XNYS:KUB Annual Report 20-F Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 20-F

 

 

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report             

Commission file number 1-07294

 

 

KABUSHIKI KAISHA KUBOTA

(Exact name of registrant as specified in its charter)

 

 

KUBOTA CORPORATION

(Translation of registrant's name into English)

JAPAN

(Jurisdiction of incorporation or organization)

2-47, Shikitsuhigashi 1-Chome, Naniwa-Ku, Osaka, JAPAN

(Address of principal executive offices)

Shinya Yamamoto, +81-6-6648-2623, +81-6-6648-2632, 2-47, Shikitsuhigashi 1-Chome, Naniwa-Ku, Osaka, JAPAN

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act

 

Title of each class

 

Name of each exchange

on which registered

Common Stock*   New York Stock Exchange

 

* Not for trading, but only in connection with the listing of American Depositary Receipts pursuant to the requirement of the New York Stock Exchange.

American Depositary Receipts evidence American Depositary Shares, each American Depositary Share representing five shares of the registrant’s common stock.

Securities registered or to be registered pursuant to Section 12(g) of the Act

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

     Outstanding as of  

Title of Class

   March 31, 2012
(Tokyo Time)
  March 31, 2012
(New York Time)
 
Common stock    1,255,983,672 shares  
American Depositary Shares        6,351,728 ADS   

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  x    No   ¨

If this report is an annual or transition report, indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x    No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  x.

International Financial Reporting Standards as issued by the International Accounting Standards Board  ¨.

Other  ¨.

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  ¨    Item 18  ¨

If it is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No   x

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  
PART I   

Item 1.

  Identity of Directors, Senior Management and Advisers      1   

Item 2.

  Offer Statistics and Expected Timetable      1   

Item 3.

  Key Information      1   

          3.A

  Selected Financial Data      1   

          3.B

  Capitalization and Indebtedness      3   

          3.C

  Reasons for the Offer and Use of Proceeds      3   

          3.D

  Risk Factors      3   

Item 4.

  Information on the Company      6   

          4.A

  History and Development of the Company      6   

          4.B

  Business Overview      7   

          4.C

  Organization Structure      12   

          4.D

  Property, Plant and Equipment      13   

Item 4A.

  Unresolved Staff Comments      15   

Item 5.

  Operating and Financial Review and Prospects      16   

          5.A

  Operating Results      16   

          5.B

  Liquidity and Capital Resources      25   

          5.C

  Research and Development, Patents and Licenses, etc      27   

          5.D

  Trend Information      28   

          5.E

  Off-balance Sheet Arrangements      30   

          5.F

  Tabular Disclosure of Contractual Obligations      31   

          5.G

  Safe Harbor      31   

Item 6.

  Directors, Senior Management and Employees      32   

          6.A

  Directors and Senior Management      32   

          6.B

  Compensation      38   

          6.C

  Board Practices      39   

          6.D

  Employees      40   

          6.E

  Share Ownership      40   

Item 7.

  Major Shareholders and Related Party Transactions      42   

          7.A

  Major Shareholders      42   

          7.B

  Related Party Transactions      42   

          7.C

  Interests of Experts and Counsel      42   

Item 8.

  Financial Information      43   

          8.A

  Consolidated Statements and Other Financial Information      43   

          8.B

  Significant Changes      44   

Item 9.

  The Offer and Listing      45   

          9.A

  Offer and Listing Details      45   

          9.B

  Plan of Distribution      46   

          9.C

  Markets      46   

          9.D

  Selling Shareholders      46   

          9.E

  Dilution      46   

          9.F

  Expenses of the Issue      46   

Item 10.

  Additional Information      47   

          10.A

  Share Capital      47   

          10.B

  Memorandum and Articles of Association      47   

          10.C

  Material Contracts      56   

          10.D

  Exchange Controls      56   

          10.E

  Taxation      57   

          10.F

  Dividends and Paying Agents      61   

          10.G

  Statement by Experts      61   

          10.H

  Documents on Display      61   

          10.I

  Subsidiary Information      61   

 

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Item 11.

  Quantitative and Qualitative Disclosures about Market Risk      62   

Item 12.

  Description of Securities Other than Equity Securities      65   

          12.A

  Debt Securities      65   

          12.B

  Warrants and Rights      65   

          12.C

  Other Securities      65   

          12.D

  American Depositary Shares      65   
PART II   
Item 13.    Defaults, Dividend Arrearages and Delinquencies      67   
Item 14.    Material Modifications to the Rights of Security Holders and Use of Proceeds      67   
Item 15.    Controls and Procedures      67   
Item16A.    Audit Committee Financial Expert      67   
Item16B.    Code of Ethics      68   
Item16C.    Principal Accountant Fees and Services      69   
Item16D.    Exemptions from the Listing Standards for Audit Committees      70   
Item16E.    Purchases of Equity Securities by the Issuer and Affiliated Purchasers      71   
Item16F.    Change in Registrant’s Certifying Accountant      71   
Item16G.    Corporate Governance      71   
Item16H.    Mine Safety Disclosure      73   
PART III   
Item 17.    Financial Statements      74   
Item 18.    Financial Statements      74   
Item 19.    Exhibits      74   

All information contained in this annual report is as of or for the 12 months ended March 31, 2012 (“fiscal 2012”) unless otherwise specified.

As used in this annual report herein, “Kubota” and “the Company” refer to Kubota Corporation and its subsidiaries unless the context otherwise indicates.

The noon buying rate for cable transfers in yen in New York City as certified for customs purposes by the Federal Reserve Bank of New York on June 22, 2012 was ¥80.52 = US$1.

As used in this annual report, “U.S. dollar” or “$” means the lawful currency of the United States of America, “Canadian dollar” or “Can$” means the lawful currency of Canada and “yen” or “¥” means the lawful currency of Japan.

<Cautionary Statement with Respect to Forward-Looking Statements>

Certain sections of this annual report on Form 20-F contain forward-looking statements that are based on management’s expectations, estimates, projections and assumptions. Words such as “expects”, “anticipates”, “believes”, “scheduled”, “estimates”, variations of these words and similar expressions are intended to identify forward-looking statements which include but are not limited to projections of revenues, earnings, segment performance, cash flows and so forth. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results may differ materially from what is forecast in forward-looking statements due to a variety of factors, including, without limitation: general economic conditions in the Company’s markets, particularly government agricultural policies, levels of capital expenditures, both in public and private sectors, foreign currency exchange rates, the occurrence of natural disasters, continued competitive pricing pressures in the marketplace, as well as the Company’s ability to continue to gain acceptance of its products.

 

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Table of Contents

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected Financial Data

 

     Years ended March 31  
     (Millions of Yen except number of shares outstanding and  per share amounts)  
     2012     2011     2010     2009     2008  

For the year:

          

Revenues

   ¥ 1,008,019      ¥ 933,685      ¥ 930,644      ¥ 1,107,482      ¥ 1,154,574   

Ratio to previous year

     108.0     100.3     84.0     95.9     102.4

Cost of revenues

     735,836        678,653        681,374        810,226        824,093   

Selling, general, and administrative expenses

     170,252        165,407        179,352        193,426        192,935   

Other operating expenses (income)

     (3,749     3,514        216        1,015        671   

Operating income

     105,680        86,111        69,702        102,815        136,875   

Income from continuing operations

     66,019        61,108        47,908        54,735        74,627   

Income from discontinued operations, net of taxes

     —          —          —          —          189   

Net income

     66,019        61,108        47,908        54,735        74,816   

Net income attributable to Kubota Corporation:

     61,552        54,822        42,326        48,064        68,026   

Ratio to previous year

     112.3     129.5     88.1     70.7     89.0

Ratio to revenues

     6.1     5.9     4.5     4.3     5.9

At year-end:

          

Total assets

   ¥ 1,487,669      ¥ 1,356,852      ¥ 1,409,033      ¥ 1,385,824      ¥ 1,464,270   

Working capital

     330,029        342,076        380,590        321,971        303,177   

Long-term debt

     184,402        191,760        243,333        208,588        183,945   

Net assets

     707,214        681,361        671,619        616,243        691,327   

Total Kubota Corporation shareholders’ equity

     653,283        634,885        626,397        578,284        648,097   

Common stock

     84,070        84,070        84,070        84,070        84,070   

Number of shares outstanding in thousands

     1,255,984        1,271,713        1,271,847        1,272,063        1,280,604   

Per common share and per five common shares data(1)(2):

          

Income from continuing operations attributable to Kubota Corporation per common share:

          

Basic

   ¥ 48.75      ¥ 43.11      ¥ 33.28      ¥ 37.68      ¥ 52.65   

Income from continuing operations attributable to Kubota Corporation per five common shares:

          

Basic

   ¥ 243.76      ¥ 215.53      ¥ 166.38      ¥ 188.40      ¥ 263.27   

Net income attributable to Kubota Corporation per common share:

          

Basic

   ¥ 48.75      ¥ 43.11      ¥ 33.28      ¥ 37.68      ¥ 52.80   

Net income attributable to Kubota Corporation per five common shares:

          

Basic

   ¥ 243.76      ¥ 215.53      ¥ 166.38      ¥ 188.40      ¥ 264.01   

Kubota Corporation shareholders’ equity per common share outstanding

   ¥ 520.14      ¥ 499.24      ¥ 492.51      ¥ 454.60      ¥ 506.09   

Kubota Corporation shareholders’ equity per five common shares outstanding

   ¥ 2,600.68      ¥ 2,496.18      ¥ 2,462.55      ¥ 2,273.02      ¥ 2,530.44   

Others:

          

Capital investments(3)

   ¥ 31,112      ¥ 23,951      ¥ 26,038      ¥ 33,337      ¥ 35,163   

Depreciation and amortization

     23,908        26,993        29,171        31,242        30,565   

R & D expenses

     27,856        25,042        25,241        26,290        24,784   

 

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Table of Contents
     Years ended March 31  
     2012      2011      2010      2009      2008  

Cash dividends declared per common share:

              

Interim (in yen)

     7         7         7         7         6   

(in U.S. dollars)(4)

     0.090         0.083         0.080         0.075         0.054   

Year-end (in yen)

     8         7         5         7         8   

(in U.S. dollars)(4)

     0.100         0.086         0.055         0.073         0.074   

Cash dividends declared per five common shares:

              

Interim (in yen)

     35         35         35         35         30   

(in U.S. dollars)(4)

     0.449         0.415         0.400         0.377         0.270   

Year-end (in yen)

     40         35         25         35         40   

(in U.S. dollars)(4)

     0.502         0.432         0.274         0.365         0.370   
     Years ended March 31  
     2012      2011      2010      2009      2008  

Exchange rates (yen amounts per U.S. dollar)(5)

              

Year-end

     82.41         82.76         93.40         99.15         99.85   

Average

     78.86         85.00         92.49         96.86         113.61   

High

     85.26         94.68         100.71         111.02         124.09   

Low

     75.72         78.74         86.12         87.80         96.88   

 

     2012
May.
     2012
Apr.
     2012
Mar.
     2012
Feb.
     2012
Jan.
     2011
Dec.
 

High

     80.36         82.62         83.78         81.10         78.13         78.13   

Low

     78.29         79.81         80.86         76.11         76.28         76.98   

Period-end

     78.29         79.81         82.41         81.10         76.28         76.98   

 

2


Table of Contents

Notes to Selected Financial Data:

1. Per share amounts have been calculated per common share and per five common shares since each American Depository Share (“ADS”) represents five shares of common stock.

2. There were no potentially dilutive shares outstanding for all periods presented.

3. The term “Capital investments” represents acquisition costs for the purchases of fixed assets on an accrual basis, while the purchases of fixed assets in the consolidated statements of cash flows represents payments for those assets on a cash basis.

4. Cash dividends in U.S. dollars are computed based on the exchange rates at each respective payment date.

5. Exchange rates are the noon buying rates for cable transfers between the yen and the U.S. dollar in New York City as certified for customs purposes by the Federal Reserve Bank of New York. The rate on June 22, 2012 was ¥80.52= US$1.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Declines in economic conditions in the Company’s major markets, including private-sector capital expenditures, construction investment, and domestic public investment, may adversely impact the results of operations of the Company.

Industrial and capital goods make up a substantial portion of the Company’s products. Accordingly, the Company may see reduced demand resulting from declines in general economic conditions, including private-sector capital expenditures, construction investment, and domestic public investment. In addition, the agricultural policies by the national government may adversely affect domestic sales of agriculture-related products. In overseas markets, especially those of North America and Europe, sales of the Company’s products, such as utility/compact tractors, may decrease due to declines in general economic conditions, including private consumption and residential construction investment in those regions.

Fluctuations in foreign currency exchange rates, including a stronger yen, may adversely affect the Company’s results of operations.

The Company has overseas revenues and foreign subsidiaries which significantly contribute to the Company’s results of operations. Since the transactions between the parent company and foreign subsidiaries or customers are generally denominated in the local currencies and also the foreign subsidiaries’ financial results of operations which are prepared in the local currencies are consolidated into the Company’s consolidated results of operations after translation into Japanese yen, fluctuations in foreign currency exchange rates, in particular a stronger yen against other currencies, may adversely affect the Company’s results of operations. In order to minimize adverse effects from fluctuations in foreign currency exchange rates, the Company has been transferring its production bases to those countries and regions where its products are actually sold. Also, the Company enters into foreign exchange forward contracts, foreign currency option contracts, cross-currency swap contracts, and cross-currency interest rate swap contracts to mitigate its exposure to these risks. Despite the Company’s efforts, fluctuations in foreign currency exchange rates may adversely affect the Company’s consolidated financial results.

If the prices of raw materials increase or the Company has difficulties in procuring adequate supplies of them, there may be a material adverse effect on the Company’s results of operations.

The Company purchases substantial raw materials and parts from outside suppliers. If the prices of raw materials substantially increase due to the supply and demand gap and changes in market conditions, and stay at high levels for a long time, they may impair the Company’s profitability. Also, if the Company has difficulties in procuring adequate supplies of raw materials, there may be a material adverse effect on the Company’s results of operations due to difficulties in production and sales activities.

 

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Table of Contents

The risks associated with international operations may adversely affect the revenues and profitability of the Company.

In some businesses of the Company, substantial overseas operations are conducted. Accordingly, the Company is subject to a number of risks inherent in doing business in those markets. If such risks occurred, the Company may face difficulties in stable production and sales of products in overseas markets that may affect the revenues and profitability of the Company or they may hinder growth of the Company in specific countries. The following risks are serious concerns for the Company:

 

   

Unexpected changes in international or an individual country’s tax regulations;

 

   

Unexpected legal or regulatory changes in a country;

 

   

Unexpected results of transfer pricing issues or negotiation for Advanced Pricing Agreement;

 

   

Difficulties in retaining qualified personnel;

 

   

Underqualified technological skills or instability between management and employee unions in developing countries; and

 

   

Political instability in those countries.

Among North America, Europe, and Asian countries, which are important markets for the Company, the above mentioned risks seem to be higher in Asian countries than in other regions.

If strategic alliances, mergers, and acquisitions do not generate successful results as planned, then the Company’s profitability may deteriorate.

The Company expects to use strategic alliances, mergers, and acquisitions to seek further growth. The success of these activities depends on such factors as the Company’s business environment, the abilities of its business counterparts, and whether the Company and its counterparts share common goals. Therefore, if these activities are not successful and returns on related investments are lower than expected, the Company’s profitability may deteriorate.

Stock market fluctuations may have a material adverse effect on the Company’s results of operations and financial position.

Stock market declines may cause impairment losses on the Company’s investments in marketable securities or cause an increase in actuarial loss of the Company’s retirement and pension plans as a result of a decline in the fair value of pension plan assets, which may have a material adverse effect on the Company’s results of operations and financial position.

The Company is subject to intensifying competitive pressures. Unless the Company performs better than other companies in each of its businesses, revenues and /or net income may decrease in the future.

The Company is exposed to severe competition in each of its businesses. Unless the Company performs better than other companies in such areas as terms of trade, R&D, and quality, revenues and/or net income may decrease in the future.

If the Company’s products and services are alleged to have serious defects, such allegations may have a material adverse effect on the Company’s results of operations and financial position.

If the Company’s products and services are alleged to have serious defects, the Company may have liability for significant damages, and there may be a material adverse effect on the Company’s results of operations and financial position. If such claims are asserted, the Company may lose the confidence of the public and suffer a reduction in its brand value, which may result in decreased revenues or demand for its products.

The Company may be required to incur considerable expenses in order to comply with various environmental laws and regulations. Such expenses may have a material adverse effect on the Company’s results of operations and financial position.

The Company is subject to various environmental laws and regulations that apply to its products and activities. If these environmental laws and regulations, such as those that impose carbon dioxide emission controls, other emission controls, and usage restrictions for certain materials which are used in the Company’s products, are strengthened or newly established in jurisdictions in which the Company conducts its businesses, the Company may be required to incur considerable expenses in order to comply with such laws and regulations. Such expenses may have a material adverse effect on the Company’s results of operations and financial position. To the extent that the Company determines that it is not economical to continue to comply with such laws and regulations, the Company may have to curtail or discontinue its activities in the affected business areas.

The Company may be required to incur significant expenses in connection with environmental damage that its activities may allegedly cause. Such expenses may have a material adverse effect on the Company’s results of operations and financial position.

 

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Claims may arise that the Company’s activities have caused environmental contamination, including the release of hazardous materials, air pollution, water pollution, and/or soil contamination. In such an event, the Company may elect or be required to implement costly corrective actions to resolve any issues associated with the release or presence of such hazardous materials or contamination and may face associated litigation. These factors may have a material adverse effect on the Company’s results of operations and financial position.

If the Company is required to incur significant expenses relevant to asbestos-related issues, then there may be a material adverse effect on the Company’s results of operations, financial position and liquidity.

The Company previously manufactured products containing asbestos from 1954 to 2001. If the Company is required to incur additional expenses, including payments to the individuals concerned or expenses arising from litigations related to the asbestos-related health hazards and such expenses become significant, they may result in a material adverse effect on the Company’s results of operations, financial position and liquidity.

The Company may experience a material effect on its results of operations and financial position if it faces issues related to compliance.

The Company has declared its intention to conduct its corporate activities in compliance with legal regulations and ethical principles, and to exert efforts to cause all management and staff of the group companies not to act in violation of various legal regulations, ethical standards, or internal regulations. However, in the event that compliance issues arise, there is a possibility that the Company may be subject to disciplinary action by government ministries supervising its activities or to lawsuits, or may suffer a loss of public confidence, any of which could have a material adverse effect on the Company’s results of operations and financial position.

If the Company is damaged by natural disasters or other unpredictable events, it may have an adverse effect on the Company’s results of operations and financial position.

The Company operates and maintains production, R&D, sales, and other business facilities in Japan, North America, Europe, Asia and other regions. If natural disasters such as earthquakes, tsunamis, floods, typhoons, pandemic, wars, terrorist attacks, accidents such as fires, information system or communication network breakdown or improper operation or other unpredictable events occur in countries and regions in which the Company operates, the Company’s production, distribution, and sales activities may be disrupted, which could have an adverse effect on the Company’s results of operations and financial position.

In particular, Japan is a country with frequent earthquakes, and as a result, the Company has a reasonable probability of suffering from a strong earthquake or tsunami.

The risks related to the aftermath of the Great East Japan Earthquake may have a material adverse effect on the Company’s results of operations and financial position.

Although the Company incurred damage at several plants and sales facilities located in east Japan from the Great East Japan Earthquake, the damaged sites were remediated and resumed business activities. However, the aftermath of the Great East Japan Earthquake has had and continues to have a serious negative impact on the Japanese economy. Specifically, continuous leakage of radiation from the nuclear power plants in Fukushima Prefecture, harmful rumors regarding agricultural products grown in the areas affected by the leakage, and shortages in the electricity supply due to shutdown of all nuclear power plants in Japan may have adverse effects on the Company’s production and sales activities.

Security breaches and other disruptions to the Company’s IT system and networks may have a material adverse effect on the Company’s results of operations and financial position.

The Company faces certain security threats, including threats to the confidentiality, availability and integrity of our data and systems. If the Company’s IT system and networks are disrupted or experience a security breach, the Company may suffer from an opportunity loss due to production downtime or may be subject to litigation or threat of litigation for information leakage, which in turn may cause a material adverse effect on the Company’s results of operations and financial position. If such security breaches and other disruptions occur, the Company may lose the confidence of the public and suffer a reduction in its brand value, which may cause a decline in demand for our products and result in decreased revenues.

 

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Item 4. Information on the Company

A. History and Development of the Company

KUBOTA CORPORATION (KABUSHIKI KAISHA KUBOTA), the ultimate parent company of the Kubota group, was founded in 1890 by Gonshiro Kubota and incorporated in 1930 under the Commercial Code of Japan. In 1949, the shares of the Company were listed on the Tokyo Stock Exchange and Osaka Securities Exchange. In 1976, the shares of the Company were also listed on the New York Stock Exchange. Today, Kubota is a manufacturer of farm equipment, engines, construction machinery and also producer of various pipe-related products, principally ductile iron pipes and environment-related products such as environmental control plants. In addition, the Company manufactures and sells industrial castings, spiral welded steel pipes, vending machines, electronic-equipped machinery, and air-conditioning equipment.

The Company’s registered office is located at 2-47, Shikitsuhigashi 1-chome, Naniwa-ku, Osaka 556-8601, Japan.

The Company’s telephone number in Japan is +81-6-6648-2111.

The Company’s production network primarily comprises 20 plants in Japan and 24 plants in overseas countries. Kubota also has 13 sales subsidiaries in overseas countries.

Principal Capital Expenditures and Divestitures

Capital expenditures in fiscal 2012, 2011 and 2010 amounted to ¥31,112 million, ¥23,951 million, and ¥26,038 million, respectively, on an accrual basis. The funding requirements for these capital expenditures were mainly provided by internal operations, and partially provided by external debt financing.

