Fair value measurements

12 Months Ended

Mar. 31, 2011

21.

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

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 March 31, 2011 and 2010 are as follows:


	Millions of yen
At March 31, 2011	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale
Manufacturing industry	¥	30,219	¥	—	¥	—	¥	30,219
Financial service industry		16,439		—		—		16,439
Other		2,714		—		—		2,714
Derivatives
Forward contracts		—		416		—		416
Option contracts		—		7		—		7
Interest rate swaps, cross currency swap and interest rate cap agreements		—		10,608		—		10,608

Total Assets	¥	49,372	¥	11,031	¥	—	¥	60,403

Liabilities
Derivatives
Forward contracts	¥	—	¥	2,968	¥	—	¥	2,968
Interest rate swaps, cross currency swap and interest rate cap agreements		—		1,008		—		1,008
Other		—		26,665		859		27,524

Total Liabilities	¥	—	¥	30,641	¥	859	¥	31,500


	Millions of yen
At March 31, 2010	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale
Manufacturing industry	¥	26,147	¥	—	¥	—	¥	26,147
Financial service industry		18,935		—		—		18,935
Other		2,096		—		—		2,096
Derivatives
Forward contracts		—		163		—		163
Option contracts		—		18		—		18
Interest rate swaps, cross currency swap and interest rate cap agreements		—		9,172		—		9,172

Total Assets	¥	47,178	¥	9,353	¥	—	¥	56,531

Liabilities
Derivatives
Forward contracts	¥	—	¥	2,078	¥	—	¥	2,078
Interest rate swaps, cross currency swap and interest rate cap agreements		—		2,550		—		2,550
Other		—		22,839		2,280		25,119

Total Liabilities	¥	—	¥	27,467	¥	2,280	¥	29,747


	Thousands of U.S. dollars
At March 31, 2011	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale
Manufacturing industry	$	364,084	$	—	$	—	$	364,084
Financial service industry		198,060		—		—		198,060
Other		32,699		—		—		32,699
Derivatives
Forward contracts		—		5,012		—		5,012
Option contracts		—		84		—		84
Interest rate swaps, cross currency swap and interest rate cap agreement		—		127,808		—		127,808

Total Assets	$	594,843	$	132,904	$	—	$	727,747

Liabilities
Derivatives
Forward contracts	$	—	$	35,759	$	—	$	35,759
Interest rate swaps, cross currency swap and interest rate cap agreement		—		12,145		—		12,145
Other		—		321,265		10,349		331,614

Total Liabilities	$	—	$	369,169	$	10,349	$	379,518

Investment securities available for sale

Marketable equity securities are classified 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.

Derivatives (Notes 19 and 20)

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. 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 year ended March 31, 2011, 2010 and 2009:


										Thousands of
	Millions of yen									U.S. dollars
	2011			2010			2009			2011
Balance at beginning of year	¥	(2,280	)	¥	919		¥	3,015		$	(27,470	)
Total gains or losses (realized/unrealized)		219			1,543			355			2,639
Included in earnings		6			1,605			349			73
Included in other comprehensive income (loss)		213			(62	)		6			2,566
Purchases, issuance and settlements		1,202			(4,742	)		(2,451	)		14,482

Balance at end of year	¥	(859	)	¥	(2,280	)	¥	919		$	(10,349	)

The amount of unrealized gains and losses on classified in Level 3 assets and liabilities recognized in earnings for the year ended March 31, 2011, 2010 and 2009 related to assets and liabilities still held at March 31, 2011, 2010 and 2009 were gains of ¥6 million ($73 thousand) and ¥1,605 million and losses of ¥678 million, respectively. These gains and losses were reported in other income (expense), net of the consolidated statements of income.

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

Komatsu measured certain long-lived assets at fair value, which are classified as Level 2 in the fair value hierarchy, as of March 31, 2011 and 2010.

As a result, Komatsu recognized impairment losses of ¥5,142 million ($61,952 thousand) and ¥3,332 million for the years ended March 31, 2011 and 2010, respectively, which are reported in impairment loss on long-lived assets of the consolidated statements of income.

- Definition

This element represents the disclosure related to the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods.

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