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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Kubota Corporation (the “parent company”) and subsidiaries (collectively the “Company”) are one of Japan’s leading manufacturers of a comprehensive range of machinery and other industrial and consumer products, including farm equipment, engines, construction machinery, pipe-related products, environment-related products, and industrial castings. The manufacturing operations of the Company are conducted primarily at 20 plants in Japan and at 10 overseas plants located in the United States and certain other countries. Farm equipment, construction machinery, ductile iron pipe, and certain other products are sold both in Japan and in overseas markets which consist mainly of North America, Europe, and Asia. Basis of Financial Statements The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In September 2008, the Securities and Exchange Comission amended the foreign issuer reporting requirements to eliminate an option which permitted foreign private issuers to omit segment disclosures in accordance with U.S. GAAP. This amendment is effective for fiscal years ended on or after December 15, 2009, and was adopted by the Company in the year ended March 31, 2010 for all periods presented. Principles of Consolidation The consolidated financial statements include the accounts of the parent company and all majority-owned subsidiaries. The accounts of certain consolidated subsidiaries that have December 31 fiscal year-ends have been included in the March 31 consolidated financial statements. The accounts of variable interest entity (“VIE”) are included in the consolidated financial statements, as applicable. The Company is involved with a VIE which engages in farming by water culture. The VIE has been consolidated since the Company is the primary beneficiary. Total assets of the VIE at March 31, 2010 were ¥219 million. There are no restrictions on the use of the VIE’s assets. Also, the creditors or beneficial interest holders of the consolidated VIE have no recourse to the general credit of the Company. The Company is not a primary beneficiary of the unconsolidated VIEs and does not hold any significant variable interests in these VIEs. Intercompany items have been eliminated in consolidation. Investments in affiliates in which the Company has the ability to exercise significant influence over their operating and financial policies, but where the Company does not have a controlling financial interest are accounted for using the equity method. Use of Estimates Preparing financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect reported amounts and related disclosures. Significant estimates and assumptions are used primarily in the area of inventory valuation, impairment of investments, collectability of notes and receivables, impairment of long-lived assets, accruals for employee retirement and pension plans, valuation allowance for deferred tax assets, uncertain tax positions, revenue recognition for long-term contracts, and loss contingencies. Actual results could differ from those estimates. Foreign Currency Translation The assets and liabilities of foreign subsidiaries, using the local currency as their functional currency, are translated to Japanese yen based on the current exchange rate prevailing at each balance sheet date and any resulting translation adjustments are included in accumulated other comprehensive income (loss). Revenues and expenses are translated into Japanese yen using the average exchange rates prevailing for each period presented. Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Time deposits with original maturities of three months or less amounting to ¥24,230 million, ¥4,022 million, and ¥3,915 million, respectively, were included in cash and cash equivalents at March 31, 2010, 2009, and 2008,. Inventories Inventories are stated at the lower of cost or market. Cost is determined by the average-cost method.   Investments The Company classifies all its marketable equity securities as available for sale and carries them at fair value with a corresponding recognition of the net unrealized holding gains or losses (net of tax) as an item of other comprehensive income (loss) in equity. The fair values of those securities are determined based on quoted market prices. Gains and losses on sales of available-for-sale securities as well as other nonmarketable equity securities which are carried at cost are computed on the average-cost method. When a decline in a value of the marketable security is deemed to be other than temporary, the Company recognizes an impairment loss to the extent of the decline. In determining if and when such a decline in value is other than temporary, the Company evaluates the extent to which cost exceeds market value, the duration of market declines, and other key measures. Other non-marketable securities are stated at cost and reviewed periodically for impairment. Allowance for Doubtful Receivables The Company provides an allowance for doubtful notes and receivables. The allowance for these doubtful receivables is based on historical collection trends and management’s judgement on the collectability of these accounts. Historical collection trends, as well as prevailing and anticipated economic conditions, are routinely monitored by management, and any required adjustment to the allowance is reflected in current operations. Property, Plant, and