Annual Report 2007 - Komatsu

Annual Report 2007

Contents 

Financial Highlights ............................................................................................................................................................................................................................................................ 01 

To All Our Stakeholders.................................................................................................................................................................................................................................................... 04 

Interview with Kunio Noji, President and CEO ........................................................................................................................................................................................................ 07 

Corporate Governance...................................................................................................................................................................................................................................................... 14 

Feature Section : The KOMATSU Way ........................................................................................................................................................................................................................ 17 

Environmental and Social Efforts .................................................................................................................................................................................................................................. 24 

Development of Demining Machines for Anti-Personnel Landmines: Incorporating Construction Equipment Technologies ................................................... 26 

Review of Operations ........................................................................................................................................................................................................................................................ 27 

Construction and Mining Equipment...................................................................................................................................................................................................................... 28 

Industrial Machinery, Vehicles and Others........................................................................................................................................................................................................... 34 

Electronics......................................................................................................................................................................................................................................................................... 36 

Financial Section.................................................................................................................................................................................................................................................................. 37 

Directors, Auditors and Officers..................................................................................................................................................................................................................................... 91 

Komatsu Group Investment Holdings.......................................................................................................................................................................................................................... 92 

Corporate Information ...................................................................................................................................................................................................................................................... 94 

On the cover: Assembly line at the Ibaraki Plant which launched production in January 2007 

CAUTIONARY STATEMENT 

This Annual Report contains forward-looking statements that reflect management‘s views and assumptions in the light of information currently available 

with respect to certain future events, including expected financial position, operating results and business strategies. These statements can be identified by 

the use of terms such as “will,” “believes,” “should,” “projects,” “plans,” “expects” and similar terms and expressions that identify future events or 

expectations. Actual results may differ materially from those projected, and the events and results of such forward-looking assumptions cannot be assured. 

Any forward-looking statements speak only as of the date of this Annual Report, and Komatsu assumes no duty to update such statements. 

Factors that may cause actual results to differ materially from those predicted by such forward-looking statements include, but are not limited to, 

unanticipated changes in demand for the Company‘s principal products, owing to changes in the economic conditions in the Company’s principal markets; 

changes in exchange rates or the impact of increased competition; unanticipated costs or delays encountered in achieving the Company‘s objectives with 

respect to globalized product sourcing and new information technology tools; uncertainties as to the results of the Company‘s research and development 

efforts and its ability to access and protect certain intellectual property rights; the impact of regulatory changes and accounting principles and practices; 

and the introduction, success and timing of business initiatives and strategies.

UPWARD 

Fifth Consecutive Year of Growth in Sales and Profits and Third Consecutive Year of Renewing Record-High Profits 

Results For The Year 

Change (2007/2006) 

✓ Net Sales* 1,893.3 billion yen UP 17.4% 

✓ Operating Income* 

244.7 billion yen UP 49.8% 

✓ 

Income 

from 

continuing operations 

236.4 billion yen 

before income taxes UP 51.8% 

✓ Net Income 

164.6 billion yen UP 44.1% 

* In accordance with the Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived 

Assets,” certain business results of the operations which were discontinued during the fiscal year ended March 31, 2007 are reclassified. 

Accordingly, the changes in percentages are stated after retrospectively reclassifying related figures for the previous year. 

FORWARD 

Numerical Targets of New Mid-Range Management Plan “Global Teamwork for 15” 

(Fiscal 2008 – Fiscal 2010) 

Targets For FY2010 

Results in FY2007 

Operating Income Ratio 

15% or above 12.9% 

ROE 

20% level 23.5% 

Net Debt-to-Equity Ratio* 1 0.2 

or below 0.33 

or above 

Consolidated Payout Ratio 

20.1% *2 

20% (Keeping the conventional policy for dividends) 

* 1 Net debt-to-equity ratio = (interest-bearing debt – cash and cash equivalents – time deposits) / shareholders’ equity 

* 2 Consolidated payout ratio based on net income from continuing operations for the fiscal year ended March 31, 2007. 

1 Annual Report 2007

Financial Highlights 

Komatsu Ltd. and Consolidated Subsidiaries 

Years ended March 31, 2007,2006 and 2005 

Thousands of 

U.S. dollars 

Millions of yen 

(except per 

(except per share amounts) 

share amounts) 

2007 2006 2005 2007 

Net sales ¥1,893,343 ¥1,612,140 ¥1,356,071 $16,045,280 

Japan 487,103 482,825 479,007 4,127,992 

Overseas 1,406,240 1,129,315 877,064 11,917,288 

Operating income 244,741 163,428 95,862 2,074,076 

Operating income ratio 12.9% 10.1% 7.1% — 

Income from continuing operations before income taxes, 

minority interests and equity in earnings of affiliated companies 236,491 155,779 91,869 2,004,161 

Net income 164,638 114,290 59,010 1,395,237 

Net income per share—basic ¥ 165.70 ¥ 115.13 ¥ 59.51 140.42¢ 

—diluted ¥ 165.40 ¥ 114.93 ¥ 59.47 140.17¢ 

ROE 23.5% 20.8% 13.1% — 

ROA 13.5% 10.0% 6.6% — 

Total assets 1,843,982 1,652,125 1,449,068 15,626,966 

Shareholders’ equity 776,717 622,997 477,144 6,582,347 

Shareholders’ equity ratio 42.1% 37.7% 32.9% — 

Shareholders’ equity per share ¥ 781.57 ¥ 626.98 ¥ 481.27 662.35¢ 

Capital investment 129,680 113,934 76,907 1,098,983 

Research and development expenses 46,306 44,560 41,123 392,424 

Number of employees 33,863 34,597 33,008 — 

Sales by Operation 


Thousands of 

U.S. dollars 


Construction and Mining Equipment ¥1,567,723 ¥1,291,223 ¥1,061,161 $13,285,788 

Industrial Machinery, Vehicles and Others 298,022 279,497 248,487 2,525,610 

Electronics 27,598 41,420 46,423 233,882 

Net sales ¥1,893,343 ¥1,612,140 ¥1,356,071 $16,045,280 

Sales by Region 


Thousands of 

U.S. dollars 


Japan ¥ 487,103 ¥ 482,825 ¥ 479,007 $ 4,127,992 

The Americas 537,836 477,718 355,561 4,557,932 

Europe and CIS 324,071 232,329 195,281 2,746,364 

China 129,443 89,667 51,987 1,096,975 

Asia (excluding Japan and China) and Oceania 252,768 213,719 190,458 2,142,102 

The Middle East and Africa 162,122 115,882 83,777 1,373,915 

Net sales ¥1,893,343 ¥1,612,140 ¥1,356,071 $16,045,280 

In accordance with Statement of Financial Accounting Standards No.144 "Accounting for the Impairment or Disposal of Long-Lived Assets," the consolidated statements 

of income in the prior years have been retrospectively reclassified for discontinued operations. 

The above sales by region are presented based on sales destination. 

The term "Capital investment" should be distinguished from the term "Capital expenditures" as used in the consolidated statements of cash flows. The term "Capital 

investment" is defined to refer to the acquisition of property, plant and equipment including properties under capital leases on an accrual basis which reflects the effects 

of timing differences between acquisition dates and payment dates. 

The United States dollar amounts represent translations of Japanese yen amounts at the rate of $1=¥118. 

See Note 1 of Notes to Consolidated Financial Statements. 


Net Sales* 

Billions of yen 

2,000 

Operating Income* and 

Operating Income Ratio* 

Billions of yen % 

250 

15.0 

Income from Continuing Operations before 

Income Taxes, Minority Interests and Equity 

in Earnings Affiliated Companies* and ROA* 


250 

15.0 

1,600 

200 

12.0 

200 

12.0 

1,200 

150 

9.0 

150 

9.0 

800 

100 

6.0 

100 

6.0 

400 

50 

3.0 

50 

3.0 

0 

0 

0.0 

0 

0.0 

2003 

2004 

2005 

2006 

2007 

2003 

2004 

2005 

2006 


2003 

2004 

2005 

2006 


Operating Income* 

Operating Income Ratio* 

Income from Continuing Operations before Income 

Taxes, Minority Interests and Equity in Earnings 

Affilitaed Companies* 

ROA* 

Net Income and ROE 

Shareholders’ Equity and 

Shareholders’ Equity Ratio 

Capital Investment* 


200 

25.0 


1,000 

50.0 


150 

160 

20.0 

800 

40.0 

120 

120 

15.0 

600 

30.0 

90 

80 

10.0 

400 

20.0 

60 

40 

5.0 

200 

10.0 

30 

0 

0.0 

0 

0.0 

0 

2003 

2004 

2005 

2006 


2003 

2004 

2005 

2006 


2003 

2004 

2005 

2006 


Net Income 

ROE 

Shareholders’ Equity 


* In accordance with Statement of Financial Accounting Standards No.144, the consolidated statements of income in the prior years have 

been retrospectively reclassified for discontinued operations. 


