loans of the employees, affiliated companies, customers and other companies. The guarantees of loans relating to the employees are mainly made for their housing loans. The guarantees of loans relating to the affiliated companies, customers and other companies are made to enhance the credit of those companies.

For each guarantee provided, Komatsu would have to perform under a guarantee, if the borrower defaults on a payment within the contract terms. The contract terms are from 10 years to 30 years in the case of employees with housing loans, and from 1 year to 11 years in the case of loans relating to the affiliated companies, customers and other companies. The maximum amount of undiscounted payments Komatsu would have had to make in the event of default was ¥78,879 million and ¥94,776 million at December 31, 2013 and at March 31, 2013, respectively. The fair value of the liabilities recognized for Komatsu’s obligations as guarantors under those guarantees at December 31, 2013 was insignificant. Certain of those guarantees were secured by collateral and insurance issued to the Company.

Management of Komatsu believes that losses from those contingent liabilities, if any, would not have a material effect on the consolidated financial statements.

Komatsu is involved in certain legal actions and claims arising in the ordinary course of its business. It is the opinion of management and legal counsel that such litigation and claims will be resolved without material effect on Komatsu’s financial statements.

Komatsu has business activities with customers, dealers and associates around the world and its trade receivables from such parties and the guarantees for them are well diversified to minimize concentrations of credit risks. Management does not anticipate incurring losses on its trade receivables in excess of established allowances.

 

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10. Derivative Financial Instruments

Notional principal amounts of derivative financial instruments outstanding at December 31, 2013 and at March 31, 2013 are as follows:

 

		Millions of yen
		December 31, 2013				March 31, 2013
Forwards:
Sale of foreign currencies		¥	116,321			¥	130,060
Purchase of foreign currencies			48,048				39,904
Interest rate swaps, cross-currency swaps and interest rate cap agreements			91,305				103,182

Fair value of derivative instruments at December 31, 2013 and at March 31, 2013 on the consolidated balance sheets are as follows (Notes 11 and 12):

 

		Millions of yen
		December 31, 2013
		Derivative Assets						Derivative Liabilities
Derivative instruments designated as hedging instruments		Location on the consolidated Balance Sheets		Estimated fair value				Location on the consolidated Balance Sheets		Estimated fair value
Forwards contracts		Deferred income taxes and other current assets		¥	—			Deferred income taxes and other current liabilities		¥	2,281
		Deferred income taxes and other assets			—			Deferred income taxes and other liabilities			7,590
Interest rate swaps, cross-currency swaps and interest rate cap agreements		Deferred income taxes and other current assets			15			Deferred income taxes and other current liabilities			677
Total				¥	15					¥	10,548
		Derivative Assets						Derivative Liabilities
Undesignated derivative instruments		Location on the consolidated Balance Sheets		Estimated fair value				Location on the consolidated Balance Sheets		Estimated fair value
Forwards contracts		Deferred income taxes and other current assets		¥	938			Deferred income taxes and other current liabilities		¥	2,717
		Deferred income taxes and other assets			1			Deferred income taxes and other liabilities			—
Interest rate swaps, cross-currency swaps and interest rate cap agreements		Deferred income taxes and other current assets			312			Deferred income taxes and other current liabilities			791
		Deferred income taxes and other assets			—			Deferred income taxes and other liabilities			284
Total				¥	1,251					¥	3,792
Total Derivative Instruments				¥	1,266					¥	14,340

 