The following table sets forth the principal capital expenditures in progress for the last three fiscal years:

As of March 31, 2012

 

Location

  

Reporting segment included

  

Description

   Estimated amount
of expenditures
     Schedule  
         Total amount of
expenditures
(¥ billion)
     Commenced  
Chachoengsao (Thailand)    Farm & Industrial Machinery    Building of new production facility for casting parts of tractors and engines in Thailand      ¥6.6         May. 2008   
Dammam (Saudi Arabia)    Social Infrastructure    Building of new production facility for steel castings in Saudi Arabia      ¥3.4         Mar. 2009   
Jiangsu (China)    Farm & Industrial Machinery    Building of new production facility for construction machinery in China      ¥3.8         Jul. 2010   
Chachoengsao (Thailand)    Farm & Industrial Machinery    Building of new production facility for diesel engines in Thailand      ¥5.4         Nov. 2010   
Chonburi (Thailand)    Farm & Industrial Machinery    Production facility for combine harvesters in Thailand      ¥2.0         Oct. 2009   
Georgia (U.S.)    Farm & Industrial Machinery    Building of new production facility for compact tractors in U.S.      ¥5.5         Jan. 2012   

 

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As of March 31, 2011

 

Location

  

Reporting segment included

  

Description

   Estimated amount
of expenditures
     Schedule  
         Total amount of
expenditures
(¥ billion)
     Commenced  

Chachoengsao (Thailand)

   Farm & Industrial Machinery    Building of new production facility for casting parts of tractors and engines in Thailand      ¥6.6         May. 2008   

Dammam (Saudi Arabia)

   Social Infrastructure    Building of new production facility for steel castings in Saudi Arabia      ¥3.4         Mar. 2009   

Jiangsu (China)

   Farm & Industrial Machinery    Building of new production facility for construction machinery in China      ¥3.8         Jul. 2010   

Chachoengsao (Thailand)

   Farm & Industrial Machinery    Building of new production facility for diesel engines in Thailand      ¥5.4         Nov. 2010   

Chonburi (Thailand)

   Farm & Industrial Machinery    Production facilities for combine harvesters in Thailand      ¥2.0         Oct. 2009   

As of March 31, 2010

 

Location

  

Reporting segment included

  

Description

   Estimated amount
of expenditures
     Schedule  
         Total amount of
expenditures
(¥ billion)
     Commenced  
Chachoengsao (Thailand)    Farm & Industrial Machinery    Building of new production facility for casting parts of tractors and engines in Thailand      ¥6.6         May. 2008   
Dammam (Saudi Arabia)    Social Infrastructure    Building of new production facility for steel castings in Saudi Arabia      ¥3.4         Mar. 2009   
Chonburi (Thailand)    Farm & Industrial Machinery    Production facilities for combine harvesters in Thailand      ¥2.0         Oct. 2009   

B. Business Overview

The Company classifies its products for revenue reporting purposes into the following four reporting segments: Farm & Industrial Machinery which includes farm equipment, engines and construction machinery; Water & Environment Systems which includes ductile iron pipes, plastic pipes, valves, environmental control plants, pumps and other products; Social Infrastructure which includes industrial castings, spiral welded steel pipes, vending machines, electronic-equipped machinery, and air-conditioning equipment; and Other which includes construction, services and other businesses.

 

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Revenues by Reporting Segment

The following table sets forth revenues by reporting segment for the last three fiscal years:

 

     Millions of yen  
     2012      2011      2010  
     ¥      %      ¥      %      ¥      %  

Farm & Industrial Machinery

     713,943         70.8         651,518         69.8         616,726         66.2   

Water & Environment Systems

     198,511         19.7         192,768         20.6         222,949         24.0   

Social Infrastructure

     64,775         6.4         60,439         6.5         63,293         6.8   

Other

     30,790         3.1         28,960         3.1         27,676         3.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,008,019         100.0         933,685         100.0         930,644         100.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operations of Each Segment

Farm & Industrial Machinery

Farm & Industrial Machinery includes farm equipment, engines and construction machinery. Kubota is one of Japan’s leading manufacturers of farm equipment and small engines for agricultural use. This market in Japan is dominated by four major manufacturers. Main products include tractors ranging from 10.5 to 135 horsepower, combine harvesters, rice transplanters, power tillers and reaper binders. The Company also manufactures and sells a line of construction machinery including mini-excavators and wheel loaders as well as engines for various industrial uses. Overseas revenues accounted for 67.0% of the total revenues of this segment in fiscal 2012.

Domestic sales of farm equipment, engines and construction machinery are made by wholesale dealers, retail dealers or the National Federation of Agricultural Cooperative Associations. Overseas sales are made by trading companies, local distributors or the Company’s overseas subsidiaries and affiliates.

The products in this segment are manufactured at six domestic plants as well as foreign manufacturing subsidiaries in the U.S., Germany, China, Thailand, Indonesia, Vietnam, Norway, Demark, the U.K., Netherlands, France, and Russia.

Water & Environment Systems

Water & Environment Systems is comprised of pipe-related products and environment-related products.

Pipe-related products consist of ductile iron pipes, plastic pipes and fittings, and various valves. Most of these products are sold to local and national governments and public utilities for use principally in water supply and sewage systems along with industrial water supply as well as gas supply, telecommunication and irrigation systems.

Environment-related products consist of environmental control plants, pumps and related engineering. The Company supplies water and sewage treatment plants, submerged membrane systems and biogas production systems for water treatment. The Company also supplies pulverizing facilities for solid waste treatment and various pumps for waterworks, sewage facilities, irrigation system, rainwater drainage and power supplies.

Domestic sales of pipe-related products are made by trading companies or dealers, or are directly made to other companies or local and national governments. Overseas sales of pipe-related products are made by trading companies or a subsidiary, or are directly made to other companies. A large portion of the sales of environment-related products are made to municipalities focusing on the domestic environmental engineering market, which is competitive with many engineering companies. Overseas revenues of this segment accounted for 7.0% of the total revenues of this segment in fiscal 2012. There are 11 manufacturing plants in Japan and a manufacturing subsidiary in China.

 

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Social Infrastructure

Social Infrastructure is comprised of industrial castings, spiral welded steel pipes, vending machines, electronic-equipped machinery, and air-conditioning equipment.

Demand for these products is mostly related to the capital spending of the private sector. Domestic sales of products of this segment are made by trading companies or subsidiaries, or are directly made to other companies and public entities. Overseas sales are made by trading companies or subsidiaries, or are directly made to other companies. Overseas revenues of this segment accounted for 25.8% of the total revenues of this segment in fiscal 2012. The products in this segment are manufactured at six plants in Japan and manufacturing subsidiaries in Canada, Indonesia and Saudi Arabia.

Other

This segment encompasses all the other businesses not attributable to the other three segments such as construction, services and other businesses. Most of the products and services of this segment are directly sold to other companies and public entities. Overseas revenues of this segment accounted for 0.7% of the total revenues of this segment in fiscal 2012. There are no manufacturing plants in this segment.

Revenues by Region

The following table sets forth revenues by region for the last three fiscal years:

 

     Millions of yen  
     2012      2011      2010  

Japan

   ¥ 498,684       ¥ 477,913       ¥ 501,663   

Overseas:

        

North America

     219,929         189,330         174,371   

Europe

     88,715         75,762         67,791   

Asia outside Japan

     169,632         160,533         148,589   

Other Areas

     31,059         30,147         38,230   
  

 

 

    

 

 

    

 

 

 

Subtotal

     509,335         455,772         428,981   
  

 

 

    

 

 

    

 

 

 

Total

   ¥ 1,008,019       ¥ 933,685       ¥ 930,644   
  

 

 

    

 

 

    

 

 

 

Overseas Activities

The Company’s overseas revenues (which represent sales to unaffiliated customers outside Japan) in fiscal 2012, 2011, and 2010 amounted to ¥509,335 million, ¥455,772 million and ¥428,981 million, respectively. The ratios of such overseas revenues to consolidated revenues in 2012, 2011, and 2010 were 50.5%, 48.8% and 46.1%, respectively. The revenues of the Company’s subsidiaries outside Japan in fiscal 2012, 2011, and 2010 amounted to ¥475,769 million, ¥423,074 million and ¥386,503 million, respectively. Their ratios to consolidated revenues in fiscal 2012, 2011, and 2010 were 47.2%, 45.3% and 41.5%, respectively.

The Company has manufacturing subsidiaries in the U.S., Canada, France, the U.K., Germany, Netherlands, Norway, Denmark, Russia, China, Indonesia, Thailand, Vietnam and Saudi Arabia and manufacturing affiliates in China and India. International sales subsidiaries are located in the U.S., Canada, France, the U.K., Germany, Spain, Australia, China, South Korea, India, and the Philippines. In addition, liaison offices are located in Torrance (California, U.S.), Paris (France), Dubai (U.A.E.), Beijing (China), Suzhou (China), Seoul (South Korea), Bangkok (Thailand), Chonburi (Thailand), Hanoi (Vietnam), Kuala Lumpur (Malaysia), Cairo (Egypt), Delhi (India), Singapore (Singapore), Quezon City (the Philippines), and Jakarta (Indonesia).

Seasonality of the Company’s Businesses

In businesses such as ductile iron pipes, valves, environmental control plants, and pumps, which rely upon national government or municipalities for most of their sales, there is a tendency that sales in the second half of the fiscal year are much larger than those in the first half. Due to the fact that the fiscal years of the Japanese national government and municipalities generally end in March, the execution of public budgets in the second half is usually much larger than in the first half of the fiscal year.

 

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Raw Materials and Source of Supply

The Company purchases raw materials and parts from numerous sources. The major materials purchased are steel scrap, polyvinyl chloride resin, rolled steel coils, non-ferrous metals, alloys, pig iron, and coal. Some of the purchase prices of the major materials such as steel scrap fluctuate significantly by supply and demand conditions of the market. Historically, the Company has not experienced difficulties in obtaining adequate supplies of all of its raw materials requirements.

Marketing Channels

Domestic sales of farm equipment, engines and construction machinery are made through wholesale, retail dealers or the National Federation of Agricultural Cooperative Associations. Overseas sales of those products are made through trading companies, local distributors, and overseas subsidiaries and affiliates.

A large portion of pipes, valves, environmental control plants and pumps are sold to public-sector markets in Japan directly by the Company, as well as through dealers.

On the other hand, domestic sales of most of the industrial machinery and certain industrial castings are made to private-sector markets through dealers and trading companies, or directly to the end-users. In the case of vending machines, domestic sales are made to manufacturers of beverages or other products sold in vending machines. Overseas sales of those products are made directly by the Company or through trading companies, local distributors and an overseas affiliate.

Contracts, Licenses, Patents and Manufacturing Processes

The Company enters into various contracts. Some of them, for example, are for technical cooperation with other manufacturers, or for financing from banks. Although these contracts are relatively important to the Company, we are not dependent on any specific contracts.

With respect to licenses or patents, the Company is not dependent on specific licenses or patents. As of March 31, 2012, the Company held 6,578 Japanese patents and 2,769 foreign patents and utility model registrations. A utility model registration is a right granted under Japanese law and in certain other countries to inventions of lesser originality than those which qualify for patents. Although patent rights are important to Kubota, the Company does not consider that the expiration of any single patent or group of related patents would materially affect Kubota’s business. Kubota grants others licenses to use its technology including its patents, and obtains licenses under patents from third parties for technological assistance on a royalty basis. In fiscal 2012, royalty income and expenses were ¥920 million and ¥86 million, respectively, under such licensing arrangements.

Competition

The Company is one of the leading manufacturers of farm equipment in Japan. There are three other major Japanese manufacturers of farm equipment for agricultural use, all of which offer a complete line of machinery in competition with the Company. In overseas markets, the Company experiences strong competition from Japanese and foreign companies in the sale of farm equipment and engines.

The main products of the Company other than farm equipment are ductile iron pipes, plastic pipes, environment-related products, and industrial castings. In the ductile iron pipes market, the Company competes with two other major manufacturers within the borders and many other manufacturers in overseas markets. Most of the plastic pipes produced by the Company are sold in Japan and the Company competes with two major manufacturers. Most of the environment-related products produced by the Company are sold in Japan and there are many competitors. The Company also competes actively in the industrial castings market at home and abroad.

In addition, the Company faces intense competition in other products in the domestic and overseas markets.

 

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Governmental Regulations

The businesses of the Company tend to be affected by the regulations or restrictions in the countries where the Company operates. Those are, for example, regulations concerning emissions, safety, noise and vibration, investments, tariffs, anti-monopoly, intellectual property, foreign exchange, and the environment.

The followings are some of the regulations which have important effects on the Company’s business.

1) Emissions Regulations for Off-road Diesel Engines

In 1995, the California Air Resources Board (the “CARB”), in the United States enforced an emissions regulation for off-road engines (below 19 kW in power) for the first time in the world. The Company led the world by complying with this standard and moved ahead of other competitors toward compliance with emissions regulations that were later enacted in several other countries. Between 1996 and 2000, the Environmental Protection Agency, or EPA, in the United States introduced Tier 1 standards, which were phased in for engines at and above 37kW in power. In addition, EPA adopted Tier 1 standards for engines below 37kW, which were phased in between 1999 and 2000, and established more stringent Tier 2 and Tier 3 standards for all engine sizes. Tier 2 standards were phased in between 2001 and 2005 for all engine sizes, and Tier 3 standards for engines between 37 and 560 kW were phased in between 2006 and 2008. The more stringent Tier 4 enacted in 2008 and will be phased in through 2015.

In Japan, the Ministry of Land, Infrastructure, Transport and Tourism (the “Ministry”) launched the Stage 1 low emission construction machineries designation scheme in 1991 and decided to use “low emission construction machinery” in the Ministry’s directly controlled projects starting in 1996. The Stage 2 standard was announced in 1997, and the Ministry began to accept applications for designations under the Stage 2 standard from 2001. In 2003, a similar regulation began to apply to on-road special motor vehicles driven by diesel fuel such as agricultural and construction machinery. This 2003 regulation was set to be equivalent with the Tier 2 regulation of EPA’s. Later in 2006, the regulation for diesel special motor vehicles was tightened to the level of the second phase (equivalent with EPA Tier 3). In April 2006, the Act for the Regulations, etc. of Emission from Special Non-Road Motor Vehicles (Off-road Act of Japan), intended for motor vehicles that do not run on public roads such as construction machinery, went into effect, which was timed to coincide with the announcement of the Stage 3 of the low emission construction machinery designation scheme. Consequently, the scope of application of this regulation broadened. The regulation for special motor vehicles and off-road special motor vehicles will be tightened to the level of the third phase (equivalent with EPA Tier 4) between 2011 and 2013 and to the level of the fourth phase (equivalent with EPA Tier 4) between 2014 and 2015.

In Europe, the Stage 1 emission of gaseous and particulate pollutants from internal combustion engines to be installed in non-road mobile machinery was put into effect under EU Directive 97/68/EC in 1999. The Stage 2 standard was applied between 2001 and 2004 and the Stage 3 standard was applied in 2006, respectively. From 2011, the regulation will be tightened at the same time as Japan and the United States.

The Company’s research and development for new engines equipped with new technology is under way to cope with future Tier 4 regulations in Japan, the United States and Europe. The Company obtained CARB authentication for the first time in the world for compact diesel engines (below 4L) in order to comply with tentative Tier 4, which has enacted in 2012 for engines between 56 and 130 kW. In addition, the Company has been leading the world by obtaining authentication for compact diesel engines (below 4L) in order to comply with the Stage 4 standard in Europe and the United States and has started to sell them in the market. As to regulations in Asian countries, including China, Korea and India, the Company has been dealing with intensively as well.

2) Safety Regulations

There are a variety of regulations concerning safety, and every country or region has its own regulations. Rollover Protective Structures (the “ROPS”), which are designed to protect operators of tractor from injuries caused by vehicle overturns or rollovers, are required to have the necessary specified bearing capacity based on the type of the machine installed and the deflection-related performance requirements. In case of construction machinery, Tip-Over Protective Structures (the “TOPS”) and Falling Object Protective Structures (the “FOPS”) are required in addition to ROPS. TOPS are designated to prevent an operator from being injured if a machine tips on its side. FOPS are designed to protect equipment operators from injuries caused by objects falling from above, and are required to comply with specified strength requirements specified based on how they are actually used. Those regulations differ in measurement methods or criteria, and major ones in the world are Japanese Industrial Standards (the “JIS”), European Norm (the “EN”), and Occupational Safety and Health Administration (the “OSHA”). In particular, the EN on safety regulations is compulsory.

 

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Table of Contents

3) Regulations on Noise and Vibration

In Europe, the Directive 86/662/EEC, which specifies the noise control standards for non-road equipment such as hydraulic shovels, excavation drills, bulldozers, loaders, and excavation loaders, became effective in December 1986. The Directive was revised in June 1995 into 95/27EC, which became effective in 1997. The Noise Emissions in the Environment by Equipment for Use Outdoors Directive, 2000/14/EC, became effective in January 2002 replacing 95/27/EC. The Directive 2000/14/EC regulates noise emitted to surrounding areas from 57 types of equipment for use in outdoors, such as lawn mowers and construction equipment. Manufacturers are obliged to demonstrate that their products generate noise within the specified range of noise and comply with the requirements of such Directive by attaching a label (guaranteed noise label) before shipping those products to the market (they are also required to attach the CE mark). The noise level regulations in the primary stage were applied during the period from January 3, 2002 to January 2, 2006. The noise value limit was further reduced in January 3, 2006 by the more stringent regulation 2005/88/EC.

In Japan, the Regulations on Designation of Low-noise and Low-vibration Construction Machinery were announced in October 1997 to mitigate noise and vibration from construction work, protect the living environment around the work site, and ensure smooth implementation of construction work. These regulations stipulate the designations of low-noise construction machines and low-vibration construction machines to promote diffusion of environmentally-friendly construction machines. Construction machines that satisfy the noise and emission requirements specified by these regulations are allowed to attach the low-noise construction equipment label. The Company’s mini backhoes of not more than 55 hp, which are required to comply with the noise limit of 99 dB in order to qualify for the level, are all qualified to attach the low-noise construction equipment label. Although compliance with the Regulations is voluntary, there are cases where the use of noncompliant machines is not permitted at work sites for projects under direct management of the Ministry of Land, Infrastructure, Transport and Tourism.

4) Regulation on Hazardous Chemical Substances

In Europe, the Registration, Evaluation, Authorisation and Restriction of Chemicals (EC No 1907/2006), or (REACH), entered into force in June 2007. REACH covers a single chemical substance and its compounds as well as those in preparations and in articles. EU manufacturers and importers must gather information on safety assessment, including properties and uses of substances, and register it with the European Chemicals Agency. Also, manufacturers, importers, and users of products containing chemical substances are, in the supply chain, obliged to communicate information on substances of very high concern (SVHC). In addition, it is necessary to comply with the requirements for substances in the authorization and restriction lists.

The Company will continue to take measures to properly manage chemical substances contained in its products.

C. Organization Structure

As of March 31, 2012, the Kubota Corporation group consists of Kubota Corporation, 150 subsidiaries and 20 affiliates. Kubota Corporation plays a leading role in the group. The following table sets forth the Company’s significant subsidiaries:

 

Country of incorporation or residence        

  

Name

   Percentage ownership and
voting interest (%)
 

Japan

  

Kubota Credit Co., Ltd.

Kubota-C.I. Co., Ltd.

    

 

69.7

70.0

  

  

U.S.A.

  

Kubota U.S.A., Inc.

Kubota Tractor Corporation

Kubota Credit Corporation, U.S.A.

Kubota Manufacturing of America Corporation

Kubota Industrial Equipment Corporation

Kubota Engine America Corporation

    

 

 

 

 

 

100.0

90.0

100.0

100.0

100.0

90.0

  

  

  

  

  

  

Canada

  

Kubota Canada Ltd.

Kubota Metal Corporation

    

 

80.0

100.0

  

  

Germany

  

Kubota Baumaschinen GmbH

Kubota (Deutschland) GmbH

    

 

100.0

80.0

  

  

France

   Kubota Europe S.A.S.      73.8   

U.K.

   Kubota (U.K.) Ltd.      60.0   

Norway

   Kverneland ASA      79.0   

Thailand

  

SIAM KUBOTA Corporation Co., Ltd.

SIAM KUBOTA Metal Technology Co., Ltd.

    

 

60.0

100.0

  

  

China

   Kubota Agricultural Machinery (SUZHOU) Co., Ltd      100.0   

 

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Table of Contents

D. Property, Plant and Equipment

The following table sets forth information with respect to Kubota’s principal manufacturing facilities:

 

Location

   Land area
(Thousand square meters)
     Floor space
(Thousand square meters)
    

Principal products

     Owned      Leased      Owned      Leased       

Japan

              

Amagasaki (Hyogo)

     365         11         135         —         Ductile iron pipes, Rolls for steel mills

Funabashi (Chiba)

     506         13         141         1       Ductile iron pipes, Spiral welded steel pipes

Okajima (Osaka)

     78         —           48         —         Cast iron products

Sakai (Osaka)

     597         15         201         29       Farm equipment, Diesel engines

Utsunomiya (Tochigi)

     146         —           71         4       Farm equipment

Tsukuba (Ibaraki)

     335         30         157         27       Farm equipment, Diesel engines

Hirakata (Osaka)

     306         —           146         12       Construction machinery, Pumps, Valves, Cast steel products

Konan (Shiga)

     178         —           52         —         Septic tanks

Yao (Osaka)

     38         —           26         —         Electronic-equipped machinery

Ryugasaki (Ibaraki)

     85         —           31         —         Vending machines

U.S.A.

              

Gainesville (Georgia)

     841         —           118         —         Lawn and garden tractors

Jefferson (Georgia)

     368         —           41         —         Implements for tractors

Thailand.

              

Amata Nakorn (Chonburi)

     368         —           94         —         Tractors and Combine harvesters

Navanakorn (Pathum Thani)

     79         —           28         —         Diesel engines and Power tillers

The Company considers its principal manufacturing facilities to be well maintained and suitable for the purpose for which they are employed and believes that its plant capacity is adequate for its current and near-term needs.

In addition, the Company owns 2,447 thousand square meters of land (312 thousand square meters of floor space) in Japan, used for the head office, branches, business offices and research facilities, and leases three thousand square meters of land (123 thousand square meters of floor space) used for sales offices, warehousing, employee housing and other purposes.

The Company plans its capital expenditures considering future business demand and cash flows. As of March 2012, the Company has planned to invest approximately ¥53.0 billion in the fiscal year ending March 31, 2013. The Company intends to fund the investment primarily through cash obtained by operating activities, and to also utilize available borrowings from financial institutions. The Company’s commitments for capital expenditures outstanding at March 31, 2012 amounted to ¥2.9 billion.

 

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Principal plans for new construction, expansion, reforming, and disposition as of March 31, 2012, are as follows:

New Construction

 

                Estimated amount of
expenditures

(Billions of yen)
     Schedule  

Location

  

Reporting segment included

  

Description

   Total
amount of
expenditures
     Amount
already
paid
     Commenced      To be
completed
 

Chachoengsao (Thailand)

   Farm & Industrial Machinery    Building of new production facility for casting parts of tractors and engines in Thailand    ¥ 6.6       ¥ 5.1         May. 2008         Mar. 2013   

Dammam (Saudi Arabia)

   Social Infrastructure    Building of new production facility for steel castings in Saudi Arabia    ¥ 3.4       ¥ 2.3         Mar. 2009         Dec. 2012   

Jiangsu (China)

   Farm & Industrial Machinery    Building of new production facility for construction machinery in China    ¥ 3.8       ¥ 1.8         Jul. 2010         Sep. 2012   

Chachoengsao (Thailand)

   Farm & Industrial Machinery    Building of new production facility for diesel engines in Thailand    ¥ 5.4       ¥ 2.5         Nov. 2010         Mar. 2013   

Georgia (U.S.)

   Farm & Industrial Machinery    Building of new production facility for compact tractors in U.S.    ¥ 5.5       ¥ 1.0         Jan. 2012         Oct. 2013   

Expansion

 

                Estimated amount of
expenditures

(Billions of yen)
     Schedule  

Location

  

Reporting segment included

  

Description

   Total
amount of
expenditures
     Amount
already
paid
     Commenced      To be
completed
 

Chonburi (Thailand)

   Farm & Industrial Machinery    Production facilities for combine harvesters in Thailand    ¥ 2.0       ¥ 1.9         Oct. 2009         Dec. 2012   

 

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Table of Contents

Reforming

No material reforming is planned.

Disposition

No material disposition is planned.