To All Our Stakeholders 

Masahiro Sakane, Chairman of the Board and Kunio Noji, President and CEO 

Business Results 

We are very pleased to report that the Komatsu Group continued 

to improve its performance for fiscal 2007, ended March 

31, 2007, renewing its record-high in consolidated net sales, 

operating income, income from continuing operations before 

income taxes and net income, as well as recording the fifth 

consecutive year of growth in sales and profits. 

Consolidated Results for the Year 

Results for the Year Change (2007/2006) 

Net Sales ¥1,893.3 billion Up 17.4% 

Operating income ¥ 244.7 billion Up 49.8% 

Operating income ratio 12.9% +2.8 pts 

Income from continuing operations 

before income taxes 

¥ 236.4 billion Up 51.8% 

Net income from discontinued operations ¥ 11.3 billion Up 120.9% 

Net Income ¥ 164.6 billion Up 44.1% 

* 1 Starting from the fiscal year ended March 31, 2007, operating income is stated 

in conformity with U.S. GAAP. To ensure comparability with the amount for the 

previous fiscal year ended March 31, 2006, the percentage was obtained after 

reclassifying the previously reported amount. 

* 2 In accordance with the Statement of Financial Accounting Standards No. 144, 

“Accounting for the Impairment or Disposal of Long-Lived Assets” of the 

Financial Accounting Standards Board, operating results, excluding the operating 

results of discontinued operations, i.e., Komatsu Electronic Metals Co., Ltd., (currently 

SUMCO TECHXIV Corporation) and its subsidiaries, as well as the outdoor 

power equipment (OPE) business of Komatsu Zenoah Co. and its subsidiaries 

engaging in the OPE business, are stated as income from continuing operations 

before income taxes, minority interests and equity in earnings of affiliated companies 

in the Consolidated Statements of Income. 

* 3 In accordance with the Statement of Financial Accounting Standards No. 144, 

“Accounting for the Impairment or Disposal of Long-Lived Assets,” the operating 

results of the discontinued operations are stated as income from 

discontinued operations after tax effects are taken into consideration. 

Consolidated net sales reached ¥1,893.3 billion 

(US$16,045 million, at US$1=¥118). In the construction and 

mining equipment segment, the Komatsu Group continued to 

increase sales for the year under review by effectively capitalizing 

on expanded market demand resulting from buoyant 

developments of commodities and infrastructure around the 

world. In the industrial machinery, vehicles and others segment, 

all related Komatsu Group companies recorded good 

performance and advanced sales. Sales of the electronics segment 

declined from the previous year, primarily affected by the 

sale of the polycrystalline silicon business in fiscal 2006. 

Operating income for the year advanced to ¥244.7 billion 

(US$2,074 million), and operating income ratio improved by 

2.8 percentage points to 12.9%. Profits further improved due 

not only to expanded sales, centering on construction and mining 

equipment, but also to price realization for construction 

equipment both in Japan and abroad. Income from continuing 

operations before income taxes, minority interests and equity 

in earnings of affiliated companies reached ¥236.4 billion 

(US$2,004 million), reflecting a substantial increase in operating 


profit. Net income for the year, the sum of income from continuing 

and discontinued operations, totaled ¥164.6 billion 

(US$1,395 million). 

Cash Dividends 

Komatsu is building a sound financial position and flexible and 

agile corporate strengths to increase its corporate value. 

Concerning cash dividends to shareholders, the Company 

maintains the policy of redistributing profits by first striving to 

continue stable dividends and then considering consolidated 

business results, while working toward the goal of a consolidated 

payout ratio of 20% or higher. Concerning the fiscal 2007 

year-end dividends per share, we have set it at ¥18, an increase 

of ¥8 from a year ago, after considering the business results for 

fiscal 2007 as well as current and future business prospects. 

Together with the interim per share dividends of ¥13, annual 

dividends per share increased to ¥31, up ¥13 from the previous 

fiscal year, realizing the fourth consecutive year of larger dividends 

to shareholders. 

Mid-Range Management Plan “Global Teamwork for 15” 

The Komatsu Group has been expanding profits by strengthening 

its earnings base, launching DANTOTSU products and 

reinforcing sales and product support capabilities in Greater 

Asia,* 1 as part of the first-stage Reform of Business Structure 

project since 2001, and capitalizing on the subsequent market 

expansion. Simultaneously we have also worked on the 

selective focus of businesses, including the sale of the silicon 

wafer and outdoor power equipment businesses, an equity 

alliance in the industrial machinery business, and establishment 

of new plants in Japan and overseas. To further 

improve our earnings capability, we started the second-stage 

Reform of Business Structure project in 2006, in which we 

have been placing efforts on value-chain* 2 reform and 

human resource development through these reform activities 

on a global, group-wide basis. 

---------------- 

* 1 China, Southeast Asia, India, the Middle East and CIS 

* 2 Chain of values generated by business activities of the Komatsu Group, distributors, 

suppliers and customers 

We at the Komatsu Group define our corporate value as 

the total sum of trust given to us by society and all stakeholders. 

To increase this corporate value, we have defined the 

following two management goals. 

1) To maintain our top-level profitability and financial position 

in the industry and enhance our position in the 

global marketplace, especially in Greater Asia. 

2) To continue management, while keeping market value 

in mind, which reflects the amount of trust given to us 

by society and shareholders. 

To achieve these management goals, we have developed the 

mid-range management plan “Global Teamwork for 15” for the 

target year ending March 31, 2010. Under this new management 

plan, we are going to focus efforts on the following tasks. 

1) We will continue to concert our efforts on the market 

introduction of DANTOTSU products, the further 

enhancement of our market position in Greater Asia 

and further improvements of fixed costs, on a permanent 

basis, all which have been carried over from the 

first-stage Reform project. 

2) We will continue to work on value-chain reform and 

human resource development on a global, group-wide 

basis through the reform activities. 

3) Additionally, we have established the following tasks to 

focus on and will produce specific results. 

a) Establishment of Flexible Manufacturing Operations 

By taking effective advantage of global sales, production, 

procurement and other operations, we will 

further enhance production flexibility in tune with 

demand changes. 

The amount of KOMTRAX (Komatsu Machine 

Tracking System)-mounted construction equipment in 

Japan, North America, Europe and China has passed 

60,000 units (as of May 2007). We are taking full 

advantage of this scale to gain information concerning 

market changes directly and quickly. 

We will also share market information among 

distributors, plants and suppliers. In the short term, 

we will accurately incorporate such information into 

production, sales and inventory planning. In the medium 

term, we will accurately incorporate useful 

information into capital investment planning in order 

to ensure appropriate production capacity. 

b) Expansion of Utility Equipment Business 

We established Komatsu Utility Co., Ltd.* in April 

2007, which has unified the management of the 


To All Our Stakeholders 

forklift truck business of Komatsu Forklift Co., Ltd. and 

the compact-construction equipment business of 

Komatsu Zenoah Co. 

In addition to generating synergy in production 

and development to enhance product competitiveness, 

Komatsu Utility will double its efforts in Greater 

Asia and enhance its position in the market in order 

to improve profits. 

---------------- 

* In April 2007, Komatsu Forklift Co., Ltd. merged with Komatsu Zenoah Co. and 

changed its name to Komatsu Utility Co., Ltd. 

c) Expansion of Parts Business 

We will continue our efforts to accelerate sales of 

ground-engaging tools, such as buckets, teeth and 

undercarriage parts, expand the number of parts 

depots, support and training centers, and train more 

product personnel through the Global Training 

Institute and other programs. 

In addition to those efforts, we will take full 

advantage of information available about the operational 

conditions of machines through real-time 

remote monitoring systems such as the KOMTRAX in 

order to optimize and speed up parts delivery to customers. 

These efforts will further expand sales of 

parts and improve profits. 

d) Reinforcement of Industrial Machinery Business 

With respect to large presses for which orders have 

been growing, we are going to expand production volume 

and shorten production lead-time, while 

improving QCD,* by taking full advantage of the new 

Kanazawa Plant. 

Concerning our equity participation in NIPPEI 

TOYAMA CORPORATION last year, we will work to 

generate collaborative effects with them in the areas 

of procurement and production. 

---------------- 

* Quality, Cost and Delivery 

The Komatsu Group is working to increase its contributions 

to customers’ businesses and become their indispensable partner 

by providing products, services and product support, which 

demonstrate the Group’s strengths, such as KOMTRAX, 

autonomous hauling system and other IT-applied construction 

and mining equipment. 

The Komatsu Group is strengthening its corporate governance 

to ensure sound and transparent management, while 

working to improve management efficiency. While promoting 

thorough compliance, we will also ensure that all employees of 

the Komatsu Group share The KOMATSU Way. In addition to 

improving our business performance, we will facilitate the 

development of both corporate strength and social responsibility 

in a well balanced manner. 