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		Millions of yen
		March 31, 2013
		Derivative Assets						Derivative Liabilities
Derivative instruments designated as hedging instruments		Location on the consolidated Balance Sheets		Estimated fair value				Location on the consolidated Balance Sheets		Estimated fair value
Forwards contracts		Deferred income taxes and other current assets		¥	43			Deferred income taxes and other current liabilities		¥	2,479
		Deferred income taxes and other assets			—			Deferred income taxes and other liabilities			3,905
Interest rate swaps, cross-currency swaps and interest rate cap agreements		Deferred income taxes and other current assets			42			Deferred income taxes and other current liabilities			1,063
Total				¥	85					¥	7,447
		Derivative Assets						Derivative Liabilities
Undesignated derivative instruments		Location on the consolidated Balance Sheets		Estimated fair value				Location on the consolidated Balance Sheets		Estimated fair value
Forwards contracts		Deferred income taxes and other current assets		¥	463			Deferred income taxes and other current liabilities		¥	3,628
		Deferred income taxes and other assets			1			Deferred income taxes and other liabilities			11
Interest rate swaps, cross-currency swaps and interest rate cap agreements		Deferred income taxes and other current assets			2			Deferred income taxes and other current liabilities			791
		Deferred income taxes and other assets			288			Deferred income taxes and other liabilities			272
Total				¥	754					¥	4,702
Total Derivative Instruments				¥	839					¥	12,149

 

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The effects of derivative instruments on the consolidated statements of income and consolidated statements of comprehensive income for the nine months ended December 31, 2013 and 2012 are as follows:

Derivative instruments designated as cash flow hedging relationships

 

		Millions of yen
		Nine months ended December 31, 2013
		Effective portion												Ineffective portion and amount excluded from effectiveness testing
		Amount of gains (losses) recognized in OCI on derivatives				Location of gains (losses) reclassified from accumulated OCI into income				Amount of gains (losses) reclassified from accumulated OCI into income				Location of gains (losses) recognized in income on derivatives				Amount of gains (losses) recognized in income on derivatives
Forwards contracts		¥	(11,218	)			Other income (expenses), net: Other, net			¥	(11,454	)			—			¥	—
Interest rate swaps, cross-currency swaps and interest rate cap agreements			307				—				—				—				—
Total		¥	(10,911	)						¥	(11,454	)						¥	—
		Millions of yen
		Nine months ended December 31, 2012
		Effective portion												Ineffective portion and amount excluded from effectiveness testing
		Amount of gains (losses) recognized in OCI on derivatives				Location of gains (losses) reclassified from accumulated OCI into income				Amount of gains (losses) reclassified from accumulated OCI into income				Location of gains (losses) recognized in income on derivatives				Amount of gains (losses) recognized in income on derivatives
Forwards contracts		¥	(2,317	)			Other income (expenses), net: Other, net			¥	(2,923	)			—			¥	—
Interest rate swaps, cross-currency swaps and interest rate cap agreements			(558	)			—				—				—				—
Total		¥	(2,875	)						¥	(2,923	)						¥	—

OCI stands for other comprehensive income (loss).

 

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Derivative instruments not designated as hedging instruments relationships

 

		Millions of yen
		Nine months ended December 31, 2013
		Location of gains (losses) recognized in income on derivatives		Amount of gains (losses) recognized in income on derivatives
Forwards contracts		Other income (expenses), net: Other, net		¥	(1,780	)
Option contracts		Other income (expenses), net: Other, net			(0	)
Interest rate swaps, cross-currency swaps and interest rate cap agreements		Cost of sales			172
		Other income (expenses), net: Other, net			170
Total				¥	(1,438	)
		Millions of yen
		Nine months ended December 31, 2012
		Location of gains (losses) recognized in income on derivatives		Amount of gains (losses) recognized in income on derivatives
Forwards contracts		Other income (expenses), net: Other, net		¥	(2,748	)
Option contracts		Other income (expenses), net: Other, net			(4	)
Interest rate swaps, cross-currency swaps and interest rate cap agreements		Cost of sales			(55	)
		Other income (expenses), net: Other, net			(921	)
Total				¥	(3,728	)

The effects of derivative instruments on the consolidated statements of income and consolidated statements of comprehensive income for the three months ended December 31, 2013 and 2012 are as follows:

 

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Derivative instruments designated as cash flow hedging relationships

 

