Komatsu Ltd. Shareholders' Equity

12 Months Ended

Mar. 31, 2011

Komatsu Ltd. Shareholders' Equity [Abstract]

13. Komatsu Ltd. Shareholders’ Equity

(1) Common Stock and Capital Surplus

The Commercial Code of Japan (“the Code”) permitted, upon approval of the Board of Directors, transfer of amounts from capital surplus to common stock. Prior to October 2001, the Company from time to time made free share distributions that were accounted for by a transfer from capital surplus to common stock of the aggregate par value of shares issued. Effective on October 2001, the Code requires no accounting recognition for such free share distribution. Publicly owned corporations in the United States issuing shares in similar transactions would be required to account for them as stock dividends as of the shareholders’ record date by reducing retained earnings and increasing appropriate capital accounts by an amount equal to the fair value of the shares issued.

If such United States practice had been applied to the cumulative free distributions made by the Company, capital surplus at March 31, 2011, would have been increased by ¥103,189 million ($1,243,241 thousand) with a corresponding decrease in unappropriated retained earnings. At March 31, 2011 and 2010, affiliated companies owned 1,104,600 and 1,094,600 shares which represent 0.11% and 0.11% of the Company’s common stock outstanding, respectively.

The Corporate Act, which has been in force since May 1, 2006 (“the Act”), requires a company to obtain the approval of shareholders for transferring an amount between common stock and capital surplus. Common stock and capital surplus also are available for being transferred to other capital surplus or being used to reduce a deficit mainly upon an approval of shareholders.

(2) Retained Earnings Appropriated for Legal Reserve

The Act provides that an amount equal to 10% of retained earnings distributed each fiscal period shall be appropriated as a capital surplus or a legal reserve until the total amount of capital surplus and legal reserve becomes equal to 25% of the amount of common stock.

Legal reserve is available for being transferred to other retained earnings or being used to reduce a deficit mainly upon an approval of shareholders.

(3) Retained Earnings and Dividends

The amount of retained earnings available for dividends under the Act is based on the amount recorded in the Company’s general books of account maintained in accordance with accounting principles generally accepted in Japan. In addition to the Act provision requiring an appropriation for capital surplus or legal reserve as discussed above, the Act imposes certain limitations on the amount of retained earnings available for dividends. Accordingly, total shareholders’ equity of ¥294,738 million ($3,551,060 thousand), included in the Company’s general books of account as of March 31, 2011 is available for dividends under the Act.

The Board of Directors recommended to and approved by the shareholders, at the general meeting held on June 22, 2011, payment of a cash dividend totaling ¥19,369 million ($233,361 thousand) to shareholders of record on March 31, 2011. In accordance with the Act, the approved dividend has not been reflected in the consolidated financial statements as of March 31, 2011. Dividends are reported in the consolidated statements of equity when approved and paid.

The Act provides that a company can make dividends of earnings anytime with resolution of the shareholders. It also provides that a company can declare an interim dividend once a fiscal year according to its charter of corporation.

(4) 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 treasury 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.

Based on the resolutions of the shareholders’ meeting on June 24, 2009 and June 24, 2008 and the Board of Directors on July 14, 2009 and July 15, 2008, the Company issued 642 rights and 463 rights of its share acquisition rights during the years ended March 31, 2010 and 2009, respectively. (The number of shares subject to be issued to one stock acquisition right shall be 1,000 shares.) The options vest 100% on each of the grant dates and are exercisable from September 1, 2010, September 1, 2009, respectively.

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

The right to purchase treasury 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 13, 2010, the Company issued 768 rights of its share acquisition rights during the year ended March 31, 2011, respectively. (The number of shares subject to be issued to one stock acquisition right shall be 100 shares.) The options vest 100% on each of the grant dates and are exercisable from August 2, 2013.

Komatsu recognizes compensation expense using the fair value method. Compensation expenses during the years ended March 31, 2011, 2010 and 2009 were ¥137 million ($1,651 thousand), ¥413 million and ¥376 million, respectively, and were recoded in selling, general and administrative expenses. Compensation expenses after tax during the years ended March 31, 2011, 2010 and 2009 were ¥81 million ($976 thousand), ¥246 million and ¥224 million, respectively.