Centered on the “Spirit of Manufacturers” dedication, 

Komatsu Group’s direction remains crystal clear: “We provide 

the products (both hardware and software), that customers are 

happy to own, and we will make profits and grow.” In addition 

to top management officers, of course, all employees of 

the Komatsu Group in Japan and abroad are determined to 

fulfill this commitment with self-confidence and a sense of mission 

by converging their talents and knowledge. 

After the annual shareholders’ meeting of June 22, 2007, 

the Board of Directors resolved to change Komatsu’s representative 

directors as follows. Masahiro Sakane, president and 

CEO, was appointed as new chairman, and Kunio Noji, director 

and senior executive officer, as new president and CEO. 

On behalf of the members of the Board, we would like to 

extend our sincere appreciation to our valued shareholders, 

customers, business partners and employees around the world 

for their support. 

July 2007 

Masahiro Sakane 

Chairman of the Board 

Kunio Noji 

President and CEO 


Interview with Kunio Noji, President and CEO 

FACE TO FACE 

“I am very pleased to report to our shareholders and investors 

that we were able to accomplish substantial improvements over 

the previous fiscal year, thereby further enhancing the corporate 

value of the Komatsu Group. I would like to extend my sincere 

appreciation to our distributors and suppliers in addition to all 

employees of the Komatsu Group worldwide.” 

Kunio Noji, President and CEO 

Q 

You have gotten the key to the office of the president from Mr. Sakane. Could you 

share your thoughts on management with us? 

Noji: My pleasure. Our conventional management policy will remain unchanged. That is, 

we promote self-initiated innovations in technology and management, provide the products -- 

both hardware and software -- that customers are happy to own, and maximize our corporate 

value. Thanks to Mr. Sakane’s efforts with respect to the selective focus on our businesses, we 

are now ever better positioned to focus our efforts on the industrial-use machinery segment, 

in the broad sense of the term, centering on construction, mining and utility equipment as 

well as industrial machinery. 

My mission is to strengthen our workplace capabilities,* solve management issues one by 

one through teamwork with all employees, distributors and suppliers of the Komatsu Group, 

to further reinforce our business foundation and to promote sustainable growth in the core 

segment of industrial-use machinery. Furthermore, based on our belief that our corporate 

value is the total sum of trust given to us by society and all our stakeholders, I am determined 

to continue our efforts to further enhance this trust. 

---------------- 

* What we at Komatsu mean by workplace capability is each and every employee’s power to continue his or her efforts to 

reform and improve with a concrete awareness of the issues that he or she is facing. 



Q 

For the fiscal year ended March 31, 2007, Komatsu posted the fifth consecutive year of growth 

in sales and profits, renewing record-high profits for three consecutive years. What are the 

strengths of Komatsu which you think have made this excellent performance possible? 

Noji: We were able to make significant improvements again from the previous year. I believe it’s 

a direct result of the collaboration between Komatsu Group employees around the world and sales 

and service distributors and suppliers. Simply put, it’s our integrated capability. I would like to point 

out three major factors in relation to the construction and mining equipment business. 

First, we were able to accurately project the dynamic growth in demand for our earthmoving 

equipment and thus produce them timely and flexibly. In addition to receiving information from 

our distributors, we were able to apprehend changes in demand quickly and accurately by 

applying our IT-based market information, such as KOMTRAX information. We were also better 

prepared for demand expansion than our competitors. In addition to having made aggressive 

capital investments to expand our production capacity for key components, such as engines and 

hydraulic equipment, we were able to start up two new plants.* 1 

Second, our enterprise resource planning system integrated all major operations of the Komatsu 

Group around the world, particularly among production plants. Thanks to this ERP system, we have 

built a global production system in which production and development operations cooperate to 

support overseas plants under the leadership of Mother plants.* 2 As a result, we were able to start 

up the production of our flagship medium-sized PC200-8 hydraulic excavators in Japan, the United 

States, Europe and Asia, almost simultaneously, for timely market introduction. 

Third, the collaboration between our production and suppliers has been very effective. We 

have worked as one team to establish win-win relationships, for example, by sending engineers 

to each other’s facilities in the product development stage. As a result, suppliers and Komatsu 

have achieved important improvements in quality, cost and delivery together. Based on such a 

mutual trust relationship, I feel grateful for the fact that they have actively kept up with the 

pace of our capital investments year after year to expand production. 

Needless to say, good sales are based on the diligent activities of our distributors, marketing 

and product support people, who have built up a solid trust relationship with their customers. 

In the industrial machinery, vehicles and others segment, we have expanded business by 

introducing new products with originality, such as AC Servo presses and hybrid electric forklift 

trucks, thus making a wider difference between our competitors and us. Our subsidiaries in this 

segment are also demonstrating their steady, independent growth. 

---------------- 

* 1 Ibaraki Plant for large dump trucks and wheel loaders and Komatsu India Private Limited for large dump trucks. 

* 2 Mother plants are factories with development capabilities for respective product categories. See the table on page 33 for more information. 

Q 

You have just announced the mid-range management plan “Global Teamwork for 15.” 

Please elaborate on the plan. 

Noji: First of all, the title “Global Teamwork for 15” expresses our firm determination to 

achieve an operating income ratio of 15% or higher for the fiscal year ending March 31, 2010, 

as all employees of the Komatsu Group around the world promote teamwork with our partners, 

that is, distributors, suppliers and customers. I have chosen this title after discussion with many 

people inside the company, because I like it very much. I am very thankful for this title. 

With respect to specific numeric targets, we intentionally did not include sales. It’s because it is 

becoming very difficult to predict market conditions over a few years. This is also because it may be 

possible to attain the target only with market growth. Therefore, we have set the operating income 

ratio of 15% or higher as our first target by emphasizing profits. Preconditions for this target are sales 

of ¥2,400 billion plus or minus ¥100 billion, and foreign exchange rates of ¥110 to US$1 and ¥145 

to euro, assuming a slight appreciation of the Japanese yen against both currencies. I believe our 

target of 15% for operating income ratio is fairly ambitious for anyone in the Japanese 

manufacturing industry. To achieve this target, we are going to concert our permanent efforts on our 


previous tasks of enhancement of our market position in Greater Asia, 

market introduction of DANTOTSU products, and reduction of our fixed 

costs. In the new mid-range plan, we have included the establishment 

of flexible manufacturing operations for changes on the marketplace, 

expansion of the parts business, growth of the utility equipment 

business, and reinforcement of the industrial machinery business, as our 

focused tasks. We should be able to achieve these targets, when each 

and every employee of the Komatsu Group around the world improves 

his or her workplace capability to solve individual issues. 

Concerning other numeric targets, we have set a 20% level to 

maintain for ROE and 0.2 or lower for net debt-to-equity ratio. 

While I think it will be quite a challenging task to achieve these 

targets into the future, we are nevertheless working to keep our 

top-level profitability and financial position in the industry. As for 

our payout ratio, we are continuing to uphold our conventional policy by having set a payout 

ratio of 20% or higher on a consolidated basis after excluding extraordinary profit or loss. We 

will work to redistribute profits to our shareholders with stable cash dividends. 

Targets for FY2010 

Targets for FY2010 

Results in FY2007 

Operating income ratio 15% or above 12.9 % 

ROE * 1 20% or above 23.5 % 

Net debt-to-equity ratio * 2 0.2 or below 0.33 

20% or above 

Consolidated payout ratio 

(to continue current policy) 

20.1%* 3 

* 1 ROE = Net income for the year / ((shareholders’ equity at the beginning + shareholders‘ equity at the 

end of the fiscal year) / 2) 

* 2 Net debt-to-equity ratio = (interest-bearing debt – cash and cash equivalents – time deposits) / 

shareholders’ equity 

* 3 Consolidated payout ratio, based on income from continuing operations, for the fiscal year ended 

March 31, 2007 is 20.1% 

Q 

FY2010 

FY2007 

Net Sales ¥ 2,400 billion(+/- ¥100 billion) ¥ 1,893.3 billion 

Foreign exchange rates 

US$ = ¥ 110 US$ = ¥ 117 

Euro = ¥ 145 Euro = ¥ 151 

Now I would like for you to discuss the focused efforts in the construction and mining 

equipment business. Specifically, what’s your projection for demand, which is the 

assumptions underlying your efforts? 

Noji: Unlike the previous global demand for construction and mining equipment which was 

affected by the economic cycle centering on the United States, Europe and Japan, global demand 

since 2003 has been growing in new markets, particularly within the emerging powers of BRICS* 1 

and Greater Asia.* 2 This increase was driven by growing demand in infrastructure development 

projects against the backdrop of ongoing urbanization. At the same time, demand for mining 

equipment is expanding around the world, reflecting thriving needs for raw materials and energy 

in these emerging powers. I believe that this trend will continue in the mid to long range. 