		Millions of yen
		Three months ended December 31, 2013
		Effective portion												Ineffective portion and amount excluded from effectiveness testing
		Amount of gains (losses) recognized in OCI on derivatives				Location of gains (losses) reclassified from accumulated OCI into income				Amount of gains (losses) reclassified from accumulated OCI into income				Location of gains (losses) recognized in income on derivatives				Amount of gains (losses) recognized in income on derivatives
Forwards contracts		¥	(6,194	)			Other income (expenses), net: Other, net			¥	(5,288	)			—			¥	—
Interest rate swaps, cross-currency swaps and interest rate cap agreements			197				—				—				—				—
Total		¥	(5,997	)						¥	(5,288	)						¥	—
		Millions of yen
		Three months ended December 31, 2012
		Effective portion												Ineffective portion and amount excluded from effectiveness testing
		Amount of gains (losses) recognized in OCI on derivatives				Location of gains (losses) reclassified from accumulated OCI into income				Amount of gains (losses) reclassified from accumulated OCI into income				Location of gains (losses) recognized in income on derivatives				Amount of gains (losses) recognized in income on derivatives
Forwards contracts		¥	(8,065	)			Other income (expenses), net: Other, net			¥	(5,657	)			—			¥	—
Interest rate swaps, cross-currency swaps and interest rate cap agreements			(363	)			—				—				—				—
Total		¥	(8,428	)						¥	(5,657	)						¥	—

OCI stands for other comprehensive income (loss).

 

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Derivative instruments not designated as hedging instruments relationships

 

		Millions of yen
		Three months ended December 31, 2013
		Location of gains (losses) recognized in income on derivatives		Amount of gains (losses) recognized in income on derivatives
Forwards contracts		Other income (expenses), net: Other, net		¥	(1,755	)
Option contracts		Other income (expenses), net: Other, net			—
Interest rate swaps, cross-currency swaps and interest rate cap agreements		Cost of sales			50
		Other income (expenses), net: Other, net			48
Total				¥	(1,657	)
		Millions of yen
		Three months ended December 31, 2012
		Location of gains (losses) recognized in income on derivatives		Amount of gains (losses) recognized in income on derivatives
Forwards contracts		Other income (expenses), net: Other, net		¥	(3,193	)
Option contracts		Other income (expenses), net: Other, net			(3	)
Interest rate swaps, cross-currency swaps and interest rate cap agreements		Cost of sales			(34	)
		Other income (expenses), net: Other, net			(313	)
Total				¥	(3,543	)

 

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11. Fair Values of Financial Instruments

(1) Cash and cash equivalents, Time deposits, Trade notes and accounts receivable, Other current assets, Short-term debt, Trade notes, bills and accounts payables, and Other current liabilities

The carrying amount approximates fair value because of the short maturity of these instruments.

(2) Investment securities, marketable equity 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 and are recognized on the accompanying consolidated balance sheets.

(3) Long-term trade receivables

The fair values of long-term trade 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.

(4) Long-term debt, including current portion (Note 12)

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 and is classified in Level 2 in the fair value hierarchy.

(5) Derivatives (Notes 10 and 12)

The fair values of derivative financial instruments, consisting principally of foreign exchange contracts and interest swap agreements, are estimated by obtaining quotes from brokers and are recognized on the accompanying consolidated balance sheets.

 

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The carrying amounts and the estimated fair values of the financial instruments, including financial instruments not qualifying as hedge, at December 31, 2013 and at March 31, 2013, are summarized as follows:

 

		Millions of yen
		December 31, 2013								March 31, 2013
		Carrying amount				Estimated fair value				Carrying amount				Estimated fair value
Cash and cash equivalents		¥	110,890			¥	110,890			¥	93,620			¥	93,620
Time deposits			132				132				217				217
Trade notes and accounts receivable, net			591,975				591,975				606,904				606,904
Long-term trade receivables, net			251,320				251,320				235,825				235,825
Investment securities, marketable equity securities			61,287				61,287				50,954				50,954
Short-term debt			254,988				254,988				205,156				205,156
Trade notes, bills and accounts payable			234,886				234,886				226,275				226,275
Long-term debt, including current portion			449,669				440,489				474,607				469,444
Derivatives:
Forwards contracts
Assets			939				939				507				507
Liabilities			12,588				12,588				10,023				10,023
Interest rate swaps, cross-currency swaps and interest rate cap agreements
Assets			327				327				332				332
Liabilities			1,752				1,752				2,126				2,126

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.

