Annual Report 2007 - Komatsu

Notes to Consolidated Financial Statements
Komatsu Ltd. and Consolidated Subsidiaries
Temporary differences and tax loss carryforwards which gave rise to deferred tax assets and liabilities at March 31, 2007 and
2006, are as follows:
Millions of yen
Thousands of
U.S. dollars
2007 2006 2007
Deferred tax assets:
Allowances provided, not yet recognized for tax ¥ 4,044 ¥ 5,139 $ 34,271
Accrued expenses 47,855 40,983 405,551
Property, plant and equipment 9,561 8,194 81,025
Inventories 9,388 10,752 79,559
Net operating loss carryforwards 20,926 31,310 177,339
Research and development expenses 386 4,903 3,271
Other 18,659 20,018 158,128
Total gross deferred tax assets 110,819 121,299 939,144
Less valuation allowance (30,879) (35,490) (261,686)
Total deferred tax assets ¥ 79,940 ¥ 85,809 $ 677,458
Deferred tax liabilities:
Unrealized holding gains on securities available for sale ¥ 27,944 ¥ 26,034 $ 236,814
Deferral of profit from installment sales 315 398 2,669
Property, plant and equipment 11,645 12,262 98,686
Undistributed earnings of foreign subsidiaries and
affiliated companies accounted for by the equity method 3,633 3,557 30,789
Total deferred tax liabilities ¥ 43,537 ¥ 42,251 $ 368,958
Net deferred tax assets ¥ 36,403 ¥ 43,558 $ 308,500
Net deferred tax assets and liabilities as of March 31, 2007 and 2006 are reflected on the consolidated balance sheets under
the following captions:
Thousands of
Millions of yen
U.S. dollars
2007 2006 2007
Deferred income taxes and other current assets ¥ 49,717 ¥ 48,750 $ 421,331
Deferred income taxes and other assets 20,335 30,298 172,331
Deferred income taxes and other current liabilities (24) (16) (204)
Deferred income taxes and other liabilities (33,625) (35,474) (284,958)
¥ 36,403 ¥ 43,558 $ 308,500
The valuation allowance was ¥50,273 million as of March 31,
2004. The net changes in the total valuation allowance for the
years ended March 31, 2007, 2006 and 2005 were a decrease
of ¥4,611 million ($39,076 thousand), a decrease of ¥21,118
million and an increase of ¥6,335 million, respectively.
Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets in the amount of ¥719
million ($6,093 thousand) as of March 31, 2007 will be
allocated to goodwill and other intangible assets.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible
and net operating losses available to be utilized. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management
believes it is more likely than not the companies will realize
the benefits of these deductible differences and net operating
loss carryforwards, net of the existing valuation allowances at
March 31, 2007 and 2006. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carryforward
period are reduced.
The Company and its domestic subsidiaries are subject
to a National Corporate tax rate of 30%, an inhabitant tax of
approximately 6% and a deductible Enterprise tax of approximately
8%, which in the aggregate resulted in a combined
statutory income tax rate of approximately 40.8%. The inhabitant
tax rate and Enterprise tax rate vary by local jurisdiction.
78 Annual Report 2007