Under such an environment, we are predicting that global demand will remain strong at an 

average annual growth rate of 6% into the fiscal year ending March 2010. 

Looking at demand by region, we are estimating an average annual decline of 6% in the 

world’s largest market of North America for the next three years. Specifically, we are projecting 

a drop of 15% primarily because of slowing housing starts in the current fiscal year and a 

decline as well in fiscal 2009. 

In Greater Asia, where we have been focusing our efforts, there are many plans for infrastructure 

developments such as roadways and railways in addition to expanding demand for equipment in 



resource and energy developments. In this light, we are projecting an average annual growth rate of 

16% for the next three years. We are also estimating that Greater Asia’s portion in global demand will 

expand to 36% in fiscal 2010 from 27% in fiscal 2007. In particular, we are expecting that demand in 

China, India and CIS could increase about 2-fold in fiscal 2010 from fiscal 2007. 

As for European demand, fiscal 2007 showed a double-digit increase, supported by buoyant 

demand in eastern Europe in addition to the largest market of Germany. However, as we 

believe that demand will be fundamentally cyclical in western Europe, we anticipate an average 

annual growth of 5% for the next three years. 

With respect to Oceania, Africa and Latin America, we are anticipating a steady increase at 

an average annual rate of 7%, driven especially by strong demand for mining equipment. In 

Japan, as the stock adjustment is almost over, we are looking into an average growth rate of 

about 2% for the next three years, almost on par with Japan’s GDP growth rate. 

---------------- 

* 1 In addition to Brazil, Russia, India and China, we include South Africa. 

* 2 China, Southeast Asia, India, the Middle East and CIS. 

Market demand growth 

Greater Asia 

Oceania, Africa, 

Latin America 

North America 

Europe 

Japan 

World 

* Compound annual growth rate 

CAGR* 

+16% 

+ 7% 

– 6% 

+ 5% 

+ 2% 

+ 6% 

Market Demand Projection of Construction & Mining Equipment 

Years ended March 31 

Units 

350,000 

( ): based on an index of 100 for 2007 results 

300,000 

(100) 

250,000 

200,000 

150,000 

100,000 

50,000 

27% 

(107) 

31% 

*Units: Estimated by Komatsu 

(119) 

36% 

Japan 

Europe 

North America 

Oceania, Africa, Latin America 

Greater Asia 

China 

Southeast Asia, India, 

Middle East, CIS 

Percentage of Greater Asia 

0 

2003 

2004 

2005 

2006 


2008e 

2010e 

Figures are for 7 major products (excluding mini-equipment) 

1.Crawler excavator, 2.Wheel excavator, 3.Crawler tractor, 4. Wheel loader, 5.Dump truck, 6.Articulated dump truck, 7.Motor grader 

Q 

Now please turn your discussion to strategies for the construction and mining 

equipment business in the mid-range management plan. 

Noji: We will be focusing on five areas. They are the market introduction of DANTOTSU products, 

the further enhancement of our market position in Greater Asia, establishment of flexible manufacturing 

operations, expansion of our parts business, and reinforcement of our utility equipment business. 

Fuel consumption per production 

WA600-3 v.s. WA600-6 

100 

20% 

improved 

100 

50 

80 

DANTOTSU Product 

WA600-6 wheel loader 

0 

WA600-3 

WA600-6 


With respect to the development of DANTOTSU products, we are going 

to redouble our efforts in the area of improving fuel consumption. We 

believe it is very important for us to reduce our customers’ running costs, 

particularly because of skyrocketed fuel price, and to alleviate environmental 

impact. We are also advancing our development of products designed to 

meet Tier 4 emission standards to be effective in 2011. 

Now, Greater Asia. Thanks partly to positive outcomes of the first-stage 

Reform of Business Structure project, we have maintained our Number One 

market position there. However, as our competitors are concerting their 

efforts in fast-growth Asian markets, the competition will become much 

more intense. We are working to further enhance our market position by 

developing new products, especially attachments, which meet different 

regional needs, broaden our product range, and expand our local production in order to develop 

these new markets, while continuing to strengthen our product support capabilities. 

Furthermore, monthly demand changes sharply in Asia, especially in China, it is very difficult 

to predict demand in the top sales season right after the Chinese New Year. In this light, it is 

becoming a very important strategy for us to conduct the best possible management of sales, 

production and inventories. To accomplish this objective, we are establishing an operational 

structure to obtain and share market information promptly by taking full advantage of IT 

applications like KOMTRAX, predict demand with a high accuracy, and feed it to plants through 

a direct link. Additionally, as demand for construction and mining equipment continues to 

expand worldwide, we are building a global cross-sourcing operational structure with which we 

will be able to use the most effective plants from a comprehensive perspective which considers 

demand, production capacity, foreign exchange and other factors. To this end, we are making a 

strategic investment of some ¥120 billion in production facilities over the next three years. 

Another area of our focused efforts is the parts business. Parts are generally categorized 

into two types, that is, for mining equipment and for regular construction equipment. With 

respect to mining equipment, we are anticipating a substantial increase in demand for parts, as 

our delivery of mining equipment climbed from 2003 to 2006. Under normal conditions, mining 

equipment requires the overhauling of powertrain components, such as engines, transmissions 

and axles after 15,000 to 20,000 hours of use; we are estimating that we should see a peak in 

related parts demand in the 2008-2009 timeframe. Therefore, our urgent task is to expand the 

capacity and improve the efficiency of our Reman operation in order to capture this demand. 

Concerning the parts for regular construction equipment, our task is to expand sales of wear 

parts, such as bucket teeth and undercarriages. As there are many third-party manufacturers of 

these parts, we are going to team up with our distributors in order to convince customers of the 

benefits of our genuine parts. This will require diligent effort on our part. 

Parts Sales 



400 

300 

Undercarriage 

200 

100 

0 


2008e 

2010e 

UC* & GET* Construction Mining 

* UC: Undercarriage GET: Ground-engaging tools 

GET (bucket & teeth) 



Utility Equipment 

Q 

The mid-range management plan also calls for reinforcement of the utility equipment 

business. What is your strategy? 

Mini excavator 

Backhoe loader 

Skid steer loader 

Mini wheel loader 

Forklift truck 

Noji: As you might know, we merged Komatsu Forklift Co., Ltd. and Komatsu Zenoah Co. 

to form Komatsu Utility Co., Ltd. on April 1 this year. In our restart at this business, we have 

positioned mini construction equipment and forklift trucks on a unified management platform, 

thus accelerating the speed of management decision making. Furthermore, both types of 

equipment have many things in common, including the use of similar hydraulic mechanisms and 

compact size. By concentrating the management resources of the two companies, Komatsu 

Utility is striving for synergy in development and production in order to enhance individual 

product competitiveness and improve profitability and market positions. 

In June 2006, we embarked on the mixed production of forklift trucks and mini wheel 

loaders on an assembly line of our Tochigi Plant. While we can assemble 12 different models on 

one line today, we are going to further enhance our productivity. In the area of development, 

we are going to use the same components for both forklift trucks and mini equipment in order 

to reduce production costs and enhance product competitiveness. 

With respect to sales, there is room for us to improve our overseas market share for both mini 

construction equipment and forklift trucks. As it is with construction and mining equipment, 

Greater Asia is a very promising market for our mini equipment and forklift trucks. Therefore, 

enhancement of our market position there is a key for future growth of these products. At the 

same time, I believe that the development and market launchings of new products are also 

important to improve our market position. 

In the area of forklift trucks, we have launched a new battery-powered ARION series and a 

hybrid model equipped with the world’s first two electric power systems. The electric hybrid 

model features a maximum of 20% reduction of power consumption compared to standard 

battery-powered models. We are going to expand sales of these new models in order to improve 

our market position. 

Q 

Would you talk about your future emphasis on the industrial machinery business? 

Noji: Certainly. Our industrial machinery business relies on the automobile manufacturing 

industry for about 60% of sales, and it is projected that this client industry will continue to enjoy 

3% to 5% growth in its production volume annually well into the future. 

In January of this year, we started the production of large presses at the Kanazawa Plant 

which we built adjacent to the Port of Kanazawa. As the Plant continues to move toward fullscale 

operation, we will make improvements in the production process to cut down the leadtime 

by half, thereby further enhancing productivity. 

We also hope to develop and introduce many other DANTOTSU products like our large AC 

Servo presses. As our marketing task for this business, we are also going to reinforce our efforts 

in Greater Asia, like construction, mining and utility equipment. In particular, automobile 

production has been expanding sharply in India, and thus it is a very lucrative market for our 

industrial machinery business. In January this year, we won a large-scale order from an Indian 

carmaker, which includes 3,000-ton class transfer press and high-speed flexible transfer press 

lines. I believe our next important task is to build a customer support operation which includes 

maintenance service. 