 

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12. Fair value measurements

ASC 820, “Fair Value Measurements and Disclosures” defines that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:

 

Level 1 –		Quoted prices in active markets for identical assets or liabilities
Level 2 –		Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly
Level 3 –		Unobservable inputs for the assets or liabilities

 

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Assets and liabilities that are measured at fair value on a recurring basis

The fair value hierarchy levels of assets and liabilities that are measured at fair value on a recurring basis at December 31, 2013 and at March 31, 2013 are as follows:

 

		Millions of yen
At December 31, 2013		Level 1				Level 2				Level 3				Total
Assets
Investment securities available for sale
Manufacturing industry		¥	31,953			¥	—			¥	—			¥	31,953
Financial service industry			24,769				—				—				24,769
Other			4,565				—				—				4,565
Derivatives
Forward contracts			—				939				—				939
Interest rate swaps, cross-currency swaps and interest rate cap agreements			—				327				—				327
Total		¥	61,287			¥	1,266			¥	—			¥	62,553
Liabilities
Derivatives
Forward contracts		¥	—			¥	12,588			¥	—			¥	12,588
Interest rate swaps, cross-currency swaps and interest rate cap agreements			—				1,752				—				1,752
Other			—				116,667				553				117,220
Total		¥	—			¥	131,007			¥	553			¥	131,560
		Millions of yen
At March 31, 2013		Level 1				Level 2				Level 3				Total
Assets
Investment securities available for sale
Manufacturing industry		¥	28,061			¥	—			¥	—			¥	28,061
Financial service industry			19,299				—				—				19,299
Other			3,594				—				—				3,594
Derivatives
Forward contracts			—				507				—				507
Interest rate swaps, cross-currency swaps and interest rate cap agreements			—				332				—				332
Total		¥	50,954			¥	839			¥	—			¥	51,793
Liabilities
Derivatives
Forward contracts		¥	—			¥	10,023			¥	—			¥	10,023
Interest rate swaps, cross-currency swaps and interest rate cap agreements			—				2,126				—				2,126
Other			—				76,239				639				76,878
Total		¥	—			¥	88,388			¥	639			¥	89,027

Investment securities available for sale

Marketable equity securities are classified in Level 1 in the fair value hierarchy. Marketable equity securities are measured using a market approach based on the quoted market prices in active markets.

 

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Derivatives (Notes 10 and 11)

Derivatives primarily represent foreign exchange contracts and interest rate swap agreements. The fair value of foreign exchange contracts is based on a valuation model that discounts cash flows resulting from the differential between contract rate and the market-based forward rate and is classified in Level 2 in the fair value hierarchy. The fair value of interest rate swap agreements is based on a valuation model that discounts cash flows based on the terms of the contract and the swap curves and is classified in Level 2 in the fair value hierarchy.

Other

Other primarily represents loans which are measured at fair value under the Fair Value Option of ASC 825, “Financial Instruments”. The fair value of loans is based on a valuation model based on market yield curve data and credit spread data and is classified in Level 2 in the fair value hierarchy. The credit spread data was obtained through use of credit default swaps for each counterparty.

The following table summarizes information about changes of Level 3 for the nine months ended December 31, 2013 and 2012

 

		Millions of yen
		Nine months ended December 31, 2013				Nine months ended December 31, 2012
Balance, beginning of year		¥	(639	)		¥	(752	)
Total gains or losses (realized / unrealized)			86				158
Included in earnings			153				183
Included in other comprehensive income (loss)			(67	)			(25	)
Balance, end of period		¥	(553	)		¥	(594	)

The amounts of unrealized gains on classified in Level 3 liabilities recognized in earnings for the nine months ended December 31, 2013 and 2012 related to liabilities still held at December 31, 2013 and 2012 were gains of ¥153 million and gains of ¥183 million, respectively. These gains were reported in other income (expenses), net of the consolidated statements of income.