Item 4A. Unresolved Staff Comments

The Company is a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. There are no unresolved comments provided by the staff of the Securities and Exchange Commission (the “Commission” or the “SEC”) regarding the Company’s periodic reports under the Securities Exchange Act of 1934, as amended, as of the date of the filing of this Form 20-F with the Commission.

 

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Table of Contents

Item 5. Operating and Financial Review and Prospects

A. Operating Results

Overview

Organization

The Company is one of Japan’s leading manufacturers of a comprehensive range of machinery and products including farm equipment, pipes for water supply and sewage systems, environmental control plants, and industrial castings. The Company also provides retail finance and finance leases, which primarily finance sales of equipment by dealers, for the purpose of facilitating sales of equipment to individual customers.

The Company’s reporting segments consist of “Farm & Industrial Machinery”, “Water & Environment Systems”, “Social Infrastructure” and “Other”.

The Company generates revenues and cash primarily from the sales of products to dealers, affiliated companies and trading companies or direct sales of products to end users.

For more than a century since its founding, the Company has continued to help improve people’s quality of life and the development of society through its products and services. Currently, the Company is strengthening the initiatives it has taken thus far of pursuing “management emphasizing the front-line of business, with focus on technology and manufacturing capabilities” and “enhancing CSR management” (“CSR”: Corporate Social Responsibilities). The Company also implements “growth and expansion of overseas business”, “implementation of structural reforms” as well as “formulation and implementation of long-term growth strategies in the fields of Food, Water, and the Environment” as its principal business policies.

Through these measures, the Company is aiming to respond flexibly to significant changes in the corporate environment and become a “sustainable company” that can continue to develop sustainably for the long term.

Business environment

(Japan: The domestic market)

The Japanese real GDP experienced negative growth of -0.7% in 2011, reflecting the negative impact of the Great East Japan Earthquake (the “Earthquake”) as well as the Thailand Floods (the “Floods”) which caused a temporary halt of production activities.

According to Ministry of Agriculture, Forestry and Fisheries of Japan, damage to the agriculture, forestry and fisheries industries from the Earthquake was tremendous, amounted to over ¥2,000 billion. For restoration of the industries, the Japanese government compiled supplementary budget of the agriculture, forestry and fisheries industries amounted to approximately ¥1,500 billion in total. As for the market for agricultural machinery, according to report of Japan Farm Machinery Manufacturer’s Association, total shipments of agricultural machinery in 2011 for the domestic market decreased by 3.7% from the prior year.

In general, the budget for public works projects, including the budget for water supply and sewage systems, have been gradually decreasing due to the growing budget deficits in the Japanese national and local governments. However, governmental construction investment in 2011 increased due to special budget for reconstruction of the Earthquake.

(North America)

The U.S. economy in 2011 was in a moderate recovery phase, while the Real GDP growth was 1.7%, a decrease of 1.3% from 2010. Although the absolute level of the unemployment rate and the housing statistics were well below historical norms, they both showed signs of improvement. Demand for tractors increased slightly. According to a 2011 report by the Association of Equipment Manufacturers (AEM), industry retail sales of units of tractors under 40hp (horse power) in the U.S. increased by 0.8% and industry retail sales units of tractors from 40 to 100hp in the U.S. increased by 3.8% from the prior year.

In Canada, demand for agricultural machinery and construction machinery increased steadily. As for tractors, industry retail sales units in Canada in 2011 increased by 5.5% from the prior year according to the AEM report.

 

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(Europe)

During 2011, the economy in Europe exhibited a moderate recovery with Real GDP growth of 1.5%. However, the EU economy exhibited a slowdown in the second half of 2011, affected by concern for a possible default by the Greek government and economic anxieties in Southern European countries.

Demand for construction machinery increased largely in the first half of 2011 due to the moderate economic recovery. Demand for engines also increased rapidly due to the moderate economic recovery.

(Asia outside Japan)

Thailand, which is one of the most important markets for the Company in Asia outside Japan, has been rapidly growing in recent years. However, Thailand’s real GDP increased by only 0.1% in 2011 as a result of the tremendous damage caused by the Floods to major industrial estates. On the other hand, the agricultural revenues of Thailand’s farmers are on an upward trend due to rice price hikes. These price hikes resulted from implementation of the rice mortgage scheme, which is a de-facto government rice buy-out program with premium prices, following the change of the government in the middle of 2011.

The Chinese economy has also been continuing its high growth in recent years as shown by the growth rate of Real GDP in 2011 of 9.2%. The Chinese government is focusing on development and mechanization of agriculture and increasing subsidies for agriculture every year. The budget for agricultural subsidies in 2011 increased Rmb2.0 billion from the prior year to Rmb17.5 billion.

(The fiscal year ended March 31, 2012 compared with the fiscal year ended March 31, 2011)

Revenues

For the year ended March 31, 2012, revenues of the Company increased by ¥74.3 billion (8.0%) from the prior year to ¥1,008.0 billion.

In the domestic market, revenues increased by ¥20.8 billion (4.3%) from the prior year to ¥498.7 billion due to increased revenues in all reporting segments. Domestic revenues in Farm & Industrial Machinery increased mainly due to favorable sales of construction machinery and engines, and revenues in Water & Environment Systems increased due to steady sales of products related to public works such as environment-related products. Revenues in Social Infrastructure and Other also rose, thus resulting in an overall increase in domestic revenues.

In overseas markets, revenues increased by ¥53.6 billion (11.8%) from the prior year to ¥509.3 billion. Revenues in Farm & Industrial Machinery posted a major increase due to steady demand for construction machinery and engines in North America and Europe, and revenues in Social Infrastructure also increased. However, revenues in Water & Environment Systems and Other decreased. The ratio of overseas revenues to consolidated revenues was 50.5%, 1.7 percentage points higher than that in the prior year.

The Company estimates that the unfavorable impact of foreign currency fluctuations on the Company’s overseas revenues for the year ended March 31, 2012 was approximately ¥33.0 billion. The average exchange rates of the yen against the U.S. dollar were ¥80 and ¥88 for the fiscal years ended March 31, 2012 and 2011, respectively, and the average exchange rates of the yen against the Euro were ¥111 and ¥116 for the fiscal years ended March 31, 2012 and 2011, respectively. These currency fluctuations mainly influence revenues in the Farm & Industrial Machinery segment, as the overseas revenues of this segment account for most of the Company’s overseas revenues.

Natural disasters such as the Earthquake and the Floods disrupted parts procurement and power shortages for manufacturing. However, they did not significantly impact the revenues with the exception of the areas of distress.

Revenues by Reporting Segment

1) Farm & Industrial Machinery

Revenues in this segment increased 9.6% from the prior year to ¥713.9 billion and accounted for 70.8% of consolidated revenues.

Domestic revenues increased 4.0% to ¥235.4 billion. Domestic sales of farm equipment were at almost the same level as in the prior year. Sales of farm equipment decreased in the area affected by the Great East Japan Earthquake, while they increased in other areas. On the other hand, sales of construction machinery substantially increased and sales of engines increased steadily due to the market recovery including reconstruction demand.

Overseas revenues increased 12.6% to ¥478.5 billion. In North America, sales of tractors increased due to a gain in sales volume as a result of an increase in market share of the Company, and sales of construction machinery significantly increased owing to the market recovery and the effect of launching new products. Sales of engines also increased steadily supported by firm demand. In Europe, sales of construction machinery and engines increased substantially due to an expansion of demand, while sales of tractors were at approximately the same level as the prior year. In Asia outside Japan, sales of farm equipment showed only slight increases, with the Floods being the main factor inhibiting a more substantial increase.

 

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2) Water & Environment Systems

Revenues in this segment increased 3.0% to ¥198.5 billion from the prior year, and accounted for 19.7% of consolidated revenues.

Domestic revenues increased 3.3% to ¥184.6 billion. Sales of environment-related products, such as pumps, and waste water treatment equipment and plants increased resulting from increased orders. Sales of pipe-related products were at almost the same level as the prior year. Overseas revenues decreased 1.4% to ¥13.9 billion.

3) Social Infrastructure

Revenues in this segment increased 7.2 % to ¥64.8 billion from the prior year, comprising 6.4 % of consolidated revenues.

Domestic revenues increased 8.6 % to ¥48.1 billion. While sales of industrial castings and vending machines decreased, sales of spiral welded steel pipes, electronic equipped-machinery and air-conditioning equipment increased from the prior year. Overseas revenues increased 3.4 % to ¥16.7 billion mainly owing to increased sales of industrial castings.

4) Other

Revenues in this segment increased 6.3% to ¥30.8 billion from the prior year, and accounted for 3.1% of consolidated revenues. Sales of other business increased, while construction sales decreased.

Cost of Revenues, SG&A Expenses, and Other Operating Expenses (Income)

The cost of revenues increased 8.4% from the prior year to ¥735.8 billion. Cost of revenues as a ratio to consolidated revenues was 73.0%, almost the same level as the prior year.

Selling, general, and administrative (SG&A) expenses increased 2.9 % from the prior year to ¥170.3 billion. The ratio of SG&A expenses to revenues improved 0.8 percentage points to 16.9%, while shipping and handling costs increased approximately ¥2.0 billion from the prior year due to the sales increase.

Pension costs in the current year and allocation of pension costs to cost of revenues and SG&A expenses were almost the equivalent level as compared with the prior year.

Other operating income for the year was ¥3.7 billion, compared with ¥3.5 billion of expenses in the prior year, due to gain from sales of property, plant and equipment, and decrease in disaster-related losses. For further details, refer to Note 18 “SUPPLEMENTAL EXPENSE INFORMATION” on page F-40.

Operating Income

Operating income increased ¥19.6 billion (22.7%) from the prior year to ¥105.7 billion, due to an increase in overseas revenues in Farm & Industrial Machinery, company-wide cost reductions and gain on sales of property, plant and equipment.

As a result, operating margin for the fiscal year ended March 31, 2012 increased by 1.3 percentage points to 10.5% from 9.2% for the fiscal year ended March 31, 2011.

The following table sets forth operating income by reporting segment for the last two fiscal years:

 

     Millions of yen  
     2012     2011     Changes  
     ¥     ¥     %  

Farm & Industrial Machinery

     97,776        86,487        13.1   

Water & Environment Systems

     14,829        13,121        13.0   

Social Infrastructure

     2,651        2,463        7.6   

Other

     2,450        2,096        16.9   

Adjustment for intersegment eliminations

     (12,026     (18,056     —     
  

 

 

   

 

 

   

 

 

 

Total

     105,680        86,111        22.7   
  

 

 

   

 

 

   

 

 

 

 

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Operating income in Farm & Industrial Machinery increased 13.1% to ¥97.8 billion, due to increased overseas revenues and cost reduction. Operating income in Water & Environment Systems increased 13.0% to ¥14.8 billion, supported by steady growth in domestic revenues. Operating income in Social Infrastructure increased 7.6% to ¥2.7 billion, mainly due to increased revenues. Operating income in Other increased 16.9% to ¥2.5 billion.

Other Income (Expenses)

Other expenses for the year was ¥4.7 billion, decreasing by ¥9.9 billion compared with ¥5.2 billion of income in the prior year. Major factors of this change include an increase of foreign exchange loss-net of ¥6.0 billion, a decrease of gain on sales of securities-net of ¥4.7 billion, and the impact of the nonmonetary exchange of securities of MS&AD Insurance Group Holdings, Inc. recorded in the prior year. On the other hand, valuation gain on derivatives, which is not for speculation but for hedging purpose, partly offset these negative impacts. With regard to the nonmonetary exchange of securities of MS&AD Insurance Group Holdings, refer to Note 4 “OTHER INVESTMENTS” on page F-14.

Foreign exchange gains or losses generally arise from the revaluation of foreign currency-denominated assets such as notes and accounts receivables at the balance sheet date; the difference between carrying value and settlement value of foreign currency-denominated assets; and valuation on foreign exchange forward contracts and options. U.S. dollar, Euro and Baht-denominated assets accounted for a large portion of foreign exchange gains or losses. The exchange rates of the yen against the U.S. dollar were ¥82 and ¥83 as of March 31, 2012 and 2011, respectively, the yen against the Euro were ¥110 and ¥118 as of March 31, 2012 and 2011, respectively, and the yen against the Baht were ¥2.67 and ¥2.75 as of March 31, 2012 and 2011, respectively.

Income before Income Taxes and Equity in Net Income of Affiliated Companies

Income before income taxes and equity in net income of affiliated companies increased by ¥9.6 billion from the prior year to ¥100.9 billion. An increase of operating income was partially offset by other expenses mentioned above.

Income Taxes, Equity in Net Income of Affiliated Companies, and Net Income

Income Taxes increased 19.1% from the prior year to ¥36.5 billion, primarily as a result of an increase in Income before Income Taxes. The effective tax rate increased by 2.6 percentage points to 36.2% from 33.6% of the prior year. The increase of effective tax rate was mainly due to an increase in income before income taxes in overseas subsidiaries where high-tax rates are applied, such as those located in the U.S., and a decrease in income before income taxes in overseas subsidiaries where low-tax rates are applied, such as those located in Thailand. The effective tax rate also increased as a result of a reversal of deferred tax assets resulted from the reduction of corporate tax rates due to the revision of the tax law in Japan. Equity in net income of affiliated companies was ¥1.6 billion, an increase of ¥1.1 billion from the prior year. As a result, net income increased 8.0% from the prior year to ¥66.0 billion.

Net Income Attributable to the Noncontrolling Interests

Net income attributable to the noncontrolling interests decreased 28.9% from the prior year to ¥4.5 billion mainly due to a decrease in net income of some consolidated subsidiaries with noncontrolling interests.

Net Income Attributable to Kubota Corporation

Due to the factors described above, net income attributable to Kubota Corporation increased 12.3% from the prior year to ¥61.6 billion. Return on shareholders’ equity increased 0.9 percentage points from the prior year to 9.6%.

Net Income Attributable to Kubota Corporation per ADS

Basic net income attributable to Kubota Corporation per ADS (five common shares) was ¥244, as compared to ¥216 in the prior year.

Dividends

The Company paid ¥40 per ADS as a year-end cash dividend. Accordingly, including the interim dividend of ¥35 per ADS paid by the Company, the total dividend for the year ended March 31, 2012 was ¥75 per ADS, which was ¥5 per ADS higher than the prior year.

 

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Comprehensive Income Attributable to Kubota Corporation

Comprehensive income attributable to Kubota Corporation was ¥46.4 billion, ¥22.3 billion higher than the prior year. This increase was mainly due to a decrease in the negative effect of foreign currency translation adjustments and a turn from unrealized losses on securities into unrealized gains on securities attributable to the stock market recovery.

(The fiscal year ended March 31, 2011 compared with the fiscal year ended March 31, 2010)

Revenues

For the year ended March 31, 2011, revenues of the Company increased ¥3.0 billion (0.3 %) from the prior year to ¥933.7 billion. Domestic revenues decreased ¥23.8 billion (4.7 %) to ¥477.9 billion from the prior year. However, overseas revenues increased ¥26.8 billion (6.2 %) from the prior year, to ¥455.8 billion.

Domestic revenues decreased mainly due to a decrease in Water & Environment Systems of ¥19.4 billion, of which ¥14.1 billion was mainly due to a decrease in sales volume of pipe-related products such as ductile iron pipes and plastic pipes. On the other hand, overseas revenues increased mainly due to an increase in Farm & Industrial Machinery of ¥38.0 billion. Out of ¥38.0 billion, ¥25.2 billion was resulted from sales increases in engine and construction machinery mainly due to higher shipment volumes.

The Company estimates that the unfavorable impact of foreign currency fluctuations on the Company’s overseas revenues for that year was approximately ¥17.4 billion. The average exchange rates of the yen against the U.S. dollar were ¥88 and ¥94 for the fiscal years ended March 31, 2011 and 2010, respectively, and the average exchange rates of the yen against the Euro were ¥116 and ¥130 for the fiscal years ended March 31, 2011 and 2010, respectively. These currency fluctuations mainly influence revenues in the Farm & Industrial Machinery segment, as the overseas revenues of this segment account for most of the Company’s overseas revenues.

The Earthquake had an impact on both the Japanese economy and the revenues of the Company for that year. However, the impact on the Company’s revenues was mainly limited to sales of Farm & Industrial Machinery in the disaster areas and the impact was not material.

Revenues by Reporting Segment

1) Farm & Industrial Machinery

Revenues in Farm & Industrial Machinery increased 5.6 % from the prior year to ¥651.5 billion, comprising 69.8 % of consolidated revenues.

Domestic revenues decreased 1.4 % to ¥226.4 billion. In the domestic market, demand for farm equipment was sluggish due to weakening motivation for buying farm equipment resulting from the price slump of rice and the absence of governmental subsidy for leasing agricultural machinery, which was implemented in the prior year. Moreover, the Earthquake had a negative impact on demand for farm equipment. Accordingly, sales of farm equipment remained at a lower than expected. On the other hand, sales of construction machinery and engines increased largely due to an upturn of demand.

Overseas revenues increased 9.8 % from the prior year to ¥425.1 billion. In North America, sales of tractors and construction machinery increased as a result of aggressive sales promotion activities. Sales of engines also increased largely supported by favorable demand. In Europe, sales of construction machinery and engines increased substantially due to a rapid recovery of demand, while sales of tractors decreased. In Asia outside Japan, although growth rate of sales of farm equipment slowed down mainly affected by bad weather, sales of construction machinery largely increased.

2) Water & Environment Systems

Revenues in Water & Environment Systems decreased 13.5 % from the prior year, to ¥192.8 billion, comprising 20.6 % of consolidated revenues.

Domestic revenues decreased 9.8 % from the prior year to ¥178.7 billion. Sales of pipe-related products such as ductile iron pipes and plastic pipes, decreased substantially due to sluggish demand. Sales of environment-related products also decreased mainly due to a decrease in sales of products related to water and sewage treatment, and waste treatment.

Overseas revenues decreased 43.3 % from the prior year to ¥14.1 billion, due to substantial sales declines of ductile iron pipes and pumps.

 

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3) Social Infrastructure

Revenues in Social Infrastructure decreased 4.5 % from the prior year to ¥60.4 billion, comprising 6.5 % of consolidated revenues.

Domestic revenues decreased 5.8 % from the prior year to ¥44.3 billion. Although sales of electronic-equipped machinery and air-conditioning equipment increased, sales of spiral welded steel pipes largely decreased and sales of industrial castings as well as vending machines also decreased from the prior year.

Overseas revenues decreased 0.7 % from the prior year to ¥16.2 billion due to the sales decline of industrial castings.

4) Other

Revenues in Other increased 4.6 % from the prior year to ¥29.0 billion, comprising 3.1 % of consolidated revenues, due to an increase in sales of construction and other business.

Cost of Revenues, SG&A Expenses, and Other Operating Expenses

The cost of revenues decreased 0.4% from the prior year, to ¥678.7 billion due to company-wide cost reduction activities and decreases in depreciation and pension costs, and as a result, cost of revenues as a ratio to consolidated revenues improved 0.5 percentage points to 72.7%.

Selling, general, and administrative (SG&A) expenses decreased 7.8 % from the prior year to ¥165.4 billion mainly due to decreases in pension costs, labor costs and advertising costs. As a result, the ratio of SG&A expenses to revenues improved 1.6 percentage points to 17.7%.

Pension costs in 2010 decreased ¥8.8 billion from the prior year mainly due to absence of the immediate recognition of net actuarial losses in excess of 20% of the projected benefit obligation which was recognized in 2009. Out of ¥8.8 billion, ¥5.9 billion was included in the cost of revenues and ¥2.9 billion was included in SG&A Expenses.

Other operating expenses increased ¥3.3 billion from the prior year to ¥3.5 billion due to expenses totaling ¥2.5 billion for the disaster-related losses from the Earthquake. For details, refer to Note 18 “SUPPLEMENTAL EXPENSE INFORMATION” on page F-40.

Operating Income

Operating income increased ¥16.4 billion (23.5 %) to ¥86.1 billion from the prior year. This increase in operating income was due primarily to positive impacts such as favorable geographic and product mix in revenues, and decreases in pension costs and material cost, which outweighed negative impacts of foreign currency fluctuations and losses of the Earthquake.

As a result, operating margin for the fiscal year ended March 31, 2011 increased by 1.7 percentage points to 9.2% from 7.5% for the fiscal year ended March 31, 2010.

The following table sets forth operating income by reporting segment for the last two fiscal years:

 

     Millions of yen  
     2011     2010     Changes  
     ¥     ¥     %  

Farm & Industrial Machinery

     86,487        60,485        43.0   

Water & Environment Systems

     13,121        19,723        (33.5

Social Infrastructure

     2,463        2,699        (8.7

Other

     2,096        2,629        (20.3

Adjustment for intersegment eliminations

     (18,056     (15,834     —     
  

 

 

   

 

 

   

 

 

 

Total

     86,111        69,702        23.5   
  

 

 

   

 

 

   

 

 

 

Operating income in Farm & Industrial Machinery increased 43.0 % to ¥86.5 billion due to increased overseas revenues and cost reduction. On the other hand, operating income in Water & Environment Systems decreased 33.5 % to ¥13.1 billion due to decreased revenues and rising material cost such as steel scrap and vinyl chloride resin. Operating income in Social Infrastructure decreased 8.7 % to ¥2.5 billion due to decreased revenues. Operating income in Other decreased 20.3 % to ¥2.1 billion.

 

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Other Income

Other income, net, increased ¥1.4 billion to ¥5.2 billion from the prior year. A foreign exchange gain-net of ¥2.9 billion in the prior year turned to a loss-net of ¥1.6 billion in 2011. However, gain on sales of securities-net increased ¥3.0 billion from the prior year to ¥4.8 billion and there was a gain of ¥2.8 billion from the nonmonetary exchange of securities of MS&AD Insurance Group Holdings, Inc., through the merger of Aioi Insurance Co., Ltd., Nissay Dowa General Insurance Co., Ltd., and Mitsui Sumitomo Insurance Group. With regard to the nonmonetary exchange of securities of MS&AD Insurance Group Holdings, refer to Note 4 “OTHER INVESTMENTS” on page F-14.

Foreign exchange gains or losses generally arise from the revaluation of foreign currency-denominated assets such as notes and accounts receivables at the balance sheet date; the difference between carrying value and settlement value of foreign currency-denominated assets; and valuation on foreign exchange forward contracts and options. U.S. dollar, Euro and Baht-denominated assets accounted for a large portion of foreign exchange gains or losses. The exchange rates of the yen against the U.S. dollar at the balance sheet date were ¥83 and ¥93 for the fiscal year ended March 31, 2011 and 2010, respectively, and the yen against the Euro were ¥118 and ¥125 for the fiscal years ended March 31, 2011 and 2010, respectively.

Income before Income Taxes and Equity in Net Income of Affiliated Companies

Income before income taxes and equity in net income of affiliated companies increased ¥17.8 billion from the prior year to ¥91.3 billion due to an increase in operating income.

Income Taxes, Equity in Net Income of Affiliated Companies, and Net Income

Income Taxes increased 18.1% from the prior year to ¥30.7 billion, primarily as a result of an increase in Income before Income Taxes. The effective tax rate decreased by 1.8 percentage points to 33.6% from 35.4% of the prior year. Equity in net income of affiliated companies was ¥0.5 billion, an increase of ¥0.1 billion from the prior year. As a result, net income increased 27.6% from the prior year to ¥61.1 billion.