With NIPPEI TOYAMA CORPORATION, in which we invested last year, working teams of the 

two companies have been studying a strategic range of possibilities in collaboration. In this 

regard, we have happy news. We have received an order for a new system which combines 

NIPPEI TOYAMA’s laser and our plasma cutting machine. We are also collaborating in package 

sales of their 3-D laser and our AC Servo press. I would like to see many more synergy effects 

like these during the current fiscal year. 


Q 

Lastly, could you introduce The KOMATSU Way, which is one 

of the basic policies of the mid-range management plan? 

Noji: First of all, The KOMATSU Way is a set of core values that 

we would like to continue upholding in the Komatsu Group into 

the future even when employees change. I think of it as Komatsu’s 

DNA. While I led The KOMATSU Way Division, we spent about a 

year and a half compiling the booklet The KOMATSU Way which 

was printed in July 2006. I have made over 50 presentations at 

Komatsu Group companies in Japan and overseas to promote the 

understanding of The KOMATSU Way among all employees of the 

Komatsu Group. Unlike the business philosophies of other 

companies, we made The KOMATSU Way to include a wide scope 

of corporate domains ranging from Monozukuri or manufacturing competitiveness to corporate 

governance. The KOMATSU Way is characterized by the following two aspects. First, it contains 

the Top Management section in which we have identified five principles to be spearheaded by 

top management. Needless to say, I am committed to carrying out all five myself. 

Five Principles 

Seven Ways of Komatsu 

1. Vitalize the functions of the board of directors. 

2. Take the initiative in communicating with all 

our stakeholders. 

3. Comply with the rules of the business community. 

4. Never put off responses to risks. 

5. Keep thinking about your successor. 

1. Commitment to Quality and Reliability 

2. Customer Oriented 

3. Defining the Root Cause 

4. Workplace (Genba) Philosophy 

5. Policy Deployment 

6. Collaboration with Business Partners 

7. Human Resource Development 

Second, the Common to All Divisions/Companies section, designed for all employees, 

emphasizes Monozukuri. We have identified seven ways of Monozukuri, including Komatsu’s 

strengths, and beliefs, patterns of behavior and know-how that our forerunners have learned 

from their experiences of both success and failure in the course of Komatsu’s growth. This 

Monozukuri doesn’t only refer to activities on the plant floor in the narrow sense of the term but 

includes all activities undertaken by internal divisions, such as development, production, sales, 

service and administration, and the activities of our distributors and suppliers, all in the spirit of 

teamwork. All our divisions have also compiled division-specific KOMATSU Way and have been 

working to disseminate them to their respective counterparts of the Komatsu Group around the 

world to share the same values. Because of The KOMATSU Way, I am confident and determined 

to accomplish all targets of the mid-range management plan “Global Teamwork for 15.” 

---------------- 

Note: See the feature section entitled The KOMATSU Way on pages 17 through 23 for more details. 


Corporate Governance 

We, at Komatsu, believe our corporate value is the total sum of 

trust given to us by society and all stakeholders. To become a 

company which enjoys more trust from shareholders and all 

other stakeholders, Komatsu is working to strengthen corporate 

governance, improve management efficiency, advocate corporate 

ethics and ensure sound management on a group-wide basis. 

To further improve the transparency of management to our 

shareholders and investors, we disclose information in a fair and 

timely manner and actively engage in investor relations activities 

by holding meetings with shareholders and investors. 

Corporate Governance of Komatsu 

Collaboration 

Elect/Dismiss 

Board of Statutory Auditors 

Standing:2 Outside:3 

Audit Dept. 

Internal audit 

Internal Report 

audit 

Affiliated companies 

Komatsu sends external 

directors and auditors. 

Audit 

Office of 

Assistants 

to Auditors 

Shareholders’ Meeting 

Board of Directors 

Internal:7 External:3 

Elect/Dismiss/Supervise 

Executive Functions 

(26 Executive Officers, 

incl. 6 Directors) 

Elect/Dismiss 

Audit reports 

Report 

As of June 22, 2007 

Elect/Dismiss 

Independent 

Public Accounting 

Firm 

Recommend Compensation Council 

Compliance 

Committee, etc 

Advise/Suggest 

International 

Advisory Board 

Agree with the selection/Decide the dismissal or the rejection of re-appointment/ 

Confirm suitability or independency of the independent public accounting firm. 

Organizational Profile 

In 1999 Komatsu Ltd. introduced the executive officer system 

and has been working to separate management decisionmaking 

and supervisory functions from executive functions 

within the confines of the law. At the same time, the 

Company has maintained the Board of Directors with a small 

number of members and appointed outside directors and 

auditors. To improve the effectiveness of discussions in Board 

meetings, we have promoted reforms in the operational 

aspect of Board meetings to ensure thorough discussions of 

important management agendas and quick decision-making. 

Board of Directors and Directors 

The Board of Directors meets every month and more often as 

needed. [The Board met 15 times in the fiscal year ended March 

31, 2007.] In Board meetings, directors make decisions on management 

policies of the Komatsu Group, review and resolve 

important management matters, and strictly control and supervise 

the execution of management duties by all executive management 

personnel including the representative directors. 

At present, of the 10 directors on the Board, there are three 

outside directors. When performing their duties, outside directors 

offer opinions and suggestions from an independent position, 

based on their insight and rich experience. Their attendance 

rate at Board meetings is high, making contributions to 

ensure transparent and sound management through their 

active participation in discussions. 

Outside Directors As of June 22, 2007 

Name 

Toshio Morikawa 

Hajime Sasaki 

Morio Ikeda 

Concurrent Office 

Advisor, Sumitomo Mitsui Banking Corporation 

Chairman of the Board, NEC Corporation 

Advisor, Shiseido Company, Limited 

Board of Statutory Auditors and Auditors 

Komatsu Ltd. has consistently ensured that the number of 

outside auditors represents at least half of the Board of 

Statutory Auditors. There are five auditors, of whom three are 

outside auditors. Each auditor attends Board of Directors 

meetings and other important meetings, audits the execution 

of duties by directors, and make decisions concerning audit 

policies, duty assignments and other relevant matters. They 

conduct appropriate audits by meeting every month and hearing 

the conditions of execution of management duties from 

the directors. 

[The Board of Auditors met 16 times in the fiscal year ended 

March 31, 2007.] We have also established the Office of 

Auditors’ Staff to exclusively assist auditors. 

Each outside auditor performs his audits from an independent 

position throughout the year, based on the audit policies, 

plans, methods and assignments resolved in Board of Statutory 

Auditors’ meetings. In both Board of Directors’ meetings and 

Board of Statutory Auditor’s meetings, each auditor offers opinions 

and suggestions based on his insight and rich experience. 

Outside Corporate Auditors As of June 22, 2007 

Name 

Concurrent Office 

Takaharu Dohi 

Attorney at Law 

Makoto Okitsu 

Chairman, Teijin Limited 

Hiroyuki Kamano 

Partner, Kamano Sogo Law Offices 

Support for Outside Directors (and Outside Corporate Auditors) 

As a general rule, we provide the outside directors (and the 

outside corporate auditors) with the materials for Board meetings 

beforehand to ensure sufficient time for review. 

Concerning particularly important resolution matters, the 

Board of Directors discusses them in the Board meeting prior 

to the Board meeting where the concerned matters are scheduled 

for resolution. In this manner, we ensure that the directors 

will have sufficient time to review the matters before they 

resolve them and that they will be able to utilize the matters, 

which were pointed out during the earlier discussion, as proposals 

for review when resolving the concerned matters. 

Collaboration between Statutory Auditors and Independent Public 

Accounting Firm 

When making audit plans, statutory auditors exchange opinions 

with the contracted independent public accounting firm 

concerning audit policies, audit items focused upon and audit 

approaches in order to accomplish effective and efficient 

auditing. Statutory auditors also observe the independent 


public accounting firm when the firm audits Komatsu’s business 

bases, affiliated companies and other related entities. 

They also hold meetings to exchange audit information as 

needed during a given fiscal year, thus improving mutual collaboration 

and engaging in expeditious auditing. Furthermore, 

statutory auditors evaluate the methods and results of the 

independent public accounting firm by checking important 

matters at each interim and fiscal year-end, receiving their 

audit report and hearing their audit summary. 

When the Board of Statutory Auditors approves of audit 

and non-audit work by the accounting firm, the Board defines 

the policies, procedures and other related matters and conducts 

preliminary reviews of individual procedures in order to 

maintain the independence of the accounting firm from 

Komatsu Ltd. and its subsidiaries. 

Collaboration between Statutory Auditors and the Internal Audit 

Department 

The Internal Audit Department, in cooperation with other 

related departments, regularly audits business bases and affiliated 

companies both in Japan and overseas, evaluates the 

effectiveness of their internal control, reinforces their risk 

management and work to prevent frauds and errors. Statutory 

auditors observe audits by the Internal Audit Department, 

form their own audit opinions, and give advice and recommendations 

to the Internal Audit Department. 