Equipment Property, plant, and equipment are stated at cost less accumulated depreciation. Depreciation expenses related to manufacturing activities are included in cost of revenues, and the other depreciation expenses are classified in selling, general, and administrative expenses. Depreciation of those assets is principally computed using the declining-balance method based on the estimated useful lives of the assets. The estimated useful lives range from 10 to 50 years for buildings and from 2 to 14 years for machinery and equipment. Long-Lived Assets The Company evaluates long-lived assets to be held and used for impairment using an estimate of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the estimate of undiscounted cash flows is less than the carrying amount of the assets, an impairment loss is recorded based on the fair value of the assets. The Company evaluates long-lived assets to be disposed of by sale at the lower of carrying amount or fair value less cost to sell. Retirement and Pension Plans The funded status of the Company’s defined benefit pension plans and severance indemnity plans are recognized as an asset or a liability in the consolidated balance sheets with a corresponding adjustment to pension liability adjustment in accumulated other comprehensive income (loss), net of tax. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation at March 31, the measurement date. The Company amortizes the prior service costs (benefits) due to the amendments of the benefit plans over the average remaining service period of the participants at the time of amendments. The Company immediately recognizes net actuarial gains and losses in excess of 20% of the larger of the projected benefit obligation or plan assets in the year following the year in which such gains and losses were incurred, while the portion between 10% and 20% is amortized over the average participants’ remaining service period. Income Taxes Deferred tax assets and liabilities are computed based on the differences between the financial statement and the income tax bases of assets and liabilities and tax loss and other carry forwards using the enacted tax rate. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that management believes will more likely than not be realized. The Company recognizes the financial statement effects of tax positions when it is more likely than not, based on the technical merits, that the tax positions will be sustained upon examination by the tax authorities. Benefits from tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Interest and penalties accrued related to unrecognized tax benefits are included in income taxes in the consolidated statements of income. Sales Tax Revenues are presented exclusive of sales tax.   Revenue Recognition The Company recognizes revenue related to product sales when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable, and (4) collectibility is reasonably assured. The Company records estimated reductions to sales at the time of sale for sales incentive programs including product discounts, customer promotions, and volume-based rebates. The sales of environmental and other plant and equipment are recorded when the installation of plant and equipment is completed and accepted by the customer for short-term contracts, and recorded under the percentage-of-completion method of accounting for long-term contracts. (See Note 9. REVENUE RECOGNITION FOR LONG-TERM CONTRACTS.) Estimated losses on sales contracts are charged to income in the period in which they are identified. The percentages of revenues to consolidated revenues for the years ended March 31, 2010, 2009, and 2008 that pertain to long-term contracts were 2.1%, 1.9%, and 1.7%, respectively. Housing real estate sales are recorded when the title is legally transferred to the customer in accordance with the underlying contract and real estate laws and regulations. In October 2007, Kubota Maison Co., Ltd., subsidiary of housing real estate, was excluded from consolidated subsidiaries and became an affiliated company. As a result, there were no housing real estate sales for the year ended March 31, 2010 and 2009. The percentage of revenues to consolidated revenues for the years ended March 31, 2008 that pertain to housing real estate sales was 0.3%. Finance receivables are composed of the total arrangement fee less unamortized discounts. Based on imputed interest for the time value of money and reserve for credit losses, income is recorded over the terms of the receivables using the interest method. Research and Development and Advertising Research and development and advertising costs are expensed as incurred. Shipping and Handling Costs Shipping and handling costs are included in selling, general, and administrative expenses. Expense from the Payments for Health Hazard of Asbestos The Company expenses payments to certain residents who lived near the Company’s plant and current and former employees when the Company determines that a payment is warranted based on the medical condition of the individual concerned and in accordance with the Company’s policies and procedures. The Company also accrues an estimated loss from asbestos-related matters by a charge to income if both of the following conditions are met:   <table style="BORDER-COLLAPSE: collapse" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr> <td valign="top" width="4%" align="left">(a)</td> <td valign="top" align="left">It is probable that a liability has been incurred at the date of financial statements.