Net Income attributable to the noncontrolling interests

Net income attributable to the noncontrolling interests increased 12.6% from the prior year, to ¥6.3 billion due to higher profits of consolidated subsidiaries.

Net Income attributable to Kubota Corporation

Due to the factors described above, net income attributable to Kubota Corporation increased 29.5% from the prior year to ¥54.8 billion. Return on shareholders’ equity increased 1.7 percentage points to 8.7%, from the prior year.

Net Income attributable to Kubota Corporation per ADS

Basic net income attributable to Kubota Corporation per ADS (five common shares) was ¥216, as compared to ¥166 in the prior year.

Dividends

The Company paid ¥35 per ADS as a year-end cash dividend. Accordingly, including the interim dividend of ¥35 per ADS paid by the Company, the total dividend for the year ended March 31, 2011 was ¥70 per ADS, which was ¥10 per ADS higher than the prior year.

Comprehensive Income

Comprehensive Income was ¥24.1 billion, ¥46.6 billion lower than the prior year. This decrease was mainly due to the negative effect of foreign currency translation adjustments resulting from the appreciation of the yen and a turn from unrealized gains on securities into unrealized losses on securities, due to the stock market slump.

Critical Accounting Estimates

The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of these statements requires the uses of estimates and assumptions about future events. Accounting estimates and assumptions discussed in this section are those that the Company considers to be the most critical to an understanding of its financial statements.

 

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1) Allowance for Doubtful Accounts and Credit Losses

An allowance for doubtful accounts and credit losses is established to cover probable losses arising from customers’ inabilities to repay. The allowance for doubtful receivables is determined on the basis of the collection status of receivables, historical credit loss experience, economic trends, customer’s ability to repay, and collateral values. 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. Sharp changes in the economy or a significant change in the economic health of a particular customer could result in actual receivable losses that are materially different from the estimated reserve.

2) Impairment of Long-Lived Assets

The application of impairment accounting requires the use of significant estimates and assumptions. Long-lived assets to be held and used are reviewed for impairment by comparing the carrying value of an asset group with its estimated undiscounted future cash flows. This review is primarily performed using estimates of future cash flows by product category. If the carrying value of the asset group is considered impaired, an impairment loss is recorded for the amount by which the carrying value of the asset group exceeds its fair value. The fair value is determined using the present value of estimated net cash flows. This approach uses significant estimates and assumptions, which are inherently uncertain and unpredictable and would not reflect unanticipated events and circumstances that may occur.

3) Pension Assumptions

The measurement of the Company’s benefit obligation to its employees and the periodic benefit cost requires the use of certain assumptions, such as estimates of discount rates, expected long-term rates of return on plan assets, retirement rate, and mortality rate. Among those assumptions, discount rates and expected long-term rates of return on plan assets are deemed to be significant. The discount rate is determined based upon a hypothetical bond portfolio with maturity dates and amounts that match the timing and amount of the expected future benefit payments. The hypothetical bond portfolio is comprised of high-quality fixed-income investments available at the measurement date. The expected long-term rates of return on plan assets is determined after considering several applicable factors including the composition of plan assets held, assumed risks of asset management, historical results of the returns on plan assets, the Company’s principal policy for plan asset management, and forecasted market conditions.

In preparing the financial statements, the Company utilized the discount rates for calculating the benefit obligation of 2.2% at March 31, 2012, and 2.6% at March 31, 2011. The Company determined expected long-term rates of return on plan assets of 2.5% for each of the years ended March 31, 2012, 2011 and 2010. As a result of measurements of benefit obligations and fair value of plan assets, the actuarial losses unrealized in net periodic benefit cost were ¥39.8 billion at March 31, 2012, an increase from ¥28.3 billion at March 31, 2011. This increase arose mainly due to the decline in the discount rates. Actuarial losses realized in net periodic benefit cost were ¥0.7 billion, ¥0.5 billion and ¥9.6 billion for the years ended March 31, 2012, 2011 and 2010, respectively, and are estimated to be ¥6.1 billion for the year ending March 31, 2013. The expected long-term rates of return on plan assets for the year ending March 31, 2013 is estimated as 2.5%, the same rate as for the year ended March 31, 2012.

The Company recognizes any 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 (approximately 15 years). Accordingly, significant changes in assumptions or significant divergences of actual results from the assumptions may have a material effect on periodic benefit cost in the future periods.

A lower discount rate increases benefit obligations, which could affect the periodic benefit cost in the following years by an increase in service cost, a decrease in interest cost, and, if, amortized, an increase in amortization cost through the amortization of actuarial losses. Each 50 basis point increase or decrease in the discount rate will result in an estimated increase or decrease of ¥7.9 billion on the benefit obligations at March 31, 2012.

A lower expected long-term rate of return on plan assets would decrease the expected return amount in the following year. Each 50 basis point increase or decrease in the expected long-term rates of return on plan assets will result in an estimated increase or decrease of ¥0.6 billion on the periodic benefit cost for the year ending March 31, 2013.

 

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4) Income Taxes

During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. As a result, the Company recognizes tax liabilities based on estimates of whether additional taxes will be due. These tax liabilities are recognized when, despite the Company’s belief that its tax return positions are supportable, the Company acknowledges that certain positions are likely to be challenged and may not be fully sustained upon review by tax authorities. The Company applies a more likely than not threshold to the recognition and derecognition of tax positions. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such determination is made.

Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence, including past operating results, estimates of future taxable income, and the feasibility of ongoing tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to income tax expense in the period in which such determination is made.

5) Revenue Recognition for Long-Term Contracts

The Company uses the percentage of completion method to recognize revenue from long-term contracts primarily in construction works with the Japanese national government and local governments. The percentage of completion method requires the use of estimates and assumptions to measure total contracts, remaining costs to completion, and total contract revenues. The Company continually reviews the estimates and assumptions. Any revisions in revenue, cost, and profit estimates or in measurements of the extent of progress toward completion are accounted for in the consolidated statements of income for the fiscal year in which those revisions have been made.

6) Loss Contingencies

The Company is currently facing asbestos-related issues, and is a party to certain legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure on a regular basis. If the potential losses from these matters are considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. The Company considers the progress of legal proceedings, recent similar court cases, and other relevant factors in order to assess whether the conditions of loss contingencies are met.

Each quarter, representatives from the accounting and legal departments meet to discuss and assess outstanding claims. The legal department consults outside legal counsel about the progress and potential ultimate outcome of the cases. The Company has continued its efforts to develop the amount or narrow the range of loss by evaluating the effects of key assumptions such as the probability of losing lawsuits, the total amount of ultimate compensation when lost, and the allocation rate among defendants, which includes both the government and asbestos-related companies. With all of these efforts, the Company believes that it has an appropriate process in place to estimate any loss or range of loss, or to determine that such an estimate cannot be made.

Among the above lawsuits, one district court ruled in favor of Japanese Government and 44 asbestos-related companies including the Company, but the plaintiff appealed the court ruling right after the judgment. The progress of the above case has not provided any developments that would facilitate a better estimation for any of the above assumptions. The Company expects that the degree of uncertainty related to each of the assumptions will decrease as the lawsuits significantly progress, but is currently unable to predict when any of them will be resolved. Finally, because similar asbestos-related cases in Japan are still pending and have not been finally concluded, the Company is not able to use them as a reference in estimating the above assumptions. However, as additional information becomes available, the Company reassesses the potential liability and may revise the estimates. Subsequent revisions in the estimates of the potential liabilities could have a material impact on the Company’s results of operations and financial position in the period they are made.

 

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New Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard related to the presentation of offsetting assets and liabilities in financial statements. The purpose of this issuance is to eliminate differences between U.S. GAAP and International Financial Reporting Standards (“IFRS”) in order to enhance the comparability of statements prepared on the basis of U.S. GAAP and IFRS. This standard requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position. This standard is effective for annual reporting periods beginning on and after January 1, 2013 and interim periods within those annual periods, and should be applied retrospectively for all comparative periods presented. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued amendments to defer the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income in a new accounting standard issued in June 2011, which originally defined its effective date for annual periods beginning after December 15, 2011, and interim periods within those years. This deferral only applied to the presentation of reclassification adjustments. The amendments were effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and was adopted by the Company on April 1, 2011. The adoption of this amendment did not have a material impact on the Company’s consolidated financial statements.

B. Liquidity and Capital Resources

Finance and Liquidity Management

The Company’s financial policy is to ensure adequate financing and liquidity for its operations and to maintain the strength of its balance sheet. Through cash and cash equivalents, other current assets, cash flows provided by operating activities, and borrowing, the Company is in a position to fully finance the expansion of its business, R&D, and capital expenditures for current and future business projects. The specific methods of financing available to the Company are borrowing from financial institutions, establishing committed lines of credit, and the issuance of bonds and commercial paper (CP) in the capital markets.

The Company utilizes group financing in Japan and North America. With group financing, the Company centralizes and pursues the efficiency of cash management in each region, and the excess or shortage of cash at most of its subsidiaries and affiliated companies in Japan and its subsidiaries in North America is invested or funded, as necessary.

To maintain the strength of its balance sheet and help secure adequate funding resources, the Company carefully monitors its interest-bearing debt, excluding debt related to sale financing programs. The Company is providing retail financing programs to facilitate sales of farm equipment in Japan, North America, Asia outside Japan and Other Areas and believes an increase of debt related to sales financing programs is a result of business expansion.

At the end of March 2012, the amount of interest-bearing debt increased ¥7.3 billion from the prior year, to ¥361.2 billion mainly due to the acquisition of a business during the period. Of the ¥361.2 billion, ¥300.0 billion was borrowings from financial institutions, and the remaining ¥61.2 billion consisted of corporate bonds.

The currencies in which the Company borrows are mainly Japanese yen, U.S. dollars and Thai Baht. There are no restrictions regarding the manner in which the funds may be used. The amount of short-term borrowings at March 31, 2012 was ¥69.6 billion and the weighted average interest rate was 1.0% (U.S. dollar 0.6%, Thai Baht 3.2%, others 0.6%). The amount of long-term debt (excluding capital lease obligations) at March 31, 2012 was ¥288.3 billion and the weighted average interest rate, which included both fixed and floating rates was 1.7% (Japanese yen 1.1%, U.S. dollar 1.6%, others 4.1%). As for corporate bonds, the outstanding issue was ¥61.2 billion at the end of March 2012.

Regarding the lines of credit, the Company has established committed lines of credit totaling ¥20.0 billion with certain Japanese banks. However, the Company currently does not use these lines.

There are restrictive covenants related to the borrowings including negative pledges, rating trigger and minimum net worth. The rating trigger states that the Company shall keep or be higher than the “BBB–” rating by Rating and Investment Information, Inc. and the minimum net worth covenant states that the Company shall maintain total equity of more than ¥477.0 billion on the consolidated financial statement and more than ¥303.1 billion on the separate financial statement of the parent company. The Company is in compliance with these restrictive covenants at March 31, 2012. With regard to the maturity profile of these borrowings, refer to Item 5.F “Tabular Disclosure of Contractual Obligations” on page 31.

The Company plans its capital expenditures considering future business demand and cash flows. As of March 2012, the Company has planned to invest approximately ¥53.0 billion in the fiscal year ending March 31, 2013. The Company intends to fund its investment basically through cash provided by operating activities, and to also utilize available borrowings from financial institutions. The Company’s current commitments for capital expenditures are not material.

 

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The Company has underfunded pension liabilities of ¥41.9 billion in the defined benefit pension/severance indemnity plan, which relate primarily to the parent company, as of the end of March 2012. If the funded status of the plan declines below the required level, the Company would need to make an additional contribution as a special contribution. The Company’s contributions to pension plans for the year ending March 31, 2013 are expected to be ¥14.3 billion and the special contribution is included in it.

The Company’s basic policy for the return of profit to shareholders is to maintain stable dividends or raise dividends together with repurchases of treasury stock. The Company uses net cash provided by operating activities for these dividends and repurchases.

The amount of working capital decreased ¥12.0 billion from the prior year-end to ¥330.0 billion. Accordingly, the ratio of current assets to current liabilities decreased 17.0 percentage points to 161.6%, due to an increase in current liabilities resulting from increases in trade accounts payable and current portion of long-term debt. There is some seasonality to the Company’s liquidity and capital resources because a high percentage of the notes and accounts receivable from local governments is collected during April through June each year. Currently, the Company believes its working capital is sufficient for the Company’s present requirements.

All things considered, the Company believes that it can support its current and anticipated capital and operating requirements for the foreseeable future.

Cash Flows

Net cash provided by operating activities during the year was ¥79.9 billion, representing a decrease of ¥2.0 billion in cash inflow compared with the prior year. Although net income increased by 4.9 billion compared to the prior year, net cash provided by operating activities was at almost the same level as in the prior year. This is because note and accounts receivable increased, mainly due to an increase in revenues and temporary shift of the month-end settlement date from March 31 to April 2.

Net cash used in investing activities was ¥69.9 billion, an increase of ¥26.3 billion in cash outflow compared with the prior year. This increase in cash outflow was mainly due to the acquisition of businesses, while proceeds from sales of property, plant and equipment increased.

Net cash used in financing activities was ¥13.3 billion, representing a decrease of ¥28.5 billion in cash outflow compared with the prior year. This decrease was mainly due to an increase of proceeds from the issuance of long-term debt, while purchases of treasury stock increased.

Including the effect of exchange rate fluctuations, cash and cash equivalents at the end of March 31, 2012 were ¥100.6 billion, a decrease of ¥4.7 billion from the prior fiscal year-end.

Over the past three years, the amount of net cash provided by operating activities was ¥280.9 billion in aggregate. Additionally, during the same period, proceeds from sales of property, plant, and equipment and proceeds from sales of investments were ¥30.7 billion in total. The aggregate amount of these cash flows was used chiefly to fund increases in finance receivables, which exceeded collections of finance receivables by ¥80.8 billion, purchases of fixed assets of ¥80.9 billion, acquisition of business (net of cash acquired) of ¥17.2 billion, dividend payments to shareholders of ¥50.8 billion and purchase of treasury stock for ¥10.3 billion. Net decrease in interest-bearing debt was ¥20.4 billion in aggregate. Cash and cash equivalents increased an aggregate of ¥31.1 billion during the same period.

Assets, Liabilities, and Equity

1) Assets

Total assets at the end of March 2012 amounted to ¥1,487.7 billion, an increase of ¥130.8 billion (9.6%) from the prior fiscal year-end. Current assets were ¥866.0 billion, an increase of ¥88.8 billion from the prior fiscal year-end mainly due to an increase of notes and accounts receivable, short-term finance receivables and inventories corresponding to the revenue increase.

An increase in assets related to the acquisition of a business amounted to ¥55.4 billion. This amount comprises ¥28.1 billion in current assets, ¥0.6 billion in investments and long-term finance receivables, ¥8.2 billion in property, plant, and equipment, and other assets in ¥18.5 billion, which includes ¥4.0 billion of goodwill. On the other hand, cash and cash equivalents decreased ¥18.1 billion corresponding to the acquisition of a business.

 

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2) Liabilities

Total liabilities amounted to ¥780.5 billion, an increase of ¥105.0 billion (15.5%) from the end of the prior year. Current liabilities were ¥536.0 billion, an substantial increase of ¥100.9 billion (23.2%) from the prior year-end due to an increase in the current portion of long-term liabilities and an increase in liabilities related to the acquisition of a business as well as increases in accounts payable, which was mainly affected by the revenue increase and the shift in settlement date from March 31 to April 2, and income taxes payable due to the revenue increase.

Liabilities related to acquisition of business amounted to ¥32.3 billion, which comprises ¥22.9 billion of current liabilities and ¥9.4 billion of long-term liabilities.

3) Equity

Total equity amounted to ¥707.2 billion, an increase of ¥25.9 billion (3.8%) from the end of the prior year. Equity increased because recorded net income offset increases in treasury stock and accumulated other comprehensive loss. The shareholders’ equity ratio* was 43.9%, 2.9 percentage points lower than at the prior fiscal year-end. The debt-to-equity ratio** was 55.3%, 0.5 percentage points lower than at the prior year-end.

Related to the acquisition of a business, noncontrolling interests increased ¥5.0 billion.

 

* Shareholders’ equity ratio = shareholders’ equity / total assets
** Debt-to-equity ratio = interest-bearing debt / shareholders’ equity

Derivatives

To offset currency and interest rate fluctuation risks, the Company uses various types of derivatives, including foreign exchange forward contracts, foreign currency option contracts, cross-currency swap contracts cross-currency interest rate swap contracts, and interest rate swap contracts. As a basic policy, the Company conducts its derivative transactions within the range of its outstanding credit and obligations, and the Company does not engage in speculative derivative transactions. The counterparties for the Company’s derivative transactions are financial institutions with high creditworthiness; therefore, the Company does not anticipate any credit losses on such transactions. For more specific details, refer to Note 15 “Derivative Financial Instruments” on page F-35.

C. Research and Development, Patents and Licenses, etc

Research and Development

The following table shows the Company’s research and development expenses for the last three fiscal years:

 

     Millions of yen  
     2012     2011     2010  

R&D Expenses

   ¥ 27,856      ¥ 25,042      ¥ 25,241   

As a percentage of consolidated revenues

     2.8     2.7     2.7

The R&D activities are conducted principally in R&D departments in each business division and subsidiary. In its business divisions and subsidiaries, there are 28 R&D departments. Each department promotes the R&D activities fortifying each business.

The total R&D expenses of the four reporting segments, which are Farm & Industrial Machinery, Water & Environment Systems, Social Infrastructure, and Other segment, were ¥21.6 billion, ¥3.9 billion, ¥1.2 billion, and ¥1.1 billion, respectively.

Patents and Licenses

The Company does not rely on any specific individual licenses or patents. As of March 31, 2012, the Company held 6,578 Japanese patents and 2,769 foreign patents and utility model registrations. A utility model registration is a right granted under Japanese law and in certain other countries to inventions of lesser originality than those which qualify for patents. Although patent rights are important to the Company, the Company does not consider that the expiration of any single patent or group of related patents would materially affect Kubota’s business. Kubota grants licenses to others to use its technology including its patents, and obtains licenses under patents from third parties for technological assistance on a royalty basis. In fiscal 2012, royalty income and expenses were ¥920 million and ¥86 million, respectively, under such licensing arrangements.

 

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D. Trend Information

Outlook for the Next Fiscal Year

The Company forecasts consolidated revenues for the year ending March 31, 2013 will increase compared with the current year. Domestic revenues are forecast to increase due to increases in revenues in all reporting segments. Overseas revenues are forecast to increase substantially due to higher revenues in Farm & Industrial Machinery. Among revenues in this segment, revenues in Asia outside Japan are expected to increase sharply and revenues in North America are also expected to increase due to demand increase. Revenues in Europe are expected to increase mainly due to the addition of revenues from the acquired business.

The Company forecasts operating income will slightly decrease from the current year. Although operating income is forecast to increase because of the rise in revenues, higher pension costs affected by increased actuarial losses resulted from a change in the discount rate, a decrease in gain on sales of property, plant and equipment and an increase of amortization related to the acquired business are forecast to offset this increase in revenues.

However, the Company expects income before income taxes and equity in net income of affiliated companies and net income attributable to Kubota Corporation for the next fiscal year to increase due to improvement in other income (expenses).

Matters Related to the Health Hazard of Asbestos

Background

Until 1995, the Company’s plant in Amagasaki, Hyogo Prefecture, which is now a company office, produced asbestos-related products. The Company had other plants which also produced asbestos-related products but completely ceased such production by 2001. In April 2005, the Company was advised that some residents who lived near the former plant suffered from mesothelioma, a form of cancer that is said to be mainly caused by the aspiration of asbestos. The Company announced its intention in June 2005 to act seriously and faithfully concerning various issues of the health hazard of asbestos from the viewpoint of Corporate Social Responsibilities (“CSR”) as a company that had once manufactured asbestos-related products for a long time.

According to the Company’s basic policy, the Company started the program of consolation payments to patients with mesothelioma who lived near the former plant and to the families of residents who died from mesothelioma. In April 2006, the Company decided to establish the relief payment program in place of the consolation payment program and make additional payment to the residents to whom consolation payment were eligible to be paid or payable.

Since the Company established its internal policies and procedures of relief payment program, the Company has received claims for relief payments from 253 residents and made payments to 232 of those residents after carefully reviewing those claims as of March 31, 2012.

With regard to the procedures for filing claims with the Company for relief payments, the Company has asked the residents or the bereaved family of the residents who lived close to its former plant to communicate with the Company through Amagasaki Occupational Safety and Health Center with the documents requested by the Company.

For residents, the Company’s significant criteria for determination of payments are whether they are designated as patients for asbestos-related diseases under the Law for the Relief of Patients Suffering from Asbestos-Related Diseases (the “New Asbestos Law”), whether they do not have working experience related to handling and/or manufacturing asbestos-related products and how close they lived to our plant.

With regard to current and former employees of the Company who are suffering from or have died of asbestos-related disease, in accordance with the Company’s internal policies, the Company pays compensation which is not required by law. The compensation from the Company is paid to eligible employees upon designation as patients for asbestos-related diseases under the Workers’ Accident Compensation Insurance (the Insurance) In case an employee dies during medical treatment and is designated as a patient for asbestos-related diseases under the Insurance for bereaved families, the compensation for asbestos-related disease for the bereaved family is also paid.

The cumulative number of current and former employees who are eligible for compensation that is not required by law but provided in accordance with the Company’s internal policies is 170 as of the end of March 2010, 176 as of the end of March 2011, and 181 as of the end of March 2012.

 

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In August 2006, the Company announced that the Company would provide a donation of ¥1.2 billion to Hyogo College of Medicine made over 10 years and a ¥0.5 billion donation to Osaka Medical Center for Cancer and Cardiovascular Diseases over five years. The Company donated ¥0.1 billion as a contribution for the year ended March 31, 2012.

As a result of the asbestos issue becoming an object of public concern, the Japanese government established the Law for the Relief of Patients Suffering from Asbestos-Related Diseases (the “New Asbestos Law”) in March 2006. The New Asbestos Law was enacted for the purpose of promptly providing relief to people suffering from asbestos-related diseases who are not eligible for relief by compensation in accordance with the Insurance. The relief aid payments are contributed by the national government, municipal governments, and business entities which operated a business closely related to asbestos and have been required to contribute commencing from the year ended March 31, 2008.

Contingencies Regarding Asbestos-Related Matters

The Company expenses payments for the health hazard of asbestos to certain residents who lived near the Company’s plant and current and former employees when the Company determines that a payment is warranted. Though the Company is not certain if the claimants who are currently under review will meet the Company’s specified criteria at the time of filing claims with the Company, the Company also accrues the possible payments calculated by using the historical designation rate of the Company’s payment program since the payments to those claimants are considered to be probable. In addition, a special contribution in accordance with the New Asbestos Law is expensed. The amount of these expenses during the year ended March 31, 2012 was approximately ¥1,131 million.

Of the ¥1,131 million, ¥789 million represented expenses relating to the payment for the residents who lived near the Company’s plant under the relief payment program established in April 2006. The Company believes it is not possible to reasonably estimate the number of residents and current and former employees that will apply for payments.