In addition to reporting the audit results above to the 

Board of Statutory Auditors, the Internal Audit Department 

maintains close and substantive collaborations with statutory 

auditors, for example, by providing information on a routine 

basis. 

Directors’ Remuneration 

Concerning the director’s remuneration, in 1999 we established 

the Compensation Council membered mostly by experts 

outside of the Company to ensure transparency, objectivity, 

and validity. 

For the fiscal year ended March 31, 2007, remuneration and 

other compensation for directors and statutory auditors are 

shown below. 

Number of 

persons 

Amount of remuneration 

and other compensation 

Directors 10 ¥993 million 

Statutory 

auditors 

Description 

Incl. bonus, stock option 

and retirement bonus. 

5 ¥85 million Incl. retirement bonus. 

Total 15 ¥1,078 million – 

International Advisory Board 

In 1995 we established the International Advisory Board (IAB) 

to receive advice and suggestions from foreign experts for the 

implementation of important globalization strategies. As a general 

rule, it meets twice a year to discuss and engage in information 

exchange. 

Improvement of Internal Control 

Safekeeping and Management of Information Related to Directors’ 

Execution of Duties 

We safekeep and manage important information related to 

directors’ execution of their duties, including the record of 

Board meetings and other consensus-based, approved documents, 

as stipulated by law and internal regulations. 

Risk Management 

While we continue to make efforts to improve corporate 

value, we recognize the problems related to compliance, in 

particular, environment, product quality, accidents, 

information security and other matters, as major risks for 

continuous growth and are thus implementing the following 

countermeasures. 

1) We have established the Risk Management Rules to correctly 

recognize and manage risks, for which the 

Company has appointed personnel in charge of individual 

risks, further promoting the build-up of a solid 

foundation for risk management. 

2) We have established the Risk Management Committee 

to devise risk management policies of the Komatsu 

Group, check and follow up the conditions of risk measures 

in place, and take control of risks when they surface. 

The Risk Management Committee regularly 

reports reviews and activities to the Board of Directors. 

3) We will establish an emergency headquarters when 

serious risks surface, and work to minimize the damage(s) 

and implement appropriate measures. 

Operational Framework to Ensure Directors’ Effective Execution of Duties 

We implement the following measures to ensure the directors’ 

effective execution of duties. 

1) In addition to holding monthly Board of Directors meetings 

on a regular basis, we hold extraordinary Board of 

Directors meetings as needed. Through participation of 

outside directors, we are working to maintain transparent 

and sound management. We have also set up the 

operational rules of the Board of Directors. 

2) We have defined the separation of duties for directors, 

executive officers and other senior officers, and set up 

the internal rules to ensure appropriate and effective 

execution of duties by directors. 

3) To promote efficient management of the Board of 

Directors, we have established the Strategy Review 

Committee consisting of senior executive officers and 

senior managers. Based on the reviews of the 

Committee, each executive officer and each senior 

manager execute their duties within the authority delegated 

by the Board of Directors. 



Framework to Ensure that Directors’ and Employees’ Execution of 

Duties Comply with the Law and the Articles of Incorporation 

We have established the Compliance Committee as the group 

to oversee compliance, and the Committee regularly reports its 

reviews and activities to the Board of Directors. We have also 

established a framework to ensure thorough compliance to 

business rules through a variety of measures, including the provision 

of Komatsu’s Code of Worldwide Business Conduct 

(established in 1998 and revised six times to date), appointment 

of the executive officer in charge of compliance, and establishment 

of the Compliance Department. Moreover, Komatsu has 

established the internal reporting system where those who are 

discretely reporting questionable actions and other related matters 

in light of compliance will not be penalized. 

Framework to Ensure Appropriateness of Business Operations of 

Komatsu and the Komatsu Group 

a) We have devised the Regulations for Affiliated Companies 

and related rules in order to contribute to appropriate and 

efficient management of the Komatsu Group, while respecting 

self-driven management of affiliated companies. 

Furthermore, we position the Komatsu’s Code of Worldwide 

Business Conduct as the code of business conduct applicable 

to all affiliated companies of the Komatsu Group. Based on 

these regulations and the code of business conduct, each 

company of the Komatsu Group has devised its own regulations 

designed to correctly promote business operations. 

b) Our important committees, such as the Compliance 

Committee, Risk Management Committee and Export 

Management Committee, shall implement their activities in 

light of the Komatsu Group, and the representatives of affiliated 

companies are required to participate in the meetings 

as needed. 

c) Especially important affiliated companies are required to 

report their business conditions, including risks and compliance, 

to the Board of Directors of Komatsu on a regular basis. 

d) Internal Audit Department of Komatsu not only audits 

Komatsu’s divisions but also audits affiliated companies of 

the Komatsu Group or oversees the audits, and monitors 

and instructs affiliated companies so that they will build 

their structure in conformity with Komatsu’s internal control 

and operate it correctly. 

Employees Responsible to Support Statutory Auditors When 

Performing Duties 

We have established the Office of Auditors’ Staff and allocated 

employees who work as full-time and part-time assistants 

to statutory auditors. 

Independence of Assistants to Statutory Auditors from Directors 

a) Concerning the recruitment, appointment and personnel 

change of those employees who belong to the Office of 

Auditors’ Staff, the approval of standing auditors is prerequisite. 

b) The full-time assistant is independent of the chain of command 

of Directors, and thus standing auditors conduct his 

or her performance evaluation. 

Report-to-Auditors Structure and Framework to Ensure Effective 

Audits by Auditors 

a) Directors and executive officers regularly report to auditors 

concerning their execution of operations in charge of Board 

of Directors and Board of Statutory Auditors meetings. 

b) When directors discover serious violations of the law and/or 

important facts related to compliance, they shall report the 

concerned matter immediately to auditors. 

c) Statutory auditors of Komatsu attend various committee 

meetings related to internal control and other important 

meetings as observers. They also look through Japanesestyle 

consensus-based, approved documents, which contain 

important decisions of the Company, and important arbitrary 

documents. 

KOMATSU’S CODE OF WORLDWIDE 

BUSINESS CONDUCT (7 th edition) 


The KOMATSU Way 

It was a journey of self-discovery from the past and self-confidence for the future. It all began in September 2005, 

when we reassessed our own strengths and weaknesses as part of the first-stage Reform of Business Structure 

project. It took a little over 10 months for the working group to compile The KOMATSU Way. They reviewed the 

contents of QC Handbooks from 1963 to the present, which include Komatsu words of wisdom which have been 

passed down at workplaces over the years. The working group also conducted over 50 hours of interviews with 40 

employees -- both current and retired -- some of whom are considered the legendary “meisters” of our plants. 

In this feature story section, we would like to highlight some major contents of The KOMATSU Way which was 

put in writing for Komatsu Group employees last year. Born in Japan, The KOMATSU Way has just begun to reach 

our people in different parts of the world for possible modifications. We feel certain that the core values in the 

following pages are universal and thus capable of withstanding the passage of time and people, transcending 

cultural diversity and national borders. 


Feature Section 

What is The 

KOMATSU Way? 

Background: Building the spirit of challenge 

When Komatsu was established in 1921, 

Meitaro Takeuchi, founder, spelled out his 

founding principles as “Globalization,” 

“Quality First,” “Technology Innovation,” 

and “Human Resource Development.” Just 

like many other companies operating 

Meitaro Takeuchi around the world today, we’ve come a long 

way with ups and downs in our history of 

86 years. Just to mention a few, our forerunners met a series of 

critical challenges –-- post-war recovery and building a business 

from scratch in 1946, complete deregulation of the Japanese 

construction equipment market in January 1964, which opened 

to foreign competition, and the Plaza Accord of 1985 which 

caused an 8.5% appreciation of the Japanese yen within a 

mere 24 hours of announcement of the Accord, at a time when 

our export sales accounted for about 54% of total sales. 

While many people in Japan were talking about how many 

weeks or months at most it would take for Komatsu to go 

under due to the market liberalization, our forerunners were 

busy round the clock developing and introducing bulldozers 

with dramatic improvements in quality. To the great surprise of 

the Japanese people, however, the forerunners not only made 

the Company stronger by taking on the international challenge, 

but also demonstrated and embedded those founding 

principles as our corporate DNA. The KOMATSU Way is built 

on Komatsu’s strengths which are substantiated by the beliefs, 

patterns of behavior and know-how that our forerunners 

learned from their experiences of both success and failure of 

the past, and it is our corporate DNA that we would like all 

employees of the Komatsu Group around the world to keep 

throughout the passage of time. 