The following table summarizes information about changes of Level 3 for the three months ended December 31, 2013 and 2012

 

		Millions of yen
		Three months ended December 31, 2013				Three months ended December 31, 2012
Balance, beginning of period		¥	(572	)		¥	(572	)
Total gains or losses (realized / unrealized)			19				(22	)
Included in earnings			61				40
Included in other comprehensive income (loss)			(42	)			(62	)
Balance, end of period		¥	(553	)		¥	(594	)

The amounts of unrealized gains on classified in Level 3 liabilities recognized in earnings for the three months ended December 31, 2013 and 2012 related to liabilities still held at December 31, 2013 and 2012 were gains of ¥61 million and gains of ¥40 million, respectively. These gains were reported in other income (expenses), net of the consolidated statements of income.

Assets and liabilities that are measured at fair value on a non-recurring basis

During nine months ended December 31, 2013 and 2012 assets and liabilities that were measured at fair value on a non-recurring basis were not material.

 

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13. Committed Credit lines

Certain consolidated subsidiaries have entered into contract with certain financial institutions for committed credit lines. These total amounts of committed credit lines at December 31, 2013 and at March 31, 2013 were ¥39,985 million and ¥49,997 million, respectively. These total amounts of unused committed credit lines available for full and immediate borrowings at December 31, 2013 and at March 31, 2013 were ¥16,345 million and ¥14,738 million, respectively.

 

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14. Dividends

Nine months ended December 31, 2013

Payment amount of dividends

 

Resolution

Type of stock

Aggregate amount of dividends (Millions of yen)

Resource of dividends

Dividend per share (Yen)

Record date

Effective date

Ordinary general meeting of shareholders held on June 19, 2013

Common stock

22,879

Retained earnings

24

March 31, 2013

June 20, 2013

Board of Directors held on October 28, 2013

Common stock

27,658

Retained earnings

29

September 30, 2013

November 29, 2013

Nine months ended December 31, 2012

Payment amount of dividends

 

Resolution

Type of stock

Aggregate amount of dividends (Millions of yen)

Resource of dividends

Dividend per share (Yen)

Record date

Effective date

Ordinary general meeting of shareholders held on June 20, 2012

Common stock

20,008

Retained earnings

21

March 31, 2012

June 21, 2012

Board of Directors held on October 30, 2012

Common stock

22,868

Retained earnings

24

September 30, 2012

November 30, 2012

The amount is rounded down to nearest million yen.

 

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15. Business Segment and Geographic Information

Komatsu has two operating segments: 1) Construction, Mining and Utility Equipment, and 2) Industrial Machinery and Others.

The accounting policies used by the segments are the same as those used in the preparation of the quarterly consolidated financial statements.

Segment profit is determined by subtracting the cost of sales and selling, general and administrative expenses from net sales attributed to the operating segment. Segment profit excludes certain general corporate administration and finance expenses, such as costs of executive management, corporate development, corporate finance, human resources, internal audit, investor relations, legal and public relations. Segment profit also excludes certain charges which may otherwise relate to operating segments, including impairments of long lived assets and goodwill.

Operating segments:

 

		Millions of yen
		Nine months ended December 31, 2013				Nine months ended December 31, 2012
Net sales:
Construction, Mining and Utility Equipment—
External customers		¥	1,248,856			¥	1,205,655
Intersegment			1,939				1,959
Total			1,250,795				1,207,614
Industrial Machinery and Others—
External customers			140,658				144,923
Intersegment			4,245				5,703
Total			144,903				150,626
Elimination			(6,184	)			(7,662	)
Consolidated		¥	1,389,514			¥	1,350,578
Segment profit:
Construction, Mining and Utility Equipment		¥	164,124			¥	148,381
Industrial Machinery and Others			1,122				3,824
Total segment profit			165,246				152,205
Corporate expenses and elimination			(1,537	)			(1,136	)
Total			163,709				151,069
Other operating income (expenses), net			1,923				(578	)
Operating income			165,632				150,491
Interest and dividend income			3,060				3,209
Interest expense			(6,634	)			(6,155	)
Other, net			8,073				(1,957	)
Consolidated income before income taxes and equity in earnings of affiliated companies		¥	170,131			¥	145,588