The following is roll forward information for the status of claimants who have filed with the Company for payments for the past three years:

 

  (i) the number of claimants that are currently under review by the Company’s specified criteria as of the beginning of the year

 

  (ii) the number of new claimants added during the year

 

  (iii) the number of claimants decided to be paid during the year

 

  (iv) the number of claimants denied such criteria during the year

 

  (v) the number of claimants under review at the end of the period

 

   

Current and former employees

 

     2012      2011      2010  

(i)

     —           —           —     

(ii)

     5         6         8   

(iii)

     5         6         8   

(iv)

     —           —           —     

(v)

     —           —           —     

 

   

Residents

 

     2012      2011      2010  

(i)

     7         7         —     

(ii)

     16         21         18   

(iii)

     18         21         11   

(iv)

     —           —           —     

(v)

     5         7         7   

 

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Note that the residents who have filed claims for payments with the Company include both those who have been already designated as patients for asbestos-related diseases under the New Asbestos Law, and those who are still under review (the “applicants”). There are no employee claimants who are still under review but have not been designated as patients for asbestos-related diseases upon their filing with the Company.

The roll forward information above does not include all claimants who are currently under review or who were designated as patients under the Insurance or the New Asbestos Law. It is because the correlation between the number of *applicants (or those designated) and the number of **claimants who have filed/will file with the Company is low and it is difficult to reasonably estimate the probable loss or range of loss from such information.

 

*applicants:

   those who apply to the government and such related organizations for designation as patients for asbestos-related diseases under the Workers’ Accident Compensation Insurance (the “Insurance”) or under the Law for Relief of Patient Suffering from Asbestos-Related Diseases (the “New Asbestos Law”).

**claimants:

   those who file claims with the Company under its consolation payment, relief payment and compensation payment program.

As a result of this fact, the estimate of losses for future possible payments does not include the applicants currently under review or potential future applicants.

The following is a quantified table for the resident claimants who are under review with the Company, whether they are still under review or have already been designated as patients for asbestos-related disease under the New Asbestos Law. Those are included in Residents (v) of the above roll forward information:

 

  (i) the number of residents claimants who have been designated as patients for asbestos-related disease under the New Asbestos Law

 

  (ii) the number of residents claimants who are still under review under the New Asbestos Law

 

     2012      2011      2010  

(i)

     5         6         2   

(ii)

     —           1         5   

The Company is currently a defendant in litigation relating to asbestos. Section 6) Loss Contingencies of accounting estimate in item 5 A. on page 24 and Asbestos-related lawsuits in Item 8 on page 43 describe details of the litigation and contingencies.

Subsequent Events

On May 10, 2012, the Company’s Board of Directors resolved to pay a cash dividend to shareholders of record on March 31, 2012 of ¥8 per common share (¥40 per five common shares) or a total of ¥10,051 million.

E. Off-balance Sheet Arrangements

The Company provides guarantees to distributors, including affiliated companies, and customers for their borrowings from financial institutions. The Company would have to perform under these guarantees in the event of default on a payment within the guarantee periods. The maximum potential amount of undiscounted future payments of these financial guarantees as of March 31, 2012 was ¥11.0 billion.

 

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F. Tabular Disclosure of Contractual Obligations

The following summarizes contractual obligations at March 31, 2012.

 

     Millions of yen  
     Total      Payments due by period  
        Less than
1 year
     1-3 years      3-5 years      More than
5 years
 

Contractual obligations:

              

Short-term borrowings

   ¥ 69,623       ¥ 69,623       ¥ —         ¥ —         ¥ —     

Capital lease obligations

     3,340         1,178         1,184         722         256   

Long-term debt

     288,272         106,032         134,557         47,151         532   

Deposits from customers

     2,465         2,465         —           —           —     

Operating lease obligations

     5,224         1,593         2,155         1,015         461   

Commitments for capital expenditures

     2,861         2,861         —           —           —     

Contributions to defined pension plans

     14,300         14,300         —           —           —     

Interest payments

     12,311         6,230         4,946         1,001         134   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 398,396       ¥ 204,282       ¥ 142,842       ¥ 49,889       ¥ 1,383   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Long-term debt represents unsecured bonds and loans principally from banks and insurance companies. Payments due by periods for interest payments are calculated using the contract rate of each borrowing or debt and derivative financial instruments at March 31, 2012.

The Company expects benefit payments to the participants of the defined benefit pension plans and the severance indemnity plans as disclosed in Note 10 “RETIREMENT AND PENSION PLANS—Expected Cash Flows” on page F-28 of this annual report. While the Company will contribute to its defined benefit pension plans in the future periods to meet future benefit payments, its contributions to defined pension plans beyond the next fiscal year are not included in the table because they are not currently determinable.

The Company recorded liabilities for unrecognized tax benefits of ¥1,737 million at March 31, 2012, which are not included in the above tables because it is unable to make reasonable estimates of the periods of settlement.

G. Safe Harbor

Projected results of operations and other future forecasts contained in this annual report are the estimates of the Company based on information available to the Company as of this published date. Therefore, those projections include certain potential risks and uncertainties. Accordingly, the users of this information are requested to note that the actual results could differ materially from those future projections. Major factors that could influence the ultimate outcome include the economic condition surrounding the Company, foreign exchange rates, agricultural policy in Japan, the trend of public investment and private capital expenditure in Japan, the price-competitive pressure in the market and the ability for the Company to manufacture or innovate products which will be accepted in the market. Finally the users of this information should note that the factors that could influence the ultimate outcome of the Company’s activities are not limited to the above.

 

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Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

The following sets forth the information about the Company’s Directors, Executive Officers and Corporate Auditors as of the date of filing of this annual report, together with their respective dates of birth and positions. The term of office of all Directors will expire at the conclusion of the ordinary general meeting of shareholders which will be held in 2013.

 

Name

(Birthday)

  

Number of

company shares

owned as of

June 22, 2012

  

Current positions and brief occupational history

(including responsibilities in other companies)

Yasuo Masumoto

(April 21, 1947)

   58,000 Shares   

Representative Director, Chairman, President & CEO of Kubota Corporation

 

      January 2011:    Representative Director, Chairman, President & CEO of Kubota Corporation (to present)
      January 2009:    Representative Director, President & CEO of Kubota Corporation
      April 2008:    Executive Vice President and Director of Kubota Corporation
      April 2007:   

In charge of Tokyo Head Office,

General Manager of Water, Environment & Infrastructure Consolidated Division,

General Manager of Tokyo Head Office,

General Manager of Production Control Headquarters in Water, Environment & Infrastructure Consolidated Division,

General Manager of Coordination Dept. in Water, Environment & Infrastructure Consolidated Division

      April 2006:    Executive Managing Director of Kubota Corporation
      April 2005:    Deputy General Manager of Industrial & Material Systems Consolidated Division
      January 2005:    In charge of Quality Assurance & Manufacturing Promotion Dept.
      June 2004:    General Manager of Purchasing Dept. in Industrial & Material Systems Consolidated Division
      April 2004:   

Managing Director of Kubota Corporation,

In charge of Manufacturing Planning & Promotion Dept.

      April 2003:    General Manager of Production Control Headquarters in Industrial & Material Systems Consolidated Division
      June 2002:    Director of Kubota Corporation
      October 2001:    General Manager of Farm Machinery Division
      April 1971:    Joined Kubota Corporation

Tetsuji Tomita

(March 6, 1950)

   34,000 Shares    Representative Director and Executive Vice President of Kubota Corporation, In charge of Corporate Staff
      April 2012:    In charge of Corporate Staff (to present)
      April 2011:    Representative Director and Executive Vice President of Kubota Corporation (to present)
      April 2009:    Representative Director and Senior Managing Executive Officer of Kubota Corporation
      January 2009:    General Manager of Farm & Industrial Machinery Consolidated Division
      January 2009:    General Manager of International Operations Headquarters in Farm & Industrial Machinery Consolidated Division
      April 2008:    Managing Director of Kubota Corporation
      June 2005:    Director of Kubota Corporation
      April 2004:    President of Kubota Tractor Corporation
      April 1973:    Joined Kubota Corporation

 

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Name

(Birthday)

  

Number of

company shares

owned as of

June 22, 2012

  

Current positions and brief occupational history

(including responsibilities in other companies)

Satoru Sakamoto

(July 18, 1952)

   29,000 Shares   

Director and Senior Managing Executive Officer of Kubota Corporation,

In charge of Farm & Industrial Machinery Domain,

General Manager of Business Development Headquarters

      April 2012:   

In charge of Farm & Industrial Machinery Domain,
General Manager of Business

Development Headquarters (to present)

      June 2011:    In charge of Global IT Management Office
      April 2011:    Director and Senior Managing Executive Officer of Kubota Corporation (to present)
      October 2010:    In charge of Planning & Control Headquarters
      April 2009:    Director and Managing Executive Officer of Kubota Corporation
      April 2009:    In charge of Corporate Planning & Control Dept. and Finance & Accounting Dept.
      June 2006:    Director of Kubota Corporation
      April 2006:    General Manager of Air Condition Equipment Division and President of Kubota Air Conditioner, Ltd.
      April 1976:    Joined Kubota Corporation

Masatoshi Kimata

(June 22, 1951)

   45,000 Shares   

Director and Senior Managing Executive Officer of Kubota Corporation

In charge of Water & Environment Domain, General Manager of Tokyo Head Office

      June 2012:    Director and Senior Managing Executive Officer of Kubota Corporation (to present)
      April 2012:   

In charge of Water & Environment Domain,

General Manager of Tokyo Head Office (to present)

      August 2010:    President of SIAM KUBOTA Corporation Co., Ltd.
      July 2010:    Senior Managing Executive Officer of Kubota Corporation
      June 2009:    Managing Executive Officer of Kubota Corporation
      April 2009:    Director and Managing Executive Officer of Kubota Corporation
      April 2009:    Deputy General Manager of Farm & Industrial Machinery Consolidated Division, General Manager of Sales Headquarters in Farm & Industrial Machinery Consolidated Division
      April 2008:    Managing Director of Kubota Corporation
      April 2007:    Deputy General Manager of Sales Headquarters in Farm & Industrial Machinery Consolidated Division
      June 2005:    Director of Kubota Corporation
      October 2001:    General Manager of Tsukuba Plant
      April 1977:    Joined Kubota Corporation

 

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Table of Contents

Name

(Birthday)

  

Number of

company shares

owned as of

June 22, 2012

  

Current positions and brief occupational history

(including responsibilities in other companies)

Toshihiro Kubo

(April 5, 1953)

   21,000 Shares   

Director and Managing Executive Officer of Kubota Corporation,

General Manager of Human Resources & General Affairs Headquarters, General Manager of Head Office

      April 2012:    General Manager of Human Resources & General Affairs Headquarters (to present)
      June 2011:    Director and Managing Executive Officer of Kubota Corporation (to present)
      April 2011:    Managing Executive Officer of Kubota Corporation
      June 2010:    In charge of Secretary Dept. and Corporate Communications Dept.
      April 2010:    General Manager of Head Office (to present)
      April 2010:    In charge of Personnel Dept., Secretary & Public Relations Dept., General Affairs Dept., and Tokyo Administration Dept.
      June 2009:    Executive Officer of Kubota Corporation
      April 2009:    Deputy General Manager of Water & Environment Systems Consolidated Division, General Manager of Water & Environment Systems, Social Infrastructure Business Promotion Headquarters, Water & Environment Systems, Social Infrastructure Production Control Dept.
      April 2009:    Director and Executive Officer of Kubota Corporation
      June 2007:    General Manager of Production Control Headquarter in Water, Environment & Infrastructure Consolidated Division and Coordination Dept. in Water, Environment & Infrastructure Consolidated Division
      June 2007:    Director of Kubota Corporation
      October 2005:    General Manager of Planning Dept. in Ductile Iron Pipe Division
      April 1979:    Joined Kubota Corporation

Shigeru Kimura

(September 10, 1953)

   18,000 Shares   

Director and Managing Executive Officer of Kubota Corporation,

General Manager of Planning & Control Headquarters

      June 2012:    Director and Managing Executive Officer of Kubota Corporation (to present)
      April 2011:    Managing Executive Officer of Kubota Corporation
      October 2010:    General Manager of Planning & Control Headquarters (to present)
      June 2009:    Executive Officer of Kubota Corporation
      April 2009:    Director and Executive Officer of Kubota Corporation
      April 2009:    In charge of Corporate Planning & Control Dept. (assistant)
      June 2008:    Director of Kubota Corporation
      December 2002:    General Manager of Finance & Accounting Dept.
      April 1977:    Joined Kubota Corporation

Yuzuru Mizuno

(January 21, 1948)

   23,000 Shares   

Director of Kubota Corporation,

Executive Vice President of Matsushita Real Estate Co., Ltd.

      June 2009:    Director of Kubota Corporation (to present)
      July 2008:    Executive Vice President of Matsushita Real Estate Co., Ltd. (to present)
      June 2005:    Corporate Auditor of Kubota Corporation
      July 2004:    Executive Director of Matsushita Electric Industrial Co., Ltd., In charge of Corporate Finance & Investor Relations
      February 2004:    Director (non full-time) of Nippon Otis Elevator Company
      October 2000:    President (non full-time) of Panasonic Finance (Japan) Co., Ltd.
      October 2000:    General Manager of Corporate Finance Dept. of Matsushita Electric Industrial Co., Ltd.
      June 1998:    Managing Director of Matsushita Industrial Corporation Sdn. Bhd.
      December 1995:    General Manager of Accounting Dept. in Compressor Division of Matsushita Electric Industrial Co., Ltd.
      April 1970:   

Joined Matsushita Electric Industrial Co., Ltd.

(subsequently, Panasonic Corporation)

 

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Table of Contents

Name

(Birthday)

  

Number of

company shares

owned as of

June 22, 2012

  

Current positions and brief occupational history

(including responsibilities in other companies)

Junichi Sato

(March 26, 1950)

   4,000 Shares   

Director of Kubota Corporation,

Senior Executive Officer Daikin Industries, Ltd.,

In charge of Global Air-Conditioning Business (excluding Japan)

      June 2011:    Director of Kubota Corporation (to present)
      June 2007:    In charge of Global Sales Strategies for Commercial and Industrial Refrigeration (excluding Japan)
      June 2007:    In charge of Global Air-Conditioning Business (excluding Japan) (to present)
      May 2005:    General Manager Global Operations Division
      June 2004:    Senior Executive Officer Daikin Industries, Ltd. (to present)
      June 2004:    In charge of Global Operations Division, Air-Conditioning Operations in the Europe/Middle East/Africa Region and President & Managing Director Daikin Europe N.V.
      June 2003:    Senior Associate Officer Daikin Industries, Ltd.
      June 2000:    In charge of Global Operations Division, Air-Conditioning Operations in the Europe Region and President & Managing Director Daikin Europe N.V.
      June 2000:    Associate Officer Daikin Industries, Ltd.
      July 1998:    President & Managing Director Daikin Europe N.V.
      December 1973:    Joined Daikin Industries, Ltd.

Hirokazu Nara

   34,000 Shares    Corporate Auditor of Kubota Corporation

(October 2, 1948)

     

 

June 2011:

  

 

Corporate Auditor of Kubota Corporation (to present)

      April 2011:    Director of Kubota Corporation
      October 2010:    General Manager of Tokyo Head Office
      April 2009:    General Manager of Water & Environment Systems Consolidated Division
      April 2009:    Representative Director and Senior Managing Executive Officer of Kubota Corporation
      April 2007:    Managing Director of Kubota Corporation
      April 2007:    In charge of Corporate Staff Section (assistant)
      October 2005:    In charge of Corporate Planning & Control Dept.
      June 2005:    Director of Kubota Corporation,
      June 2005:    In charge of Air Condition Equipment Division, Septic Tanks Division, Housing & Building Materials Business Coordination Dept., PV Business Planning & Promotion Dept., Finance & Accounting Dept. General Manager of Corporate Planning & Control Dept.
      April 2005:   

In charge of Air Condition Equipment Division (assistant), Septic Tanks Division (assistant), Housing & Building Materials Business Coordination Dept. (assistant), PV Business Planning & Promotion Dept. (assistant), Finance & Accounting Dept. (assistant) and

General Manager of Corporate Planning & Control Dept.

      April 1971:    Joined Kubota Corporation

 

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Table of Contents

Name

(Birthday)

  

Number of

company shares

owned as of

June 22, 2012

  

Current positions and brief occupational history

(including responsibilities in other companies)

Hiroshi Shiaku

   10,000 Shares    Corporate Auditor of Kubota Corporation

(March 10, 1951)

     

 

June 2011:

  

 

Corporate Auditor of Kubota Corporation (to present)

      June 2008:    Corporate Auditor of Kubota Matsushita Exterior Works Co., Ltd. (subsequently, KMEW Co., Ltd.)
      June 2003:    General Manager of Compliance Auditing Dept.
      April 1973:    Joined Kubota Corporation

Masao Morishita

   16,000 Shares    Corporate Auditor of Kubota Corporation

(January 22, 1949)

     

 

June 2009:

  

 

Corporate Auditor of Kubota Corporation (to present)

      April 2006:    Director and CFO of Matsushita Toshiba Picture Display Co., Ltd., In charge of Administration Dept.
      April 2003:    Director and General Manager of Administrative Headquarter of Matsushita Toshiba Picture Display Co., Ltd.
      April 1998:    General Manager of Accounting Dept. and Business Planning Dept. in Compressor Division of Matsushita Electric Industrial Co., Ltd.
      April 1994:    President and Director of Matsushita Compressor Corporation of America
      April 1971:    Joined Matsushita Electric Industrial Co., Ltd. (subsequently, Panasonic Corporation)

Akira Negishi

   4,000 Shares    Corporate Auditor of Kubota Corporation

(March 23, 1943)

     

 

June 2011:

  

 

Corporate Auditor of Kubota Corporation (to present)

      April 2006:    Registered as an attorney with Osaka Bar Association (to present)
      April 2006:    Professor of Konan Law School (to present)
      April 2006:    Honorary Professor of Kobe University (to present)
      March 2006:    Retirement from Kobe University
      April 1998:    Vice President of Kobe University
      April 1996:    Head of faculty of law in Kobe University
      April 1978:    Professor of faculty of law in Kobe University
      April 1969:    Assistant professor of faculty of law in Kobe University
      April 1965:    19th Legal Apprenticeship

Ryoji Sato

   1,000 Shares    Corporate Auditor of Kubota Corporation

(December 7, 1946)

     

 

April 2012:

  

 

Professor of Graduate School of Accountancy in Waseda University (to present)

      June 2011:    Corporate Auditor of Kubota Corporation (to present)
      May 2011:    Retired from Senior Advisor of Deloitte Touche Tohmatsu LLC
      November 2010:    Senior Advisor, Deloitte Touche Tohmatsu LLC
      June 2007:    Executive Member, Deloitte Touche Tohmatsu (currently, Deloitte Touche Tohmatsu Limited)
      June 2007:   

Chief Executive Officer of Deloitte Touche Tohmatsu

(currently, Deloitte Touche Tohmatsu LLC)

      June 2004:   

Representative Partner and Managing Partner, Tokyo

Office of Deloitte Touche Tohmatsu (currently, Deloitte Touche Tohmatsu LLC)

      June 2001:    Managing Partner, Tokyo Office of Tohmatsu & Co. (currently, Deloitte Touche Tohmatsu LLC)
      June 1997:   

Board member of Tohmatsu & Co.

(currently, Deloitte Touche Tohmatsu LLC)

      April 1975:    Registered as a Certified Public Accountant with the Japanese Institute of Certified Public Accountants (to present)
      October 1971:   

Joined Tohmatsu Awoki & Co.

(currently, Deloitte Touche Tohmatsu LLC)

 

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Yuzuru Mizuno and Junichi Sato are outside directors as stipulated in the Corporate Law. Masao Morishita, Akira Negishi and Ryoji Sato are outside corporate auditors as stipulated in the Corporate Law.

The Company notified the Japanese stock exchanges of [all of its five outside] directors and outside corporate auditors as “independent directors / corporate auditors” pursuant to the regulations of the Japanese stock exchanges. The definition of the “independent director / corporate auditor” is different from that of the independent directors under the corporate governance standards of the New York Stock Exchange or under Rule 10A-3 under the U.S. Securities Exchange Act of 1934, as amended.

Among Directors or Corporate Auditors of Kubota Corporation, there is no family relationship. No Directors or Corporate Auditors, except Yuzuru Mizuno, Junichi Sato, Akira Negishi and Ryoji Sato have business activities outside the Company. Two Directors, Yuzuru Mizuno and Junichi Sato, serve as a director or an executive officer of other companies as above mentioned

There is not any arrangement or understanding with major shareholders, customers, suppliers or others pursuant to which any person named above was selected as a Director or a Corporate Auditor.

The Company is not dependent on specific Directors, researchers, or any other entity for its management.

The Company, by a resolution at the meeting of the Board of Directors held on February 10, 2009, introduced the Executive Officer System. The following sets for the information about the Executive Officers excluding persons who also hold the post of Directors as of the date of filing of this annual report, together with their respective positions and responsibilities. Please refer to Item 6C “Board Practices” for details of the Executive Officer System

 

Title

  

Name

  

Responsibilities and important concurrent offices

Senior Managing Executive Officer    Takeshi Torigoe   

General Manager of Materials Division,

General Manager of Electronic Equipped Machinery Division

Senior Managing Executive Officer    Nobuyuki Toshikuni   

General Manager of Research & Development Headquarters,

General Manager of Farm & Industrial Machinery R&D Headqarters

Managing Executive Officer    Katsuyuki Iwana    General Manager of Machinery Procurement Headquarters
Managing Executive Officer    Kenshiro Ogawa    General Manager of Quality Assurance & Manufacturing Headquarters
Managing Executive Officer    Tetsu Fukui   

General Manager of Water Engineering & Solution Division,

General Manager of Water & Environment R&D

Managing Executive Officer    Satoshi Iida   

General Manager of Farm & Utility Machinery Division,

General Manager of Farm & Utility Machinery International Operation

Managing Executive Officer    Yujiro Kimura    General Manager of Pipe System Division
Executive Officer    Masakazu Tanaka    Deputy General Manager of Farm & Industrial Machinery R&D Headquarters
Executive Officer    Taichi Itoh    Deputy General Manager of Human Resources & General Affairs Headquarters
Executive Officer    Shinji Sasaki    General Manager of Engine Division
Executive Officer    Hiroshi Matsuki    Deputy General Manager of Human Resources & General Affairs Headquarters
Executive Officer    Yuichi Kitao    President of Kubota Tractor Corporation
Executive Officer    Kunio Suwa    General Manager of CSR Planning & Coordination Headquarters
Executive Officer    Toshihiko Kurosawa   

Deputy General Manager of Business Development Headquarters,

General Manager of International Business Promotion Dept.