Today, just for the construction and mining equipment, 

we generate about 80% of total sales away from Japan, 

about half of our workforce represents non-Japanese citizens, 

and we operate 33 manufacturing facilities in 16 countries, 

outside of Japan. Now that The KOMATSU Way is available in 

printed form, we have a tool for sharing our corporate DNA 

with all Komatsu Group people working around the world. 

The KOMATSU Way: Defining the values for all Komatsu employees 

around the world 

The cornerstone of our management lies in commitment to 

Quality and Reliability in order to maximize our corporate value. 

We define our corporate value as the total sum of trust given to 

us by all our stakeholders and society. To improve this trust, we 

Komatsu‘s Sales and Overseas Expansion 

Foreign Exchange Rate (JPY/USD) 

Yen 

360 

260 

Fixed Rate System Floating Exchange 

160 

(USD1=JPY360) Rate System 

60 

Komatsu’s Business Results 


2,000 

Consolidated Net Sales 

1,500 

Export (non-consolidated) 

1,000 

Sales in Japan (non-consolidated) 

Ratio of Export (non-consolidated) 

500 

Plaza Accord 

Stabilization of Exchange Rates 

% 

80 

60 

40 

20 

0 

’60 

’61 

’62 

’63 

’64 

’65 

’66 

’67 

’68 

’69 

’70 

’71 

’72 

’73 

’74 

’75 

’76 

’77 

’78 

’79 

’80 

’81 

’82 

’83 

’84 

’85 

’86 

’87 

’88 

’89 

’90 

’91 

’92 

’93 

’94 

’95 

’96 

’97 

’98 

’99 

’00 

’01 

’02 

’03 

’04 

’05 

’06 

Rapid Growth of Japanese Economy Expansion of Exports Expansion of Overseas Production Globally Consolidated Management 

0 

New Production Bases 

Established Abroad 

(1) Coping with restrictions 

from nationalization 

policy in target countries 

A total of 44 plants are now in operation. 

(11 plants in Japan and 33 overseas) 

• Brazil (1972) • Mexico (1974) • Indonesia (1982) 

(2) Local production in Europe 

and USA 

• UK (1985) • Italy (1991) • Germany (1989, 1996) 

• USA (1985, 1994, 2002) 

(3) Entry to Emerging Market • China (1995) : 3 Plants 

• Thailand (1995) • India (1998, 2007) 




Five Principles 

1. Vitalize the functions of the board of directors. 

2. Take the initiative in communicating with all 

our stakeholders. 

3. Comply with the rules of the business 

community. 

4. Never put off responses to risks. 

5. Keep thinking about your successor. 

MONOZUKURI 

Collaboration 

with Business 

Partners 

Policy 

Deployment 

Human Resource 

Development 

Seven Ways 

of KOMATSU 

Workplace 

(Genba) 

Philosophy 

Commitment 

to Quality and 

Reliability 

Defining the 

Root Cause 

Customer 

Oriented 

have consistently worked to strengthen our corporate governance 

and Monozukuri or manufacturing competitiveness. Such efforts 

have transformed into the source of Komatsu’s strengths, 

becoming two core components of The KOMATSU Way. 

When we speak about Monozukuri at Komatsu, we mean 

not only plant floors but rather all value-chain activities in which 

we are engaged -- in the spirit of teamwork -- by suppliers and 

distributors in addition to internal operations ranging from 

development, production, sales and service to administration. In 

The KOMATSU Way, we have identified the seven core values 

that support our Monozukuri. 

1) Commitment to Quality and Reliability: 

Quality is our top-priority commitment, and thus we will 

never make any compromise on quality. 

2) Customer Oriented: 

By valuing the opinions of our customers, we continue to 

offer the products and services that they are proud to own. 

3) Defining the Root Cause: 

By clearly defining all processes from product planning to 

machine conditions in the field, we always work to find 

and fix the root cause of problems in order to prevent the 

problem from recurring. 

4) Workplace Philosophy: 

Workplaces (Genba in Japanese) offer information which 

should constitute the foundation of our policies, strategies, 

improvement plans and other vital initiatives. It’s important to 

emphasize and look at the facts of workplaces, making 

information “visible.” 

5) Policy Deployment: 

As soon as top management policies are announced, 

employees on all levels understand their respective roles, 

make their own activity plans, and implement them on 

their initiative. 

6) Collaboration with Business Partners: 

In all operations from development to sales and after-sales 

service, we work together with our business partners from 

around the world to solve problems and improve 

operations, share know-how and work for our mutual 

growth as “One Komatsu.” 

7) Human Resource Development: 

It is the human resources, i.e., employees, that support 

sustainable corporate growth. Employees are the most 

valuable corporate asset and thus human resource 

development and educational programs for employees are 

indispensable worldwide. 

To ensure The KOMATSU Way is established throughout the 

Komatsu Group worldwide, we formed KOMATSU Way Division 

in July 2006. Since then it has conducted a number of 

promotional and educational activities, including 56 

presentations by Kunio Noji, Director (currently President and 

CEO). In the following pages, we would like to introduce our 

human resource development efforts, one of the seven ways of 

Komatsu, and some programs that have been put in place over 

the years as well as more recently. 



Human Resource 

Development 

Programs 

All-Komatsu QC Convention: Sharing innovative ideas to improve 

workplace capabilities 

KOMATSU Way Division hosted the 38th annual All-Komatsu 

QC Convention on November 18, 2006. Held at our Oyama 

Plant and its nextdoor neighbor, Komatsu Forklift’s (currently, 

KOMATSU Utility Co., Ltd.’s) Tochigi Plant, it accommodated a 

total of 72 groups, including 16 from abroad and eight from 

suppliers, which made presentations covering a diverse range of 

QC activities on the plant floor and in staff and administration 

operations. Highlights of this Convention were two groups from 

the United Kingdom and China winning first place. Komatsu 

UK’s Production Improvements Team presented close-knit 

teamwork activities by its assembly and manufacturing 

engineering people. Komatsu Shantui Construction Machinery’s 

Production Management Team introduced its activities which 

have improved supply-chain management by means of directly 

linking distributors and plants. 

All-Komatsu Technology Olympics: Showcasing individual engineering expertise 

Third Saturday of October every year is designated as 

Komatsu’s Skills Day. The Production Division and Human 

Resources Department jointly held the 29th annual All- 

Komatsu Technology Olympics at the Mooka and Osaka 

plants from October 19 to 21, 2006. A total of 120 engineers, 

including 29 from abroad and 11 from suppliers, participated 

in the competitive events of machining, welding, assembly, 

painting, parts inspection and mechatronics maintenance. 

Highlights of the 2006 Olympics include Miyuki Miyamura 

All-Komatsu Technology Olympics 

from the Awazu Plant winning first place in the parts 

inspection event, the first female champion in the history of 

this competition, and Chen Yu from Komatsu Shantui 

Construction Machinery in China, coming in second place for 

the welding event and Stephen Boal from Komatsu UK in 

England, receiving third place in the painting event. 

Global Training Institute: Sharing Komatsu ways of supporting 

customers’ work 

Our Product Support Division offers the Global Training Institute 

(GTI), a 12 to 13-week, comprehensive product support 

program, every year to facilitate the growth of candidates for 

key managerial positions of local product support operations at 

our overseas subsidiaries and distributors. With 120 subjects in 

the curriculum, the GTI emphasizes the strategy of the product 

lifecycle business and the concept of win-win-win (customersdistributors-Komatsu 

as manufacturer) relationship. 

Held in Japan, Europe and the United States from October 

17, 2006 to February 23, 2007, the third GTI was participated 

in by 13 selected employees from eight Komatsu Group 

companies, including Komatsu Ltd. in Japan, and one from PT 

United Tractors Tbk, our Indonesian distributor. To date, a 

total of 38 persons, including four from our distributors, 

representing 11 countries, have completed the GTI. 

Global Management Seminar: Sharing the values that 

Komatsu stand by 

Following the previous fiscal year, our Human Resources 

Department in the Tokyo Head Office sponsored the second 

Global Management Seminar in Tokyo from April 11 through 

14, 2007. A total of 13 presidents and senior managers from 

11 subsidiaries in seven countries attended the seminar, where 

senior officers of Komatsu Ltd. made presentations concerning 

Komatsu’s strategies for management, globalization, R&D, 

production and so forth. This seminar also included the 

presentations on The KOMATSU Way by Masahiro Sakane, 

president and CEO (currently Chairman of the Board) as well as 

the general manager of KOMATSU Way Division. It’s an urgent 

task for all of us in the Komatsu Group now to share the same 

values so that we will be able to drive our efforts in the same 

direction, as we continue to grow overseas in the spirit of 

global teamwork. 


Brian Kober, 

Vice President, 

Corporate Planning and Strategy, 

Komatsu America Corp. 

“I was most impressed to learn that The KOMATSU Way has 

been distilled from the entire history of Komatsu. Each of the 

seven elements of The KOMATSU Way came about from the 

reaction of the company to real threats or challenges over its 

86-year history. 