</td> </tr> </table>   <table style="BORDER-COLLAPSE: collapse" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr> <td valign="top" width="4%" align="left">(b)</td> <td valign="top" align="left">The amount of loss can be reasonably estimated.</td> </tr> </table> (See Note 18. COMMITMENTS AND CONTINGENCIES.) Derivative Financial Instruments All derivatives are recognized in the consolidated balance sheets at fair value and are reported in other current assets, other assets, other current liabilities, or other long-term liabilities. On the date the derivative contract is entered into, the Company designates the derivative as a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge). The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to specific assets and liabilities on the consolidated balance sheets or to specific firm commitments or forecasted transactions. The Company considers its hedges to be highly effective in offsetting changes in cash flows of hedged items, because the currency, index of interest rates, amount, and terms of the derivatives correspond to those of the hedged items in accordance with the Company’s policy. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in other comprehensive income (loss), until earnings are affected by the variability in cash flows of the designated hedged item. The ineffective portion of changes in the fair value of derivatives is immediately recorded in earnings. The Company also uses derivatives not designated as cash flow hedges in certain relationships for economic purposes. Changes in the fair value of derivatives not designated are reported in earnings immediately.   Fair Value Measurement Certain assets and liabilities that fall within the scope of the fair value measurements are classified into three levels.   <table border="0" cellspacing="0" cellpadding="0" width="100%" align="center"> <tr> <td width="5%"></td> <td valign="bottom" width="2%"></td> <td></td> <td valign="bottom" width="2%"></td> <td width="91%"></td> </tr> <tr> <td valign="top">Level 1</td> <td valign="bottom">  </td> <td valign="top">–</td> <td valign="bottom">  </td> <td valign="top">Quoted prices in active markets for identical assets or liabilities.</td> </tr> <tr> <td height="8"></td> <td height="8" colspan="2"></td> <td height="8" colspan="2"></td> </tr> <tr> <td valign="top">Level 2</td> <td valign="bottom">  </td> <td valign="top">–</td> <td valign="bottom">  </td> <td valign="top">Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly.</td> </tr> <tr> <td height="8"></td> <td height="8" colspan="2"></td> <td height="8" colspan="2"></td> </tr> <tr> <td valign="top">Level 3</td> <td valign="bottom">  </td> <td valign="top">–</td> <td valign="bottom">  </td> <td valign="top">Unobservable inputs for the assets or liabilities. These are measured using entity’s own assumptions and inputs that are reasonably available or inputs many market participants use with reasonable confidence because observable inputs are not available due to lack of similar assets or liabilities in active markets or inappropriate market price by a decline of liquidity.</td> </tr> </table> Securitization of Receivables The Company sold trade receivables to investors through independent securitization trusts until the year ended March 31, 2009. At the time the receivables are sold to the securitization trusts, the balances are removed from the consolidated balance sheets of the Company. The investment in the sold receivables pool is allocated between the portion sold and the portion retained based on their relative fair values on the date of sale. The gain or loss for each qualifying sale of receivables is determined based on book value allocated to the portion sold. If forecasted future cash flows result in an other-than-temporary decline in the fair value of the retained interests, then an impairment loss is recognized to the extent that the fair value is less than the carrying amount. Such losses would be included in the consolidated statements of income. The Company estimates fair value based on the present value of expected future cash flows less credit losses. Discontinued Operations The results of discontinued operations are reported as a separate line item in the consolidated statements of income under income (loss) from discontinued operations, net of taxes. Net income attributable to Kubota Corporation per common share Net income attributable to Kubota Corporation per common share is computed by dividing net income attributable to Kubota Corporation by the weighted-average number of common shares outstanding during each year. The weighted average number of common shares outstanding for the years ended March 31, 2010, 2009, and 2008 was 1,271,985,454, 1,275,574,702 and 1,288,336,590, respectively. There were no potentially dilutive shares outstanding for the years ended March 31, 2010, 2009, and 2008. New Accounting Standards In December 2007, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard related to business combinations. This standard requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. This standard also requires recognition of contingent consideration and capitalization of in-process research and development at fair values as well as expensing of acquisition-related costs as incurred. This standard is effective in fiscal years beginning after December 15, 2008 and was adopted by the