 

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Title

  

Name

  

Responsibilities and important concurrent offices

Executive Officer    Hiroshi Kawakami    President of SIAM KUBOTA Corporation Co., Ltd.
Executive Officer    Satoshi Machida    General Manager of Farm & Utility Machinery Engineering Headquarters
Executive Officer    Masaharu Tabata    Deputy General Manager of Quality Assurance & Manufacturing Headquarters
Executive Officer    Yoshiyuki Fujita    General Manager of Global Management Promotion Dept.
Executive Officer    Kaoru Hamada    President of Kubota Metal Corporation
Executive Officer    Takashi Uei   

President of Kubota China Holdings Co., Ltd.,

President of Kubota Environmental Engineering (SHANGHAI) Co., Ltd.

Executive Officer    Hironobu Kubota    President of Kubota Manufacturing of America Corporation
Executive Officer    Junji Ogawa    General Manager of Water & Environmental Planning & Control Dept.
Executive Officer    Yasuo Nakata    General Manager of Construction Machinery Division, General Manager of Planning & Sales Promotion Dept. in Construction Machinery Division
Executive Officer    Masato Yoshikawa    General Manager of Corporate Planning & Control Dept.

B. Compensation

The following table sets forth the aggregate remunerations, including bonuses and other financial benefits given in consideration of the performance of duties (collectively, the “remunerations”), paid by the Company in fiscal 2012 to all Directors and Corporate Auditors of the Company:

 

     Number      Millions of yen  

Title

      Total      Remuneration      Bonuses  

Director (excluding Outside Director)

     9         434         367         96   

Corporate Auditor (excluding Outside Corporate Auditor)

     4         62         62         —     

Outside Director and Outside Corporate Auditor

     8         71         71         —     

Notes:

 

1. The above remunerations for Directors of Kubota Corporation do not include the salary for employees’ portion of certain Directors. The salary for employees’ portion of certain Directors is not material.

 

2. The remunerations for Directors are determined at the meeting of the Board of Directors based on the report of the Compensation Council within the range of the maximum aggregate amounts of remunerations approved at a general meeting of shareholders, in consideration of operating results, compensation levels of other companies, wage level of employees. The Compensation Council is composed of Representative Directors excluding the President and executive officers in charge of indirect departments. The report of the Compensation Council is submitted to the meeting of the Board of Directors after the approval of the President. The remunerations for Corporate Auditors are determined upon consultation among Corporate Auditors within the range of the maximum aggregate amounts of remunerations approved at a general meeting of shareholders, in consideration of the roles of the respective Corporate Auditors.

The following table sets forth the names, titles and amounts of remunerations paid by the Company to persons whose remunerations equaled or exceeded ¥100 million for the fiscal year ended March 31, 2012:

 

Title and Name

   Millions of yen  
   Total      Remuneration      Bonuses  

Yasuo Masumoto

     126         102         24   

 

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C. Board Practices

The Company’s Articles of Incorporation as revised as of June 19, 2009 provide that the number of Directors of the Company shall be not more than 10 and that of the Corporate Auditors shall be not more than six.

Directors and Corporate Auditors shall be elected by the general meeting of shareholders. The Board of Directors has ultimate responsibility for administration of the Company’s affairs. The Board of Directors may, by its resolution, appoint one Chairman of the Board of Directors, one Vice Chairman of the Board of Directors, one President-Director, and one or more Vice President-Directors, Executive Managing Directors and Managing Directors. The Board of Directors shall, by its resolution, appoint Representative Directors. A Japanese joint stock corporation with corporate auditors, such as the Company, is not obliged under the Corporate Law to have any outside directors on its board of directors. However, the Company began to have elected two Outside Directors at the ordinary general meeting of shareholders held in June 2009. An “outside director” is defined as a director of the company who does not engage or has not engaged in the execution of business of the company or its subsidiaries as a director of any of these corporations, and who does not serve or has not served as an executive officer, manager or in any other capacity as an employee of the company or its subsidiaries. The term of office of Directors shall, under the Articles of Incorporation of the Company, expire at the conclusion of the ordinary general meeting of shareholders with respect to the last closing of accounts within one year from their assumption of office, and in the case of Corporate Auditors, within four years from their assumption of office. However, they may serve any number of consecutive terms.

Under the Corporate Law, the Corporate Auditors of the Company are not required to be and are not certified public accountants. However, at least half of the Corporate Auditors shall be outside corporate auditors. An “outside corporate auditor” is defined as a corporate auditor who has not been a Director, accounting counselor, corporate executive officer, manager or any other employee of the Company or any of its subsidiaries at any time prior to his or her election as a Corporate Auditor.

The Corporate Auditors may not at the same time be Directors, accounting counselor, corporate executive officers, managers or any other employees of the Company or any of its subsidiaries. Each Corporate Auditor has the statutory duty to examine the Company’s consolidated and non-consolidated financial statements and business report to be submitted by a Representative Director at the general meeting of shareholders and, based on such examination and a report of an Accounting Auditor referred to below, to respectively prepare his or her audit report. Each Corporate Auditor also has the statutory duty to supervise the administration by the Directors of the Company’s affairs. They are required to attend in meetings of the Board of Directors and express opinions, if necessary, at such meetings, but they are not entitled to vote.

Pursuant to the regulations of the Japanese stock exchanges, the Company is required to have one or more “independent director(s)/corporate auditor(s)” which terms are defined under the relevant regulations of the Japanese stock exchanges as “outside directors” or “outside corporate auditors” (each of which terms is defined under the Corporate Law) who are unlikely to have any conflicts of interests with shareholders of the Company. The definition of “independent director/corporate auditor” is different from that of the independent directors under the corporate governance standards of the New York Stock Exchange or under Rule 10A-3 under the U.S. Securities Exchange Act of 1934, as amended. Each of Yuzuru Mizuno, Junichi Sato, Masao Morishita, Akira Negishi and Ryoji Sato satisfies the requirements for “independent director/corporate auditor” under the regulations of the Japanese stock exchanges, respectively.

In addition to Corporate Auditors, an independent certified public accountant or an audit corporation must be appointed at general meetings of shareholders as an Accounting Auditor of the Company. Such Accounting Auditor has the duties to examine the consolidated and non-consolidated financial statements proposed to be submitted by a Representative Director at general meetings of shareholders and to report their opinion thereon to certain Corporate Auditors designated by the Board of Corporate Auditors to receive such report (if such Corporate Auditors are not designated, all Corporate Auditors) and the Directors designated to receive such report (if such Directors are not designated, the Directors who prepared the financial statements).

The Corporate Auditors constitute the Board of Corporate Auditors. The Board of Corporate Auditors has a statutory duty to, based upon the reports prepared by respective Corporate Auditors, prepare and submit its audit report to the accounting auditor and certain Directors designated to receive such report (if such Directors are not designated, the Directors who prepared the financial statements and the business report). A Corporate Auditor may note his or her opinion in the audit report if his or her opinion expressed in his or her audit report is different from the opinion expressed in the audit report. The Board of Corporate Auditors shall elect one or more full-time Corporate Auditors from among its members. The Board of Corporate Auditors is empowered to establish audit principles, method of examination by Corporate Auditors of the Company’s affairs and financial position and other matters concerning the performance of the Corporate Auditors’ duties.

 

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Executive Officers are appointed by the Board of Directors in order that the Company may promptly respond to changes in the business environment and improve management efficiency by strengthening strategic decision-making function of the Board of Directors and the operational functions of business activities by President and other Executive Officers. The Executive Officer System is not a statutory system and is different from the statutory executive officer system which is adopted by a “company with specified committees,” where the company is required to have audit, nominating and compensation committees, each composed of a majority of Outside Directors.

Please refer to Item 6A “Directors and Senior Management” for details of all Directors and Executive Officers as the date of filing of this annual report.

There are no Directors’ service contracts with Kubota Corporation providing for benefits upon termination of service.

The rights of ADR holders, including their rights relating to corporate governance practices, are governed by the Amended and Restated Deposit Agreement (incorporated by reference to the Registration Statement on Form F-6 (File No. 333-91654) filed on June 26, 2002).

D. Employees

Head Count at the End of the Year

 

      2012      2011      2010  
     29,185         25,409         24,778   

Head Count in Each Segment

 

      2012      2011      2010  

Farm & Industrial Machinery

     19,142         15,519         14,879   

Water & Environment Systems

     5,186         5,223         5,269   

Social Infrastructure

     2,573         2,576         2,596   

Other

     1,604         1,476         1,439   

Corporate

     680         615         595   
  

 

 

    

 

 

    

 

 

 

Total

     29,185         25,409         24,778   

The number of full-time employees of Kubota as of March 31, 2012 was 29,185. Most employees of the Company in Japan, other than managerial personnel, are union members. The unions belong to the Federation of all Kubota Labor Union, which is affiliated with the Japanese Trade Union Confederation. The Company believes it maintains a good relationship with the union.

Basic wage rates are reviewed annually in spring, normally in April. In addition, in accordance with Japanese custom, Kubota grants its full-time employees semiannual bonuses.

The parent company and its domestic subsidiaries have a number of unfunded severance indemnity plans and defined benefit pension plans covering substantially all Japanese employees. Most employees of overseas subsidiaries are covered by defined benefit pension plans or defined contribution pension plans. As is customary in Japan, the Company provides a wide range of fringe benefits to its employees.

E. Share Ownership

The following table shows the total number of shares of the Company’s common stock beneficially owned by the Directors and Corporate Auditors as a group as of June 22, 2012:

 

Title of Class

  

Identity of persons or group

   Number of shares owned    Percentage of class

Common stock

   Directors and Corporate Auditors    297,000    0.02%

For individual shareholdings, see Item 6.A “Directors and Senior Management.”

 

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Employee Stock Ownership Association (Kubota Fund) owned 16,266,145 shares as of March 31, 2012, which amounted to 1.3 % of total shares issued.

The association consists of employees of the Company and some of its subsidiaries, and the members contribute a portion of their salaries to the association. The association purchases shares of Kubota’s common stock on behalf of its members.

 

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Table of Contents

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

As of March 31, 2012, two shareholders of record held 5% or more of the shares issued, respectively. The following table shows the information about the 10 largest shareholders:

 

     (As of March 31, 2012)  

Name

   Number of  shares
(thousands)
     (%)  

The Master Trust Bank of Japan, Ltd.

     107,318         8.54   

Nippon Life Insurance Company

     75,808         6.03   

Meiji Yasuda Life Insurance Company

     59,929         4.77   

Japan Trustee Services Bank, Ltd.

     59,649         4.75   

J.P. Morgan Chase Bank 380055

     45,384         3.61   

Sumitomo Mitsui Banking Corporation

     45,006         3.58   

Mizuho Corporate Bank, Ltd.

     40,851         3.25   

Moxley & Co. LLC

     31,758         2.53   

SSBT OD05 OMNIBUS ACCOUNT-TREATY CLIENTS

     27,153         2.16   

Japan Trustee Services Bank, Ltd.

(Sumitomo Trust and Banking Co., Ltd. Retirement Benefit Trust Account)

     22,982         1.83   

As far as is known to the Company, there is no arrangement, the operation of which may at a subsequent date result in a change in control of the Company. The major shareholders have the same voting rights as other common shareholders of the Company.

As of March 31, 2012, there were 1,285,919,180 shares of Common Stock outstanding, of which 31,758,643 shares were in the form of ADR and 192,819,678 shares were held by residents in the U.S. The number of registered ADR holders was 51 and the number of registered holders of common stock in the U.S. was 122.

To the best knowledge of the Company, the Company is not, directly or indirectly, owned or controlled by other corporations or by the Japanese or any foreign government.

B. Related Party Transactions

In the ordinary course of business, the Company has transactions with numerous companies. During the fiscal year ended March 31, 2012, the Company had sales transactions with affiliates accounted under the equity method, aggregating ¥64,868 million. As of March 31, 2012, the Company had trade notes and accounts receivable from affiliated companies of ¥22,742 million.

Refer to Note 3 of the Consolidated Financial Statements for additional information regarding the Company’s investments in and loan receivables from affiliated companies.

C. Interests of Experts and Counsel

Not applicable.

 

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Item 8. Financial Information

A. Consolidated Statements and Other Financial Information

The information required by this item, except as stated below, appears in the consolidated financial statements of this Form 20-F.

Export Sales

Revenues from unaffiliated customers outside Japan are disclosed in Note 21 “Segment Information—Geographic Information” on page F-45.

Legal Proceedings

Kubota is subject to various legal actions arising in the ordinary course of business including the following major legal proceedings.

Antitrust

In the fiscal year ended March 31, 1999, the Fair Trade Commission of Japan (the “FTCJ”) began an investigation of the Company for an alleged violation of the Anti-Monopoly Law (prohibition of private monopoly or unfair trade restraint) relating to participation in fixing the shares of ductile iron straight pipe orders in Japan. In March 1999, the Company received a cease and desist recommendation from the FTCJ, which was accepted by the Company in April 1999.

In December, 1999, the Company received a surcharge order of ¥7,072 million from the FTCJ. The Company has challenged this order and filed a petition for the initiation of hearing procedures that were started in March 2000. Under Section 49 of the then Anti-Monopoly Law, upon the initiation of the procedures, the surcharge order lost effect. In addition, Section 7-2 of the then Anti-Monopoly Law stipulates that surcharges are imposed in cases where price cartels or cartels that influence prices by curtailing the volume of supply are carried out. The Company believes that the alleged share cartel does not meet the requirement of Section 7-2.

The Company established a provision of ¥7,072 million for the ultimate liability in the fiscal year ended March 31, 2009, because the Company received the preliminary decision ordering a surcharge of ¥7,072 million in March, 2009. Notwithstanding motion for objection of the Company, the Company received the ultimate decision in June 2009 which ordered the Company to pay the surcharge of ¥7,072 million, and paid the surcharge in accordance with the decision during the year ended March 31, 2010.

Consequently the Company filed a suit to rescind the decision of the FTCJ with the Tokyo High Court in July 2009 since the Company believes that the facts on which the decision is based are not established by substantial evidence. However, it was dismissed on October 28, 2011, and the Company then appealed the case to the Supreme Court as it was not satisfied with the decision.

Asbestos-related lawsuits

Since the middle of the year 2005, with the asbestos issue becoming an object of public concern in Japan, 14 asbestos-related lawsuits were filed against the Company, or the Japanese Government and asbestos-related companies including the Company and the aggregate amount of claims is ¥17,566 million. The eleven lawsuits concerning an aggregate of 453 construction workers who suffered from asbestos-related diseases consist mostly of the aggregate amount of 14 claims and the defendants of these eleven lawsuits are the Japanese Government and 44 asbestos-related companies including the Company. Other three lawsuits are not material.

The Company does not have cost-sharing arrangements with other potentially responsible parties for these lawsuits. These asbestos-related lawsuits are all pending, and there have been no claim dismissed, settled, or otherwise resolved. There was not any amount of damages paid out and no accruals. The aggregate costs of administering and litigating the claims are immaterial as of the date of filing of this annual report. The time frame is not available over which presently unrecognized amount may be paid out.

 

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Table of Contents

Policy on Dividends Distributions

The Company’s basic policy for the allocation of profit is to maintain stable dividends or to provide increased dividends. The Company’s policy is to determine the most appropriate use of retained earnings, by considering current business operations as well as the future business environment.

B. Significant Changes

Except as disclosed in this annual report, there have been no significant changes since the date of latest annual financial statements of the Company.

 

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Table of Contents

Item 9. The Offer and Listing

A. Offer and Listing Details

The primary market for Kubota’s common stock is the Tokyo Stock Exchange (the “TSE”) in the form of original common stock. Kubota’s common stock has been listed on the TSE since 1949, and has also been listed on the Osaka Securities Exchange since 1949.

Overseas, Kubota’s common stock is listed on the New York Stock Exchange (the “NYSE”) in the form of ADSs evidenced by American Depositary Receipts (“ADRs”). Prior to July 15, 2002, each ADS represented 20 shares of common stock. On July 15, 2002, the Company changed the unit of ADS from 20 common shares to five in order to help increase the number of ADS holders and improve the liquidity of its ADSs.

Kubota’s ADSs, which have been listed on the NYSE since 1976, are issued with JPMorgan Chase Bank, as Depositary.

The following table sets forth, for the periods indicated, the reported high and low sales prices of Kubota’s common stock on the TSE and of Kubota’s ADSs on the NYSE.

 

      TSE price per share
of common stock
     NYSE price per ADS
(five common shares)
 
     High      Low      High      Low  

Annual Highs and Lows

                 

2008

   ¥  1,162       ¥  575       $  48         30       $  28         34   

2009

     918         328         43         41         17         72   

2010

     945         540         51         08         27         66   

2011

     923         648         55         50         37         35   

2012

     832         561         51         97         36         81   

Quarterly Highs and Lows

                 

2011

                 

1st quarter

   ¥ 893       ¥ 677       $ 47         81       $ 38         01   

2nd quarter

     782         648         46         43         37         35   

3rd quarter

     821         705         49         32         43         50   

4th quarter

     923         660         55         50         43         23   

2012

                 

1st quarter

   ¥ 799       ¥ 661       $ 48         49       $ 41         41   

2nd quarter

     764         561         47         00         36         81   

3rd quarter

     724         580         45         35         37         65   

4th quarter

     832         626         51         97         40         62   

Monthly Highs and Lows

                 

November, 2011

   ¥ 694       ¥ 610       $ 45         24       $ 38         95   

December, 2011

     724         608         45         35         39         14   

January, 2012

     707         626         45         72         40         62   

February, 2012

     827         674         51         97         44         71   

March, 2012

     832         752         49         49         46         38   

April, 2012

     815         748         49         14         46         54   

May, 2012

     781         651         47         86         41         43   

The Company has never experienced trade suspensions, and keeps enough liquidity for trading.

 

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B. Plan of Distribution

Not applicable.

C. Markets

The stock of the Company is listed on two stock exchanges in Japan (Tokyo and Osaka), and one overseas stock exchange (New York). In May 1949, the stock was listed on the Tokyo Stock Exchange (the “TSE”) and the Osaka Securities Exchange. The stock was also listed on the New York Stock Exchange (the “NYSE”) in November 1976.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

 

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Table of Contents

Item 10. Additional Information

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

Organization

The Company is a joint stock corporation (kabushiki kaisha) incorporated in Japan under the Corporate Law of Japan. The Company is registered in the Commercial Register (shogyo tokibo) maintained by the Osaka Legal Affairs Bureau.

Objects and Purposes

Article 2 of the Articles of Incorporation of the Company provides that the Company’s purpose is to engage in the following lines of business:

 

  1. Manufacture, sale and laying work of cast iron pipe, various kinds of pipe and fittings thereof;

 

  2. Manufacture and sale of castings, powder-metallurgy products and ceramic and other moldings;

 

  3. Manufacture and sale of internal combustion engines, automobiles, agricultural machinery and ancillary farming products;

 

  4. Manufacture, sale and installation of construction machinery, machine tools, pumps, valves, various kinds of industrial machinery and other machinery;

 

  5. Manufacture, sale and installation of weighing, measuring and control equipment, electrical, electronic and communication machinery and equipment, automatic vending machines and automatizing machinery and equipment;

 

  6. Manufacture and sale of various kinds of materials for civil engineering and construction as well as various kinds of machinery and equipment for houses;

 

  7. Construction and civil engineering, and planning, manufacture, supervision, performance and sale of, and contracting for, houses, building structures, steel-frame structures and storage facilities and equipment;

 

  8. Sale, purchase, lease and management of real estate and development of residential land;

 

  9. Planning, manufacture, engineering and construction of, and contracting for, various environmental control devices and equipment and various plants;

 

  10. Treatment, recovery and recycling business of various kinds of wastewater, exhaust gas and contaminated soil;

 

  11. Treatment, recovery and recycling business of municipal and industrial wastes;

 

  12. Manufacture and sale of chemicals for household use and for environmental control devices and equipment as well as bioproducts;

 

  13. Manufacture, processing and sale of synthetic resins and other chemical synthetic products;

 

  14. Development and sale of information processing and communication systems, and computer software;

 

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  15. Operation of facilities for sports, lodging, training, health and medical care, recuperation and recreation;

 

  16. Road cargo transportation business, water transportation business and warehousing business;

 

  17. General leasing business;

 

  18. Personnel dispatching agency business;

 

  19. Business of soliciting life insurance, casualty insurance agency business and insurance agency business pursuant to the Automobile Injury Compensation Law;

 

  20. Fee-charging employment agency;

 

  21. Accounting and payroll administration services;

 

  22. Copying, printing and bookbinding businesses;

 

  23. Any consulting business relating to each of the foregoing items; and

 

  24. Any other business ancillary to or relating to any of the foregoing items.

Directors

Each Director (other than an outside Director) has executive powers and duties to manage the affairs of the Company and each Representative Director, who is elected from among the Directors by the Board of Directors, has the statutory authority to represent the Company in all respects. Under the Corporate Law, the Directors must refrain from engaging in any business competing with the Company unless approved by the Board of Directors and any Director who has a special interest in the subject matter of a resolution to be taken by the Board of Directors cannot vote on such resolution. The maximum aggregate amounts of remunerations for the Company’s Directors and those of the Company’s Corporate Auditors must be approved at a general meeting of shareholders, respectively. The Company must also obtain the approval at a general meeting of shareholders if the Company desires to change such maximum aggregate amounts of remunerations. The remunerations for Directors are determined at the meeting of the Board of Directors based on the report of the Compensation Council within the range of the maximum aggregate amounts of remunerations approved at a general meeting of shareholders, in consideration of operating results, compensation levels of other companies, wage level of employees. The Compensation Council is composed of Representative Directors excluding the President and executive officers in charge of indirect departments. The report of the Compensation Council is submitted to the meeting of the Board of Directors after the approval of the President. The remunerations for Corporate Auditors are determined upon consultation among Corporate Auditors within the range of the maximum aggregate amounts of remunerations approved at a general meeting of shareholders, in consideration of the roles of the respective Corporate Auditors.

Except as stated below, neither the Corporate Law nor the Company’s Articles of Incorporation make special provisions as to the Directors’ or Corporate Auditors’ power to vote in connection with their own compensation, the borrowing power exercisable by a Representative Director (or a Director who is given power by a Representative Director to exercise such power), their retirement age or requirements to hold any shares of Common Stock of the Company. The Corporate Law specifically requires the resolution of the Board of Directors for a company to acquire or dispose of material assets; to borrow a substantial amount of money; to appoint or dismiss important employees, such as executive officers; to establish, change or abolish material corporate organizations such as a branch office; to determine material conditions concerning offering of corporate bonds set forth in the ordinances of the Ministry of Justice; and to establish and maintain the internal control system set forth in the ordinances of the Ministry of Justice, such as the system to ensure the legitimacy of the performance of duties by Directors. The Regulations of the Board of Directors and the relevant internal regulation of the Company require a resolution of the Board of Directors for the Company’s borrowing in an amount more than ¥5 billion or guaranteeing in an amount more than ¥1 billion or its equivalent.

 

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Common Stock

General

Except as otherwise stated, set forth below is information relating to the Company’s Common Stock, including brief summaries of the relevant provisions of the Company’s Articles of Incorporation and Share Handling Regulations, as currently in effect, and of the Corporate Law of Japan and related regulations.