 

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		Millions of yen
		Three months ended December 31, 2013				Three months ended December 31, 2012
Net sales:
Construction, Mining and Utility Equipment—
External customers		¥	420,081			¥	367,987
Intersegment			643				477
Total			420,724				368,464
Industrial Machinery and Others—
External customers			44,312				51,742
Intersegment			992				1,685
Total			45,304				53,427
Elimination			(1,635	)			(2,162	)
Consolidated		¥	464,393			¥	419,729
Segment profit:
Construction, Mining and Utility Equipment		¥	58,331			¥	38,800
Industrial Machinery and Others			(3,686	)			523
Total segment profit			54,645				39,323
Corporate expenses and elimination			(29	)			466
Total			54,616				39,789
Other operating income (expenses), net			2,070				(562	)
Operating income			56,686				39,227
Interest and dividend income			774				941
Interest expense			(2,271	)			(1,649	)
Other, net			2,481				1,685
Consolidated income before income taxes and equity in earnings of affiliated companies		¥	57,670			¥	40,204

Business categories and principal products and services included in each operating segment are as follows:

a. Construction, Mining and Utility Equipment:

Excavating equipment, loading equipment, grading and roadbed preparation equipment, hauling equipment, forestry equipment, tunneling machines, recycling equipment, industrial vehicles, other equipment, engines and components, casting products and logistics

b. Industrial Machinery and Others:

Metal forging and stamping presses, sheet-metal machines, machine tools, defense systems, temperature-control equipment and others

Transfers between segments are made at estimated arm’s-length prices.

 

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Geographic information:

Net sales determined by customer location for the nine months ended December 31, 2013 and 2012 are as follows:

 

		Millions of yen
		Nine months ended December 31, 2013				Nine months ended December 31, 2012
Japan		¥	310,145			¥	271,095
The Americas			408,234				393,258
Europe and CIS			143,417				149,208
China			130,703				109,331
Asia (excluding Japan and China) and Oceania			283,272				338,221
Middle East and Africa			113,743				89,465
Consolidated net sales		¥	1,389,514			¥	1,350,578

Net sales determined by customer location for the three months ended December 31, 2013 and 2012 are as follows:

 

		Millions of yen
		Three months ended December 31, 2013				Three months ended December 31, 2012
Japan		¥	116,537			¥	92,179
The Americas			135,376				124,821
Europe and CIS			47,238				49,636
China			42,981				34,000
Asia (excluding Japan and China) and Oceania			84,994				91,447
Middle East and Africa			37,267				27,646
Consolidated net sales		¥	464,393			¥	419,729

Net sales determined by geographic origin for the nine months ended December 31, 2013 and 2012 are as follows:

 

		Millions of yen
		Nine months ended December 31, 2013				Nine months ended December 31, 2012
Japan		¥	460,600			¥	445,435
U.S.A.			383,967				377,196
Europe and CIS			153,994				147,681
China			113,777				84,668
Others			277,176				295,598
Consolidated net sales		¥	1,389,514			¥	1,350,578

Net sales determined by geographic origin for the three months ended December 31, 2013 and 2012 are as follows:

 

		Millions of yen
		Three months ended December 31, 2013				Three months ended December 31, 2012
Japan		¥	164,901			¥	144,317
U.S.A.			130,698				118,217
Europe and CIS			46,850				50,118
China			37,552				22,938
Others			84,392				84,139
Consolidated net sales		¥	464,393			¥	419,729

Other than in Japan, U.S.A. and China, no individual country had a material impact on net sales to external customers.

There were no sales to a single major external customer for the nine months and three months ended December 31, 2013 and 2012.

 

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16. Subsequent Event

There was no significant subsequent event to be disclosed.

 

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