The following table summarizes information about stock option activity for the years ended March 31, 2011, 2010 and 2009:


	2011							2010					2009
	Number of			Weighted average				Number of			Weighted average		Number of			Weighted average
	shares			exercise price				shares			exercise price		shares			exercise price
				Yen		U.S. dollars					Yen					Yen
Outstanding at beginning of year		3,333,000		¥	2,051	$	24.71		2,891,000		¥	2,022		2,844,000		¥	1,784
Granted		76,800			1		0.01		642,000			1,729		463,000			2,499
Exercised		(174,000	)		1,238		14.92		(200,000	)		595		(416,000	)		926

Outstanding at end of year		3,235,800			2,047		24.66		3,333,000			2,051		2,891,000			2,022

Exercisable at end of year		3,159,000			2,096		25.25		2,691,000			2,128		2,428,000			1,931

The intrinsic values of options exercised were ¥199 million ($2,398 thousand), ¥153 million and ¥722 million for the years ended March 31, 2011, 2010 and 2009.

The information for options outstanding and options exercisable at March 31, 2011 are as follows.


	Outstanding												Options Exercisable
											Weighted average												Weighted average
			Weighted average				Intrinsic value				remaining				Weighted average				Intrinsic value				remaining
	Number of		exercise price				Millions of		Thousands of		contractual life		Number of		exercise price				Millions of		Thousands of		contractual life
Exercise Prices	shares		Yen		U.S. dollars		yen		U.S. dollars		years		shares		Yen		U.S. dollars		yen		U.S. dollars		years
¥1 - 650		76,800	¥	1	$	0.01	¥	216	$	2,602		7.3		—		—		—		—		—		—
¥651 - 900		300,000		673		8.11		646		7,783		1.3		300,000	¥	673	$	8.11	¥	646	$	7,783		1.3
¥901 - 1,350		575,000		1,126		13.57		977		11,771		2.3		575,000		1,126		13.57		977		11,771		2.3
¥1,351 - 2,325		1,259,000		2,032		24.48		998		12,025		4.8		1,259,000		2,032		24.48		998		12,025		4.8
¥2,326 - 3,700		1,025,000		3,136		37.78		151		1,819		4.9		1,025,000		3,136		37.78		151		1,819		4.9

¥1 - 3,700		3,235,800		2,047		24.66		2,988		36,000		4.1		3,159,000		2,096		25.25		2,772		33,398		4.1

The fair value of each share option award is estimated on the date of grant using a discrete-time model (a binomial model) based on the assumptions noted in the following table. Because a discrete-time model incorporates ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on implied volatilities from historical volatility of the Company’s shares.

The Company uses historical data to estimate share option exercise and employee departure behavior used in the discrete-time model. The expected term of share options granted represents the period of time that share options granted are expected to be outstanding. The risk-free rate for periods within the contractual term of the share option is based on the Japanese government bond yield curve in effect at the time of grant.


	2011			2010			2009
Grant-date fair value	¥	1,785 ($21.51	)	¥	643		¥	813
Expected term	5 years			7 years			7 years
Risk-free rate		0.13%–1.11	%		0.17%–1.35	%		0.60%–1.48	%
Expected volatility		54.00	%		44.00	%		39.00	%
Expected dividend yield		0.96	%		2.07	%		1.32	%


*		Interest rate corresponding to discount periods is applied to risk-free rate, that is as follows:


	1 year			2 years			3 years			4 years			5 years			6 years			7 years			8 years			9 years			10 years
2009		0.60	%		0.71	%		0.82	%		0.94	%		1.02	%		1.07	%		1.07	%		1.16	%		1.33	%		1.48	%
2010		0.17	%		0.24	%		0.32	%		0.48	%		0.63	%		0.74	%		0.88	%		1.03	%		1.19	%		1.35	%
2011		0.13	%		0.14	%		0.18	%		0.25	%		0.36	%		0.47	%		0.59	%		0.76	%		0.94	%		1.11	%

- Definition

Disclosures related to accounts comprising shareholders' equity, including other comprehensive income. Includes: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables; effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

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