Company on April 1, 2009. The adoption of this statement did not have a material impact on the Company’s consolidated results of operations and financial position. In December 2007, the FASB issued a new accounting standard related to noncontrolling interests in consolidated financial statements. This standard establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This standard is effective in fiscal years beginning after December 15, 2008 and was adopted by the Company on April 1, 2009. Upon the adoption of this standard, noncontrolling interests, which were previously referred to as minority interests and classified between total liabilities and shareholders’ equity on the consolidated balance sheets, are now included as a separate component of total equity. Net income is classified and attributed between noncontrolling interests and Kubota Corporation in the consolidated statements of income, and related presentation of consolidated statements of cash flows and other consolidated financial statements has been changed. Amounts in the prior consolidated financial statements have been reclassified or adjusted to conform to the current presentation. In addition, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary are accounted for as equity transactions. The adoption of this standard resulted in a ¥3,909 million decrease of capital surplus at March 31, 2010.   In December 2008, the FASB issued a new accounting standard related to employers’ disclosures about postretirement benefit plan assets. This standard requires more detailed disclosures about plan assets including investment allocation, each class of plan assets, valuation techniques used to measure the fair value of plan assets, and concentrations of risk within plan assets. This standard is effective for fiscal years ending after December 15, 2009 and was adopted by the Company for the year ended March 31, 2010. The adoption of this standard did not have a material impact on the Company’s consolidated results of operations and financial position. In May 2009, the FASB issued a new accounting standard related to subsequent events. This standard establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This standard is effective for interim or annual financial periods ending after June 15, 2009. In February 2010, the FASB amended this standard to remove the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated. The Company adopted this standard for the first quarter ended June 30, 2009. The adoption of this standard did not have an impact on the Company’s consolidated result of operations and financial position. In June 2009, the FASB issued the FASB Accounting Standards Codification (“ASC”). The ASC restructured the previous U.S. GAAP by providing the authoritative literature in a topical structure. The ASC is effective for interim and annual periods ending after September 15, 2009 and was adopted by the Company for the second quarter ended September 30, 2009. The adoption of the ASC did not have an impact on the Company’s consolidated results of operations and financial position. In June 2009, the FASB issued a new accounting standard related to improvements to financial reporting by enterprises involved with VIE. This standard requires an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. This standard also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE and eliminates the quantitative approach previously required for determining the primary beneficiary of a VIE. This standard is effective for fiscal years beginning after November 15, 2009. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements. In September 2009, the FASB issued a new accounting standard related to investments in certain entities that calculate net asset value per share (or its equivalent). This standard creates a practical expedient to measure the fair value of an investment on the basis of the net asset value per share of the investment (or its equivalent) determined as of the reporting entity’s measurement date. This standard is effective for the interim and annual periods ending after December 15, 2009 and was adopted by the Company for the third quarter ended December 31, 2009. The adoption of this standard did not have a material impact on the Company’s consolidated results of operations and financial position. In October 2009, the FASB issued a new accounting standard related to revenue recognition for multiple-deliverable arrangements. This standard requires arrangement consideration be allocated to all deliverables using a selling price or estimated selling price and eliminates the residual method of allocation. This standard also requires additional qualitative and quantitative disclosures. This standard is effective for fiscal years beginning on or after June 15, 2010 and can be applied prospectively for revenue arrangements entered into or materially modified, or retrospectively for all prior periods. The Company is currently calculating the impact of the applying this standard on the consolidated financial statements.   </div> 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Kubota Corporation (the “parent company”) and subsidiaries (collectively false false false This element may be used to describe all significant accounting policies of the reporting entity. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Principles Board Opinion (APB) -Number 22 -Paragraph 8 false false 1 1 false UnKnown UnKnown UnKnown false true