Effective on January 5, 2009, a new central book-entry transfer system for listed shares of Japanese companies was established pursuant to the Act Concerning Book-Entry Transfer of Corporate Bonds, Shares etc. and regulations thereunder (collectively, the “Book-entry Transfer Act”), and this system is applied to the shares of Common Stock of the Company. Under this system, shares of all Japanese companies listed on any Japanese stock exchange are dematerialized, and shareholders of listed shares must have accounts at account management institutions to hold their shares unless such shareholder has an account at Japan Securities Depository Center, Inc. (“JASDEC”), the only institution that is designated by the relevant authorities as a clearing house under the Book-entry Transfer Act. “Account management institutions” are financial instruments business operators (i.e., securities companies), banks, trust companies and certain other financial institutions which meet the requirements prescribed by the Book-entry Transfer Act. Transfer of the shares of Common Stock of the Company is effected exclusively through entry in the records maintained by JASDEC and the account management institutions, and title to the shares passes to the transferee at the time when the transfer of the shares is recorded at the transferee’s account at an account management institution. The holder of an account at an account management institution is presumed to be the legal holder of the shares recorded in such account.

Under the Corporate Law and the Book-entry Transfer Act, in order to assert shareholders’ rights to which shareholders as of record dates are entitled (such as the rights to vote at a general meeting of shareholders or receive dividends) against the Company, a shareholder must have its name and address registered in the Company’s register of shareholders. Under the central book-entry transfer system, shareholders shall notify the relevant account management institutions of certain information prescribed under the Book-entry Transfer Act and the Company’s Share Handling Regulations, including their names and addresses, and the registration on the register of shareholders is made upon receipt by the Company of necessary information from JASDEC (as described in “—Record date”). On the other hand, in order to assert, directly against the Company, shareholders’ rights to which shareholders are entitled regardless of record dates such as minority shareholders’ rights including the right to propose a matter to be considered at a general meeting of shareholders, except for shareholders’ rights to request the Company to purchase or sell shares constituting less than a full unit (as described in “—Unit share system”), JASDEC shall, upon the shareholder’s request, issue a notice of certain information including the name and address of such shareholder to the Company. Thereafter, such shareholder is required to present the Company with a receipt of the request of the notice in accordance with the Company’s Share Handling Regulations. Under the Book-entry Transfer Act, the shareholder shall exercise such shareholders’ right within four weeks after the notice above has been given.

Non-resident shareholders are required to appoint a standing proxy in Japan or provide a mailing address in Japan. Each such shareholder must give notice of such standing proxy or mailing address to the relevant account management institution. Such notice will be forwarded to the Company through JASDEC. Japanese securities companies and commercial banks customarily act as standing proxies and provide related services for standard fees. Notices from the Company to non-resident shareholders are delivered to such standing proxies or mailing addresses.

The registered holder of deposited shares underlying ADSs is the Depositary for ADSs. Accordingly, holders of ADSs will not be able to directly assert shareholders’ rights against the Company.

Authorized capital

Article 6 of the Articles of Incorporation of the Company provides that the total number of shares authorized to be issued by the Company is 1,874,700,000 shares.

As of March 31, 2012, 1,285,919,180 shares of Common Stock were issued. All shares of Common Stock of the Company have no par value. All issued shares of the Company are fully-paid and non-assessable.

 

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Distribution of Surplus

General

Under the Corporate Law, distributions of cash or other assets by joint stock corporations to their shareholders, so called “dividends”, are referred to as “distributions of Surplus” (“Surplus” is defined in “—Restriction on distribution of Surplus”). The Company may make distributions of Surplus to the shareholders any number of times per business year, subject to certain limitations described in “—Restriction on distribution of Surplus.” Distributions of Surplus are required in principle to be authorized by a resolution of a general meeting of shareholders, but the Company may also authorize distributions of Surplus by a resolution of the Board of Directors as long as its non-consolidated annual financial statements and certain documents for the last business year present fairly its assets and profit or loss, as required by ordinances of the Ministry of Justice.

Distributions of Surplus may be made in cash or in kind in proportion to the number of shares of Common Stock of the Company held by each shareholder. A resolution of a general meeting of shareholders or the Board of Directors, as the case may be, authorizing a distribution of Surplus must specify the kind and aggregate book value of the assets to be distributed, the manner of allocation of such assets to shareholders, and the effective date of the distribution. If a distribution of Surplus is to be made in kind, the Company may, pursuant to a resolution of a general meeting of shareholders or the Board of Directors, as the case may be, grant a right to the shareholders to require the Company to make such distribution in cash instead of in kind. If no such right is granted to shareholders, the relevant distribution of Surplus must be approved by a special resolution of a general meeting of shareholders (see “—Voting rights” with respect to a “special resolution”).

Under the Company’s Articles of Incorporation, year-end dividends and interim dividends may be distributed to shareholders appearing in the Company’s register of shareholders as of March 31 and September 30 each year, respectively, in proportion to the number of shares of Common Stock of the Company held by each shareholder following approval by the general meeting of shareholders or the Board of Directors. The Company is not obliged to pay any dividends in cash unclaimed for a period of three years after the date on which they first became payable.

In Japan, the ex-dividend date and the record date for dividends precede the date of determination of the amount of the dividends to be paid. The price of the shares of common stock generally goes ex-dividend on the second business day prior to the record date for dividends.

Restriction on distribution of Surplus

In making a distribution of Surplus, the Company must, until the sum of its additional paid-in capital and legal reserve reaches one-quarter of its stated capital, set aside in its additional paid-in capital and/or legal reserve an amount equal to one-tenth of the amount of Surplus so distributed.

The amount of Surplus at any given time must be calculated in accordance with the following formula:

(A + B + C + D) – (E + F + G)

In the above formula:

“A” = the total amount of other capital surplus and other retained earnings, each such amount being that appearing on the non-consolidated balance sheet as of the end of the last business year;

“B” = (if the Company has disposed of its treasury stock after the end of the last business year) the amount of the consideration for such treasury stock received by the Company less the book value thereof;

“C” = (if the Company has reduced its stated capital after the end of the last business year) the amount of such reduction less the portion thereof that has been transferred to additional paid-in capital or legal reserve (if any);

“D” = (if the Company has reduced its additional paid-in capital or legal reserve after the end of the last business year) the amount of such reduction less the portion thereof that has been transferred to stated capital (if any);

 

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“E” = (if the Company has cancelled its treasury stock after the end of the last business year) the book value of such treasury stock;

“F” = (if the Company has distributed Surplus to its shareholders after the end of the last business year) the total book value of the Surplus so distributed; and

“G” = certain other amounts set forth in ordinances of the Ministry of Justice, including (if the Company has reduced Surplus and thereby increased its stated capital, additional paid-in capital or legal reserve after the end of the last fiscal year) the amount of such reduction and (if the Company has distributed Surplus to the shareholders after the end of the last business year) the amount set aside in additional paid-in capital or legal reserve (if any) as required by ordinances of the Ministry of Justice.

The aggregate book value of Surplus to be distributed by the Company may not exceed a prescribed distributable amount (the “Distributable Amount”), as calculated on the effective date of such distribution. The Distributable Amount at any given time shall be equal to the amount of Surplus less the aggregate of the following:

(a) the book value of its treasury stock;

(b) the amount of consideration for any of treasury stock disposed of by the Company after the end of the last business year; and

(c) certain other amounts set forth in ordinances of the Ministry of Justice, including (if the sum of one-half of goodwill and the deferred assets exceeds the total of stated capital, additional paid-in capital and legal reserve, each such amount being that appearing on the non-consolidated balance sheet as of the end of the last business year) all or certain part of such exceeding amount as calculated in accordance with the ordinances of the Ministry of Justice.

If the Company has become at its option a company with respect to which consolidated balance sheets should also be considered in the calculation of the Distributable Amount (renketsu haito kisei tekiyo kaisha), the Company shall further deduct from the amount of Surplus the excess amount, if any, of (x) the total amount of stockholders’ equity appearing on the non-consolidated balance sheet as of the end of the last business year and certain other amounts set forth by ordinances of the Ministry of Justice over (y) the total amount of stockholders’ equity and certain other amounts set forth by ordinances of the Ministry of Justice appearing on the consolidated balance sheet as of the end of the last business year.

If the Company has prepared interim financial statements as described below, and if such interim financial statements have been approved by the board of directors or (if so required by the Corporate Law) by a general meeting of shareholders, then the Distributable Amount must be adjusted to take into account the amount of profit or loss, and the amount of consideration for any of the treasury stock disposed of by the Company, during the period in respect of which such interim financial statements have been prepared. The Company may prepare non-consolidated interim financial statements consisting of a balance sheet as of any date subsequent to the end of the last business year and an income statement for the period from the first day of the current business year to the date of such balance sheet. Interim financial statements so prepared by the Company must be audited by the Corporate Auditors and the Accounting Auditor, as required by ordinances of the Ministry of Justice.

Stock splits

The Company may at any time split shares in issue into a greater number of shares by resolution of the Board of Directors, and may in principle amend its Articles of Incorporation to increase the number of the authorized shares to be issued in proportion to the relevant stock split pursuant to a resolution of the Board of Directors rather than a special shareholders resolution (as defined in “—Voting rights”) which is otherwise required for amending the Articles of Incorporation.

 

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When a stock split is to be made, the Company must give public notice of the stock split, specifying the record date thereof, at least two weeks prior to such record date. Under the central book-entry transfer system operated by JASDEC, the Company must also give notice to JASDEC regarding a stock split at least two weeks prior to the relevant effective date. On the effective date of the stock split, the number of shares recorded in all accounts held by the Company’s shareholders at account managing institutions or JASDEC will be increased in accordance with the applicable ratio.

Consolidation of shares

The Company may at any time consolidate shares in issue into a smaller number of shares by a special shareholders resolution (as defined in “—Voting rights”). When a consolidation of shares is to be made, the Company must give public notice or notice to each shareholder at least two weeks prior to the effective date of the consolidation of shares. Under the central book-entry transfer system operated by JASDEC, the Company must also give notice to JASDEC regarding a consolidation of shares at least two weeks prior to the effective date of the consolidation of shares. On the effective date of the consolidation of shares, the number of shares recorded in all accounts held by the Company’s shareholders at account managing institutions or JASDEC will be decreased in accordance with the applicable ratio. The Company must disclose the reason for the consolidation of shares at the general meeting of shareholders.

General meeting of shareholders

The ordinary general meeting of shareholders of the Company for each fiscal year is normally held in June in each year in Osaka, Japan. In addition, the Company may hold an extraordinary general meeting of shareholders whenever necessary by giving notice of convocation thereof at least two weeks prior to the date set for the meeting.

Notice of convocation of a shareholders’ meeting setting forth the place, time, purpose thereof and certain matters set forth in the Corporate Law and the ordinances of the Ministry of Justice, must be mailed to each shareholder having voting rights (or, in the case of a non-resident shareholder, to his or her standing proxy or mailing address in Japan) at least two weeks prior to the date set for the meeting. Under the Corporate Law, such notice may be given to shareholders by electronic means, subject to the consent of the relevant shareholders. The record date for exercising voting rights at an ordinary general meeting of shareholders is March 31 of each year.

Any shareholder or group of shareholders holding at least three percent of the total number of voting rights for a period of six months or more may require the convocation of a general meeting of shareholders for a particular purpose by specifying the purpose and reason for convocation to a Representative Director. Unless such shareholders’ meeting is convened promptly or a convocation notice of a meeting which is to be held not later than eight weeks from the day of such demand is dispatched, the requiring shareholder may, upon obtaining a court approval, convene such shareholders’ meeting.

Any shareholder or group of shareholders holding at least 300 voting rights or one percent of the total number of voting rights for a period of six months or more may propose a matter to be considered at a general meeting of shareholders by showing such matter to a Representative Director at least eight weeks prior to the date set for such meeting.

If the Company’s Articles of Incorporation so provide, any of the minimum percentages, time periods and number of voting rights necessary for exercising the minority shareholder rights described above may be decreased or shortened.

 

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Voting rights

So long as the Company maintains the unit share system (see “—Unit share system” below; currently 1,000 shares constitute one unit) a holder of shares constituting one or more full units is entitled to one voting right per unit of shares subject to the limitations on voting rights set forth in the following two sentences. Any corporate or certain entity one-quarter or more of whose total voting rights are directly or indirectly owned by the Company may not exercise its voting rights with respect to shares of Common Stock of the Company that it owns. In addition, the Company may not exercise its voting rights with respect to its shares that it owns. If the Company eliminates from its Articles of Incorporation the provisions relating to the unit of shares, holders of Common Stock will have one voting right for each share they hold. Except as otherwise provided by law or by the Articles of Incorporation, a resolution can be adopted at a general meeting of shareholders by a majority of the number of voting rights of all the shareholders entitled to exercise their voting rights represented at the meeting. The Corporate Law and the Company’s Articles of Incorporation provide, however, that the quorum for the election of Directors and Corporate Auditors shall not be less than one-third of the total number of voting rights of all the shareholders entitled to exercise their voting rights. The Company’s shareholders are not entitled to cumulative voting in the election of Directors. The Company’s shareholders may exercise their voting rights through proxies, provided that the proxies are also shareholders holding voting rights. The Company’s shareholders also may cast their votes in writing. The Company’s shareholders may also exercise their voting rights by electronic means pursuant to the method designated by the Company.

The Corporate Law and the Company’s Articles of Incorporation provide that in order to amend the Articles of Incorporation and in certain other instances, including:

 

  (1) acquisition of its own shares from a specific party other than its subsidiaries;

 

  (2) consolidation of shares;

 

  (3) any offering of new shares or existing shares held by the Company as treasury stock at a “specially favorable” price (or any offering of stock acquisition rights to subscribe for or acquire shares of capital stock, or bonds with stock acquisition rights at “specially favorable” conditions) to any persons other than shareholders;

 

  (4) the removal of a corporate auditor;

 

  (5) the exemption of liability of a director, corporate auditor or accounting auditor to the amounts set forth in the Corporate Law;

 

  (6) a reduction of stated capital with certain exceptions in which only a regular shareholders’ resolution described above is required or a shareholders’ resolution is not required;

 

  (7) a distribution of in-kind dividends which meets certain requirements;

 

  (8) dissolution, merger, consolidation or corporate split with certain exceptions in which a shareholders’ resolution is not required;

 

  (9) the transfer of the whole or a material part of the business;

 

  (10) the taking over of the whole of the business of any other corporation with certain exceptions in which a shareholders’ resolution is not required; or

 

  (11) share exchange or share transfer for the purpose of establishing 100% parent-subsidiary relationships with certain exceptions in which a shareholders’ resolution is not required,

the quorum shall be one-third of the total voting rights of all the shareholders entitled to exercise their voting rights and the approval by at least two-thirds of the voting rights of all the shareholders entitled to exercise their voting rights represented at the meeting is required (the “special shareholders resolutions”).

Pursuant to the terms of the Amended and Restated Deposit Agreement relating to ADRs evidencing ADSs, each ADS representing 5 shares of Common Stock of the Company, as soon as practicable after receipt of notice of any meeting or solicitation of consents or proxies of shareholders of the Company, the Depositary (currently JPMorgan Chase Bank) will mail to the record holders of ADRs a notice which will contain the information in the original notice. The record holders of ADRs on a date specified by the Depositary will be entitled to instruct the Depositary as to the exercise of the voting rights pertaining to the shares of Common Stock of the Company represented by their ADSs, including instructions to give a discretionary proxy to a person designated by the Company. The Depositary will endeavor, in so far as practicable, to vote the number of shares of Common Stock of the Company represented by such ADSs in accordance with such instructions. The Depositary will not itself exercise any voting discretion in respect of any ADSs.

Issue of additional shares and pre-emptive rights

        Holders of the Company’s shares of Common Stock have no pre-emptive rights under its Articles of Incorporation. Authorized but unissued shares may be issued at such times and upon such terms as the Board of Directors determines, subject to the limitations as to the offering of new shares at a “specially favorable” price mentioned under “Voting rights” above. In the case of an issuance or transfer of the Company’s shares of Common Stock or stock acquisition rights by way of an allotment to a third party which would dilute the outstanding voting shares by 25% or more or change the controlling shareholder, in addition to a resolution of the Board of Directors, the approval of the shareholders or an affirmative opinion from a person independent of the Company’s management is generally required pursuant to the regulations of the Japanese stock exchanges. The Board of Directors may, however, determine that shareholders shall be given subscription rights regarding a particular issue of new shares, in which case such rights must be given on uniform terms to all shareholders as at a record date at least two weeks prior to which public notice must be given. Each of the shareholders to whom such rights are given must also be given notice of the expiry thereof at least two weeks prior to the date on which such rights expire.

 

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Rights to subscribe for new shares may be made generally transferable by a resolution of the Board of Directors. Whether the Company will make subscription rights generally transferable in future rights offerings will depend upon the circumstances at the time of such offerings.

Subject to certain conditions, the Company may issue stock acquisition rights or bonds with stock acquisition rights by a resolution of the Board of Directors. Holders of stock acquisition rights may exercise their rights to acquire a certain number of shares within the exercise period as prescribed in the terms of their stock acquisition rights. Upon exercise of stock acquisition rights, the Company will be obliged to issue the relevant number of new shares or alternatively to transfer the necessary number of treasury stock held by it.

Liquidation rights

In the event of a liquidation of the Company, the assets remaining after payment of all debts and liquidation expenses and taxes will be distributed among shareholders in proportion to the respective numbers of shares of Common Stock held.

Record date

As mentioned above, March 31 is the record date for the Company’s year-end dividends. So long as the Company maintains the unit share system, the shareholders who are registered as the holders of one or more units of shares in the Company’s registers of shareholders at the end of each March 31 are entitled to exercise shareholders’ rights at the ordinary general meeting of shareholders with respect to the business year ending on such March 31. September 30 is the record date for interim dividends. In addition, the Company may set a record date for determining the shareholders entitled to other rights and for other purposes by giving at least two weeks’ prior public notice.

Under the Book-entry Transfer Act, JASDEC is required to give the Company a notice of the names and addresses of the shareholders, the number of shares held by them and other relevant information as of each such record date, and the Company’s register of shareholders shall be updated accordingly.

The price of shares generally goes ex-dividends or ex-rights on Japanese stock exchanges on the second business day prior to a record date (or if the record date is not a business day, the third business day prior thereto), for the purpose of dividends or rights offerings.

Acquisition by the Company of its common stock

Under the Corporate Law and the Company’s Articles of Incorporation, the Company may acquire its own shares of Common Stock (i) from a specific shareholder other than any of its subsidiaries (pursuant to a special shareholders resolution), (ii) from any of its subsidiaries (pursuant to a resolution of the Board of Directors), or (iii) by way of purchase on any Japanese stock exchange on which the Company’s shares of Common Stock listed or by way of tender offer (as long as its non-consolidated annual financial statements and certain documents for the last business year fairly present its asset and profit or loss status, as required by ordinances of the Ministry of Justice) (in either case pursuant to an ordinary resolution of a general meeting of shareholders or a resolution of the Board of Directors). In the case of (i) above, any other shareholder may make a request to the Company that such other shareholder be included as a seller in the proposed purchase, provided that no such right will be available if the purchase price or any other consideration to be received by the relevant specific shareholder will not exceed the last trading price of the shares on the relevant stock exchange on the day immediately preceding the date on which the resolution mentioned in (i) above was adopted (or, if there is no trading in the shares on the stock exchange or if the stock exchange is not open on such day, the price at which the shares are first traded on such stock exchange thereafter).

Shares acquired by the Company may be held by it for any period or may be cancelled by a resolution of the Board of Directors. The Company may also transfer to any person the shares held by it, subject to a resolution of the Board of Directors, and subject also to other requirements similar to those applicable to the issuance of new shares, as described in “Issue of additional shares and pre-emptive rights” above. The Company may also utilize its treasury stock for the purpose of transfer to any person upon exercise of stock acquisition rights or for the purpose of acquiring another company by way of merger, share exchange or corporate split through exchange of treasury stock for shares or assets of the acquired company.

 

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Unit share system

The Articles of Incorporation of the Company provide that 1,000 shares constitute one unit of shares of Common Stock. Although the number of shares constituting one unit is included in the Articles of Incorporation, any amendment to the Articles of Incorporation reducing (but not increasing) the number of shares constituting one unit or eliminating the provisions for the unit of shares may be made by a resolution of the Board of Directors rather than by a special shareholders resolution, which is otherwise required for amending the Articles of Incorporation. The number of shares constituting one unit, however, cannot exceed 1,000 nor 0.5% of total number of issued shares.

Under the unit share system, shareholders shall have one voting right for each unit of shares that they hold. Any number of shares less than a full unit will carry no voting rights. Moreover, holders of shares constituting less than one unit will have no other shareholder rights, except that such holders may not be deprived of certain rights specified in the Corporate Law or ordinances of the Ministry of Justice, or in the Company’s Articles of Incorporation, including the right to receive distribution of Surplus.

Under the central book-entry transfer system operated by JASDEC, shares constituting less than one unit are generally transferable. Under the rules of the Japanese stock exchanges, however, shares constituting less than one unit do not comprise a trading unit, except in limited circumstances, and accordingly may not be sold on the Japanese stock exchanges.

A holder of shares constituting less than one unit may require the Company to purchase such shares at their market value in accordance with the provisions of the Share Handling Regulations of the Company.

In addition, the Articles of Incorporation of the Company provide that a holder of shares constituting less than one full unit may request the Company to sell to such holder such amount of shares which will, when added together with the shares constituting less than one full unit held by such holder, constitute one full unit of Common Stock, in accordance with the provisions of the Share Handling Regulations of the Company. As prescribed in the Share Handling Regulations, such requests shall be made through an account management institution and JASDEC pursuant to the rules set by JASDEC, without going through the notification procedure required for the exercise of shareholders’ rights entitled regardless of record dates as described in “General.”

A holder who owns ADRs evidencing less than 200 ADSs will indirectly own less than one full unit of shares of Common Stock. Although, as discussed above, under the unit share system holders of less than one full unit have the right to require the Company to purchase their shares or sell shares held by the Company to such holders, holders of ADRs evidencing ADSs that represent other than integral multiples of full units are unable to withdraw the underlying shares of Common Stock representing less than one full unit and, therefore, are unable, as a practical matter, to exercise the rights to require the Company to purchase such underlying shares or sell shares held by the Company to such holders. As a result, access to the Japanese markets by holders of ADRs through the withdrawal mechanism will not be available for dispositions of shares of Common Stock in lots less than one full unit. The unit share system does not affect the transferability of ADSs, which may be transferred in lots of any size.

Sale by the Company of shares held by shareholders whose location is unknown

The Company is not required to send a notice to a shareholder if a notice to such shareholder fails to arrive at the registered address of the shareholder in the Company’s register of shareholders or at the address otherwise notified to the Company continuously for five years or more.

In addition, the Company may sell or otherwise dispose of shares of Common Stock for which the location of the shareholder is unknown. Generally, if (i) notices to a shareholder fail to arrive continuously for five years or more at the shareholder’s registered address in the Company’s register of shareholders or at the address otherwise notified to the Company, and (ii) the shareholder fails to receive dividends on the shares continuously for five years or more at the address registered in the Company’s register of shareholders or at the address otherwise notified to the Company, the Company may sell or otherwise dispose of the shareholder’s shares by a resolution of the Board of Directors and after giving at least three months’ prior public and individual notice, and hold or deposit the proceeds of such sale or disposal of shares at the then market price of the shares for the shareholder, the location of which is unknown.

 

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Reporting of substantial shareholdings

The Financial Instruments and Exchange Law of Japan and regulations thereunder requires any person, regardless of his/her residence, who has become, beneficially and solely or jointly, a holder of more than 5 percent of the total issued shares (with voting rights) of common stock of a company listed on any Japanese stock exchange or whose shares are traded on the over-the-counter market in Japan to file with the Director-General of a competent Local Finance Bureau of the Ministry of Finance within 5 business days a report concerning such shareholdings.

A similar report must also be filed in respect of any subsequent change of one percent or more in any such holding or any change in material matters set out in reports previously filed, with certain exceptions. For this purpose, shares issuable to such person upon conversion of convertible securities or exercise of share subscription warrants or stock acquisition rights are taken into account in determining both the number of shares (with voting rights) held by such holder and the issuer’s total issued share capital. Any such report shall be filed with the Director-General of the relevant Finance Bureau of the Ministry of Finance through the Electronic Disclosure for Investors’ Network (“EDINET”) system. Copies of such report must also be furnished to the issuer of such shares.

Except for the general limitations under Japanese antitrust and anti-monopoly regulations against holding of shares of common stock of a Japanese corporation which leads or may lead to a restraint of trade or a monopoly, except for the limitations under the Foreign Exchange Regulations as described in “D. Exchange Controls” below, and except for general limitations under the Corporate Law or the Company’s Articles of Incorporation on the rights of shareholders applicable regardless of residence or nationality, there is no limitation under Japanese laws and regulations applicable to the Company or under its Articles of Incorporation on the rights of non-resident or foreign shareholders to hold the shares of Common Stock of the Company or exercise voting rights thereon.

There is no provision in the Company’s Articles of Incorporation that would have an effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to merger, consolidation, acquisition or corporate restructuring involving the Company.

Daily price fluctuation limits under Japanese stock exchange rules

Stock prices on Japanese stock exchanges are determined on a real-time basis by the balance between bids and offers. These stock exchanges are order-driven markets without specialists or market makers to guide price formation. In order to prevent excessive volatility, these stock exchanges set daily upward and downward price range limitations for each listed stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit on these stock exchanges may not be able to effect a sale at such price on a particular trading day, or at all.

C. Material Contracts

All contracts concluded by the Company during the two-year period preceding the date of this report were entered into in the ordinary course of business.

D. Exchange Controls

The Foreign Exchange and Foreign Trade Act of Japan and its related cabinet orders and ministerial ordinances (the “Foreign Exchange Regulations”) govern the acquisition and holding of shares of Common Stock of the Company by “exchange non-residents” and by “foreign investors.” The Foreign Exchange Regulations currently in effect do not, however, affect transactions between exchange non-residents to purchase or sell shares outside Japan using currencies other than the Japanese yen.

Exchange non-residents are:

 

  (i) individuals who do not reside in Japan; and

 

  (ii) corporations whose principal offices are located outside Japan.

 

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Generally, branches and other offices of non-resident corporations that are located within Japan are regarded as residents of Japan. Conversely, branches and other offices of Japanese corporations located outside Japan are regarded as exchange non-residents.

Foreign investors are:

 

  (i) individuals who are exchange non-residents;

 

  (ii) corporations that are organized under the laws of foreign countries or whose principal offices are located outside of Japan; and

 

  (iii) corporations (1) of which 50% or more of their shares are held by individuals who are exchange non-residents and/or corporations (a) that are organized under the laws of foreign countries or (b) whose principal offices are located outside of Japan or (2) a majority of whose officers, or officers having the power of representation, are individuals who are exchange non-residents.

In general, the acquisition of shares of a Japanese company (such as the shares of Common Stock of the Company) by an exchange non-resident from a resident of Japan is not subject to any prior filing requirements. In certain limited circumstances, however, the Minister of Finance may require prior approval of an acquisition of this type. While prior approval, as described above, is not required, in the case where a resident of Japan transfers shares of a Japanese company (such as the shares of Common Stock of the Company) for consideration exceeding ¥100 million to an exchange non-resident, the resident of Japan who transfers the shares is required to report the transfer to the Minister of Finance through the Bank of Japan within 20 days from the date of the transfer or the date of the receipt of payment, whichever comes later, unless the transfer was made through a bank or financial instruments business operator licensed or registered under Japanese law.

If a foreign investor acquires shares of a Japanese company that is listed on a Japanese stock exchange (such as the shares of Common Stock of the Company) or that is traded on an over-the-counter market in Japan and, as a result of the acquisition, the foreign investor, in combination with any existing holdings, directly or indirectly holds 10% or more of the issued shares of the relevant company, the foreign investor must file a report of the acquisition with the Minister of Finance and any other competent Ministers having jurisdiction over that Japanese company on or before the 15 th day of the month following the month in which such acquisition was made. In limited circumstances, such as where the foreign investor is in a country that is not listed on an exemption schedule in the Foreign Exchange Regulations, or where that Japanese company is engaged in certain business designated by the Foreign Exchange Regulations, a prior notification of the acquisition must be filed with the Minister of Finance and any other competent Ministers, who may then modify or prohibit the proposed acquisition.

Under the Foreign Exchange Regulations, dividends paid on and the proceeds from revenues in Japan of shares of Common Stock of the Company held by non-residents of Japan may generally be converted into any foreign currency and repatriated abroad.

E. Taxation

Japanese Taxation

The following is a summary of the major Japanese national tax consequences of the ownership, acquisition and disposition of shares of Common Stock of the Company and of ADRs evidencing ADSs representing shares of Common Stock of the Company by a non-resident Holder (as defined below). The information given below regarding Japanese taxation is based on the tax laws and tax treaties currently in force and their interpretations by the Japanese tax authorities as of the date of this annual report. Tax laws and tax treaties as well as their interpretations may change at any time, possibly with retroactive effect. We will not update this summary for any changes in the tax laws or tax treaties or their interpretation that occurs after the date of this annual report. The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to any particular investor depending on its individual circumstances. Accordingly, holders of shares of Common Stock of the Company including holders of ADRs evidencing ADSs are encouraged to consult their tax advisors regarding the application of the considerations discussed below to their particular circumstances.

 

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This summary is based in part upon the representations of the Depositary and the assumption that each obligation in the deposit agreement, and in any related agreement, will be performed under its terms.

In general, taking into account the earlier assumption, for purposes of the Convention between the Government of the United States of America and the Government of Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the “Treaty”), and Japanese income tax purposes, eligible U.S. holders of ADRs will be treated as owning the Common Stock underlying the ADSs evidenced by the ADRs. For the purposes of the discussion, an “eligible U.S. holder” is a holder that:

 

  (i) is a resident of the United States for purposes of the Treaty;

 

  (ii) does not maintain a permanent establishment in Japan (a) to which ADRs or shares of Common Stock are attributable or (b) of which ADRs or shares of Common Stock form part of the business property; and

 

  (iii) is eligible for benefits under the Treaty with respect to income and gain derived in connection with ADRs or shares of Common Stock.

The following is a summary of the principal Japanese tax consequences (limited to national taxes) to non-residents of Japan or non-Japanese corporations without permanent establishments in Japan (“non-resident Holders”) who are holders of shares of Common Stock of the Company or of ADRs evidencing ADSs representing shares of Common Stock of the Company.

Dividends and capital gains

Generally, non-resident Holders are subject to Japanese withholding tax on dividends paid by Japanese corporations. Such taxes are withheld prior to payment of dividends as required by Japanese law. Stock splits in themselves are not, in general, subject to Japanese income tax.

In the absence of an applicable tax treaty, convention or agreement reducing the maximum rate of Japanese withholding tax or allowing exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable to dividends paid by Japanese corporations to non-resident Holders is 20 percent (20.42 percent, on or after January 1, 2013). However, with respect to dividends paid on listed shares issued by a Japanese corporation (such as the shares of Common Stock of the Company) to non-resident Holders, except for any individual shareholder who holds 3 percent or more of the total issued shares of the relevant Japanese corporation, the aforementioned 20 percent (20.42 percent, on or after January 1, 2013) withholding tax rate is reduced to (i) 7 percent for dividends due and payable on or before December 31, 2012, and (ii) 7.147 percent for dividends due and payable on or after January 1, 2013 but on or before December 31, 2013, and (iii) 15.315 percent for dividends due and payable on or after January 1, 2014. Due to the imposition of a special additional withholding tax (2.1 percent of the original withholding tax amount) to secure funds for reconstruction from the Great East Japan Earthquake, the original withholding tax rate of 7 percent, 15 percent and 20 percent, as applicable, will be effectively increased, respectively, to 7.147 percent, 15.315 percent and 20.42 percent, during the period beginning on January 1, 2013 and ending on December 31, 2037.

At the date of this annual report, Japan has income tax treaties, conventions or agreements in force, whereby the above-mentioned withholding tax rate is reduced, in most cases to 15 percent or 10 percent for portfolio investors (15 percent under the income tax treaties with, among other countries, Belgium, Canada, Denmark, Finland, Germany, Ireland, Italy, Luxembourg New Zealand, Norway, Singapore, Spain and Sweden, and 10 percent under the income tax treaties with Australia, France, Hong Kong, the Netherlands, Switzerland, the United Kingdom and the United States).

Under the Treaty, the maximum rate of Japanese withholding tax which may be imposed on dividends paid by a Japanese corporation to an eligible U.S. holder that is a portfolio investor is generally limited to 10 percent of the gross amount actually distributed, and dividends paid by a Japanese corporation to an eligible U.S. holder that is a pension fund are exempt from Japanese taxation by way of withholding or otherwise unless such dividends are derived from the carrying on of a business, directly or indirectly, by such pension fund.

 

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If the maximum tax rate provided for in the income tax treaty applicable to dividends paid by the Company to any particular non-resident Holder is lower than the withholding tax rate otherwise applicable under Japanese tax law or any particular non-resident Holder is exempt from Japanese income tax with respect to such dividends under the income tax treaty applicable to such particular non-resident Holder, such non-resident Holder of the Company’s shares of Common Stock who is entitled to a reduced rate of or exemption from Japanese withholding tax on payment of dividends is required to submit, through the withholding agent, an Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax on Dividends in advance to the relevant tax authority before payment of dividends. A standing proxy for non-resident Holders of a Japanese corporation may provide this application service. With respect to ADSs, this reduced rate or exemption is applicable if the Depositary or its agent submits 2 Application Forms (one before payment of dividends, the other within 8 months after the record date concerning such payment of dividends) together with certain other documents. To claim this reduced rate or exemption, any non-resident Holder holding ADRs evidencing ADSs will be required to file a proof of taxpayer status, residence and beneficial ownership (as applicable) and to provide other information or documents as may be required by the Depositary. A non-resident Holder who is entitled, under an applicable income tax treaty, to a reduced treaty rate lower than the withholding tax rate otherwise applicable under Japanese tax law or an exemption from the withholding tax, but failed to submit the required application in advance will be entitled to claim the refund of withholding taxes withheld in excess of the rate under an applicable tax treaty (if such non-resident Holder is entitled to a reduced treaty rate under the applicable income tax treaty) or the whole of the withholding tax withheld (if such non-resident Holder is entitled to an exemption under the applicable income tax treaty) from the relevant Japanese tax authority, by complying with a certain subsequent filing procedure. The Company does not assume any responsibility to ensure withholding at the reduced treaty rate or not withholding for shareholders who would be eligible under an applicable tax treaty but where the required procedures as stated above are not followed.

Gains derived from the sale of shares of Common Stock of the Company or ADSs outside Japan by a non-resident Holder holding such shares or ADSs as a portfolio investor are, in general, not subject to Japanese income or corporation tax under Japanese tax law. Eligible U.S. holders are not subject to Japanese income or corporation tax with respect to such gains under the Treaty, subject to a certain filing requirement under Japanese law.

Inheritance and gift

Japanese inheritance tax and gift tax at progressive rates may be payable by an individual who has acquired shares of Common Stock or ADSs as a legatee, heir or donee from another individual even though neither the acquiring individual, the deceased nor the donor is a Japanese resident.

Holders of shares of Common Stock of the Company or ADSs should consult their tax advisors regarding the effect of these taxes and, in the case of U.S. holders, the possible application of the Estate and Gift Tax Treaty between the United States and Japan.

United States Federal Income Taxation

This section describes the material United States federal income tax consequences of owning Common Stock or ADSs. It applies to you only if you are a U.S. holder, as defined below, and you own your Common Stock or ADSs as capital assets for tax purposes. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:

 

   

a dealer in securities,

 

   

a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings,

 

   

a tax-exempt organization,

 

   

certain insurance companies,

 

   

a person liable for alternative minimum tax,

 

   

a person that actually or constructively owns 10% or more of the voting stock of the Company,

 

   

a person that holds Common Stock or ADSs as part of a straddle or a hedging or conversion transaction,

 

   

a person that purchases or sells Common Stock or ADSs as part of a wash sale for tax purposes, or

 

   

a person whose functional currency is not the U.S. dollar.

This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, as well as on the Treaty, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon the representations of the Depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.

 

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If a partnership holds the Common Stock or ADSs, the United States federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the Common Stock or ADSs should consult its tax advisor with regard to the United States federal income tax treatment of an investment in the Common Stock or ADSs.

You are a U.S. holder if you are a beneficial owner of Common Stock or ADSs and you are:

 

   

a citizen or resident of the United States,

 

   

a domestic corporation,

 

   

an estate whose income is subject to United States federal income tax regardless of its source, or

 

   

a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.

 

You should consult your own tax advisor regarding the United States federal, state and local and other tax consequences of owning and disposing of Common Stock and ADSs in your particular circumstances.

This discussion addresses only United States federal income taxation.

In general, and taking into account the earlier assumptions, for United States federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the Common Stock represented by the ADSs evidenced by the ADRs. Exchanges of Common Stock for ADRs, and ADRs for Common Stock, generally will not be subject to United States federal income tax.

Taxation of Dividends

Under United States federal income tax laws, and subject to the passive foreign investment company, or “PFIC” rules discussed below, the gross amount of any dividend paid by the Company out of its current or accumulated earnings and profits (as determined for United States federal income tax purposes) to a U.S. holder is subject to United States federal income taxation. If you are a non-corporate U.S. holder, dividends paid to you in taxable years beginning before January 1, 2013 that constitute qualified dividend income will be taxable to you at a maximum rate of 15% provided that you hold the shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends paid by the Company with respect to Common Stock or ADSs generally will be qualified dividend income.

You must include any Japanese tax withheld from the dividend payment in this gross amount even though you do not in fact receive the amount withheld. The dividend is taxable to you when you, in the case of Common Stock, or the Depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the Japanese yen payments made, determined at the spot Japanese yen/U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. This gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.

Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the Common Stock or ADSs and thereafter as capital gain.

Subject to certain limitations, the Japanese tax withheld in accordance with the Treaty, and paid over to Japan will be creditable against your United States federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% tax rate. To the extent a refund of the tax withheld is available to you under Japanese law or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against your United States federal income tax liability. The rules governing foreign tax credits are complex and the Company urges you to consult your tax advisor regarding the foreign tax credit in your situation.

For foreign tax credit purposes, dividends will generally be income from sources outside the United States and, depending on your circumstances, will generally be either “passive” or “general” for purposes of computing the foreign tax credit allowable to you.

Taxation of Capital Gains

Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell or otherwise dispose of your Common Stock or ADSs, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your Common Stock or ADSs. Capital gain of a non-corporate U.S. holder is generally taxed at preferential rates where the holder has a holding period greater than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

 

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Passive Foreign Investment Company Rules

The Company believes that Common Stock and ADSs should not be treated as stock of a PFIC for United States federal income tax purposes, but this conclusion is a factual determination that is made annually and thus may be subject to change. If the Company is treated as a PFIC, unless Common Stock or ADSs are “marketable stock” and a U.S. holder elects to be taxed annually on a mark-to-market basis with respect to the Common Stock or ADSs, gain realized on the sale or other disposition of the Common Stock or ADSs would in general not be treated as capital gain. Instead, if you are a U.S. holder, you would be treated as if you had realized such gain and certain “excess distributions” ratably over your holding period for the Common Stock or ADSs, the amount allocated to the taxable year in which you realized the gain or received the excess distribution would be taxed as ordinary income, the amount allocated to each prior year would generally be taxed at the highest tax rate in effect for each such year, and an interest charge would be applied to any such tax attributable to the prior years. With certain exceptions, your Common Stock or ADSs will be treated as stock of a PFIC if the Company was a PFIC at any time during your holding period of your Common Stock or ADSs. Dividends that you receive from the Company will not be eligible for the special tax rates applicable to qualified dividend income if the Company is a PFIC either in the taxable year of the distribution or the preceding taxable year.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

According to the Securities Exchange Act of 1934, as amended, the Company is subject to the requirements of informational disclosure. The Company files various reports and other information, including this annual report on Form 20-F, to the U.S. Securities and Exchange Commission. These reports may be inspected at the following sites.

U.S. Securities and Exchange Commission: 100 F Street, N.E., Washington D.C. 20549 or at http://www.sec.gov.

Form 20-F is also available at the website of the Company. URL: http://www.kubota.co.jp.

The company’s website is not part of this annual report.

I. Subsidiary Information

Not applicable.

 

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Item 11. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risks, including changes in foreign currency exchange rates, interest rates and prices of marketable equity securities. In order to hedge the risks of changes in foreign currency exchange rates and interest rates, the Company uses derivative financial instruments. The Company uses these derivative financial instruments solely for the purpose of mitigating risk and no derivative instruments are held or used for speculative purposes.

Foreign Currency Exchange Risks

The Company’s foreign currency exposure relates primarily to its foreign currency denominated assets in its international operations. The Company utilizes foreign exchange forward contracts, foreign currency option contracts (collectively “foreign exchange contracts”) and cross-currency swap contracts primarily to fix the cash flows resulting from accounts receivable and payable and future transactions denominated in foreign currencies.

The following tables provide information regarding the Company’s derivative financial instruments related to foreign exchange contract and cross-currency swap contracts of March 31, 2012. For foreign exchange contracts, the table presents average contractual exchange rates, contract amounts, and fair value. The majority of foreign exchange contracts have original maturities of less than one year. For cross-currency swap contracts, the table presents average contractual exchange rates, notional amounts, and fair value.

Foreign Exchange Contracts (as of March 31, 2012)

 

            Millions of Yen  
     Average
contractual
exchange rate
     Contract
amounts
     Fair
value
 

Sell U.S. dollar, Buy Yen

     82.14       ¥ 35,878       ¥ (1,412

Sell Euro, Buy Yen

     109.76         10,079         (568

Sell Canadian dollar, Buy U.S. dollar

     1.01         10,376         95   

Sell Euro, Buy Norwegian krone

     8.18         10,147         (43

Others

     —           7,806         109   
     

 

 

    

 

 

 
      ¥ 74,286       ¥ (1,819

Cross-Currency Swap Contracts (as of March 31, 2012)

 

     Millions of Yen  
     2013      2014      2015      2016      2017      2018 and
thereafter
     Total      Fair
value
 

Receive U.S. dollar, Pay Canadian dollar

                       

Notional amounts (U.S. dollar)

     —         ¥ 2,340       ¥ 1,560         —           —           —         ¥ 3,900       ¥ 134   

Average contractual exchange rate

     —           0.99         0.96         —           —           —           —           —     

Interest Rate Risks

The Company is exposed to interest rate risks mainly inherent in its finance receivables and debt obligations. The Company has finance receivables with fixed rates and long-term debt with both fixed and variable rates. The Company uses interest rate swap agreements to enable the Company to choose between fixed and variable interest rates depending on how the funds are used as well as diversifying funding methods and lowering funding costs.

The following tables provide information about the Company’s financial instruments that are sensitive to changes in interest rates at March 31, 2012. For finance receivables—net and long-term debt, these tables present weight average interest rates, principal cash flows, and fair value. For interest rate swap contracts and cross-currency interest rate swap contracts, the table presents weighed average rates, notional amounts and fair value.

 

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Finance Receivables—net excluding Finance Leases (as of March 31, 2012)

 

     Weighted
average

interest
rate
    Millions of Yen  
       2013      2014      2015      2016      2017      2018 and
thereafter
     Total      Fair value  

U.S. dollar

     0.59   ¥ 56,715       ¥ 51,393       ¥ 41,694       ¥ 23,437       ¥ 976       ¥ 193       ¥ 174,408       ¥ 174,776   

Canadian dollar

     4.08        10,291         7,854         5,302         3,136         1,490         523         28,596         29,991   

Australian dollar

     5.20        311         226         203         75         42         —           857         871   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     ¥ 67,317       ¥ 59,473       ¥ 47,199       ¥ 26,648       ¥ 2,508       ¥ 716       ¥ 203,861       ¥ 205,638   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Long-term Trade Accounts Receivable (as of March 31, 2012)

 

     Weighted
average

interest
rate
    Millions of Yen  
       2013      2014      2015      2016      2017      2018 and
thereafter
     Total      Fair value  

Japanese yen

     3.39   ¥ 26,426       ¥ 12,296       ¥ 8,338       ¥ 5,420       ¥ 3,030       ¥ 1,773       ¥ 57,283       ¥ 60,583   

Long-term Debt excluding Capital Lease Obligations (as of March 31, 2012)

 

     Weighted
average

interest
rate
    Millions of Yen  
       2013      2014      2015      2016      2017      2018 and
thereafter
     Total      Fair value  

Japanese yen

     1.13   ¥ 50,621       ¥ 14,981       ¥ 23,034       ¥ 4,120       ¥ 8,506       ¥ 479       ¥ 101,741       ¥ 102,437   

U.S. dollar

     1.58        34,516         35,172         49,365         24,036         9,953         —           153,042         152,846   

Others

     4.13        20,895         8,006         3,999         268         268         53         33,489         32,755   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     ¥ 106,032       ¥ 58,159       ¥ 76,398       ¥ 28,424       ¥ 18,727       ¥ 532       ¥ 288,272       ¥ 288,038   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Interest Rate Swap Contracts (as of March 31, 2012)

 

     Millions of Yen, except rates  
     2013     2014     2015     2016     2017     2018 and
thereafter
     Total     Fair value  

Notional amounts (Yen)

   ¥ 12,500      ¥ 12,500      ¥ 5,500        —          —          —         ¥ 30,500      ¥ (163

Average pay rate

     1.06     1.06     1.04     —          —          —           1.06     —     

Average receive rate

     0.41     0.41     0.49     —          —          —           0.42     —     

Notional amounts (U.S. dollar)

   ¥ 16,396      ¥ 4,696      ¥ 796      ¥ 796      ¥ 796        —         ¥ 23,480      ¥ (242

Average pay rate

     2.67     2.21     1.94     1.94     1.94     —           2.50     —     

Average receive rate

     1.33     1.09     0.62     0.62     0.62     —           1.21     —     

Notional amounts (Canadian dollar)

   ¥ 456      ¥ 76        —          —          —          —         ¥ 532      ¥ (5

Average pay rate

     4.50     4.53     —          —          —          —           4.50     —     

Average receive rate

     1.20     1.20     —          —          —          —           1.20     —     

 

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Cross-Currency Interest Rate Swap Contracts (as of March 31, 2012)

 

     Millions of Yen, except rates  
     2013     2014     2015     2016     2017      2018 and
thereafter
     Total