“In my current role as head of Corporate Planning and 

Strategy, the concepts and tools around policy deployment 

make it the one of the seven ways that relates to me most in 

my workplace today. Komatsu persevered through its 

challenges of the past by directly and clearly communicating 

its priorities to each member of the workforce. 

“The exciting thing is that The KOMATSU Way is fluid and 

alive. It is an unfinished work, and so serves as a great 

framework for where to start when you are facing a new 

problem, but leaves the ultimate solution, and extension of 

the principles up to the creativity of the team.” 

Jorge Hosokawa, 

Director, Manufacturing, 

Komatsu do Brasil Ltda. 

“Even though I translated the contents of The KOMATSU Way 

into Portuguese and gave the translation to all managers at 

Komatsu do Brasil in March 2007, I have deepened my 

understanding of The KOMATSU Way in this seminar. Most 

notably, I was impressed when Mr. Noji encouraged us to 

promote The KOMATSU Way to meet our needs. I am sure that 

all other participants felt the same. 

“Without any doubt, all the seven ways are essential to 

strengthen our operation in Brazil, mainly because we are the global 

supply base of D41 and D51 bulldozers for the Komatsu Group. We 

need to improve more and reinforce our jobs through The 

KOMATSU Way. I am sure that the seven ways are highly valued 

tools and concepts, not only for the Company but also for the 

professional growth of each one of us. It is the level of our workers’ 

knowledge, skills and professionalism that ensures the quality of our 

products. That’s my job to maintain and upgrade their level.” 

Mike Blom, 

Deputy Managing Director, 

Komatsu Southern Africa (Pty) Ltd. 

“I have worked for the company for 26 years. In my previous 

visits to our Japanese operations, especially at plants, I 

remember that The KOMATSU Way has always been there, 

maybe not in written form or stated policy, but ingrained in 

the behavior of its employees. This has not been the way for 

many overseas operations. 

“The most critical aspect of The KOMATSU Way is the fact 

that Komatsu executive management in Japan has proactively 

taken steps to engender the philosophy of The KOMATSU 

Way to all its international operations. At Komatsu Southern 

Africa, the process of disseminating it has begun already and 

will continue in various phases during the course of the year. 

At present, we need to emphasize the human resource 

development and workplace (Genba) philosophy in our 

operation. The major competitive advantage we can create 

over our competitors will be through our people. The 

KOMATSU Way is the best tool for this urgent need. 

“This is the first time I have been involved in the deep 

understanding on how Komatsu does 

things and I am excited and proud to be 

part of it.” 

Hubert Bruening, 

General Manager, Working Gear Division, 

Komatsu Hanomag GmbH 

“I believe “Commitment to Quality and Reliability” of the 

seven ways reflects the core of Komatsu. As a matter of fact, 

during the Global Management Seminar, I “found” this 

management policy to be the major reason that I feel proud 

to work for Komatsu. 

“The KOMATSU Way means a tool for me. During this 

seminar, I realized its importance as it gives answers to why 

we are proud to work for Komatsu, why Komatsu is 

successful, and why we do things in the company as they are 

done. It is The KOMATSU Way that sharpens the positive 

Komatsu aspects and ensures that we run the same way in 

the same direction with the highest efficiency. 

“I would like to mention that it has been impressive to see 

how top management gives flexibility to each region of the 

world, to each company of the Komatsu family, to each 

manager – how to implement The KOMATSU Way without 

leaving any doubt about The KOMATSU Way itself.” 




in Practice 

Accomplishing Successful Production Start-up of the PC200-8 

Hydraulic Excavator around the World 

As we have globalized our operation, it has become more 

important for us to manufacture our products with uniformity in 

product quality for customers around the world. Most recently, 

in response to Tier 3 emission standards for diesel engines in 

North America and Europe. Effective since January 2006, our 

plants in Japan, the United States, Europe and Thailand mounted 

our in-house developed “ecot3” Tier 3-compliant engines on 21 

models, including the new PC200-8 hydraulic excavator. We 

would like to show how our people at our U.S. and Thai plants 

worked to accomplish production start-up of our global standard 

excavator model as simultaneously as possible with the Osaka 

Plant, their Mother plant. 

for overall logistics and parts inventory. Five team members 

traveled to Japan to take part in the start-up production for 

three of the models of hydraulic excavators at the Osaka Plant. 

The special team created the master schedule for each 

department’s activities and required dates of completion. From 

May through September, they met monthly as a total group, 

and weekly in October for the assembly line-on scheduled for 

November 7, 2005. For the PC200LC-8, the team still met 

weekly until the end of November by when all issues had been 

thoroughly discussed for solutions. Each department had its 

own meetings to discuss the schedule and activities it was 

responsible for. The department leader was responsible for 

updating the master schedule with his/her department’s 

activities and reporting it in the team meetings. CMO’s Mother 

Plant – Osaka – made sure to send all Komatsu Technical 

Information on-time to allow CMO to meet its schedule. 

A sense of urgency was in the air. All employees knew that 

they could afford to make no mistake since they only had a 

lead-time of five months for six models, including one aftermodel 

change. To ensure trouble-free production, they created 

an individualized list for all parts for the warehousing operation 

which was being outsourced by CMO. In this way they were 

able to achieve the correct and in-time delivery of parts to 

assembly work centers on the plant floor. 

PC200-8 hydraulic excavator 

Chattanooga Manufacturing Operation in the United States: 

Demonstrating policy deployment capabilities 

Komatsu America Corp.’s Chattanooga Manufacturing 

Operation (CMO) produces five models of hydraulic excavators, 

ranging from 20 to 40 tons, and three models of articulated 

dump trucks. To ensure smooth launchings of Tier 3-compliant 

models, including the PC200LC-8 updated hydraulic excavator, 

they formed a special, cross-functional team in April 2005. The 

team consisted of people from design engineering, production 

planning, procurement, cost management, manufacturing 

engineering, manufacturing, quality assurance and warehouse 

departments. Jay Fuchita, senior manager of design 

engineering, was the team leader responsible for overall 

schedule status checks, and Bruce Nelson, senior manager of 

manufacturing administration, was the sub leader responsible 

Assembly line at CMO 


Bruce Nelson 

Senior Manager, Manufacturing Administration 

Chattanooga Manufacturing Operation 

Komatsu America Corp. 

“We actually had no major problem because everyone 

communicated very well with each other and we all made sure to 

help each department so that all necessary activities were carried 

out on time. We also ensured that actual assembly went well by 

having a special team follow the first time production through 

the entire manufacturing process and record the problems as 

they occurred. The team met weekly after production start-up to 

correct any problems found in the manufacturing process and 

we solved all problems within three weeks.” 

Bangkok Komatsu Co., Ltd. 

product discussed in the meetings. 

At BKC, communication is one of the most important key 

words in all activities. Thus, the First Product Meeting program 

is considered to be a perfect tool to enhance communication in 

order to achieve the target of production start-up. 

Hirun Huntrakul 

Quality Assurance Manager 

Bangkok Komatsu Co., Ltd. 

Bangkok Komatsu: Making commitments to Quality and Reliability 

Bangkok Komatsu Co., Ltd. (BKC) is positioned as an exclusive 

production base of the Komatsu Group for PC200 hydraulic 

excavators. Having survived the currency crisis of July 1997, 

BKC exports about 80% of its total production volume of 

3,200 units, mainly to North America and Greater Asia, today. 

As soon as BKC received Komatsu Technical Information 

concerning the PC200-8 model from its Mother Plant in Osaka 

in June 2005, BKC started holding its original First Product 

Meeting program for suppliers to share technical information 

concerning the parts and establish goals with them on an 

individual basis. BKC first introduced this program in 2001 for 

the production start-up of the PC200-7 model, because they 

discovered many technical problems in locally made parts. The 

meetings with suppliers are held under the leadership of the 

Purchase Department and joined by the Quality Assurance 

Department before actual purchase of the parts. In typical 

meetings, the Purchase Department uses about 30% of the 

time to discuss purchase-related matters, such as delivery and 

costs, with suppliers, while the Quality Assurance Department 

uses about 70%, for technical issues. There are also three 

quality specialists, two specializing in parts and one in 

machine performance, who have received training at the 

Osaka Plant. They play the important roles of arranging and 

monitoring frequency of the meetings, and reviewing the item 

coverage ratio, which is the percentage of parts for each 

“Our successful start-up for the PC200-8 model lies 

significantly with the First Product Meeting. For the PC200-8, 

we reviewed 819 items with about 40 suppliers individually, 

which translates into an item coverage ratio of 85%, 

compared to 60% for PC200-7 in 2001. For most items, we 

had one or two meetings, but for difficult items, such as dies 

and molds for the production of door cover assembly and 

engine hoods, we had eight to ten meetings at maximum. To 

solve the problems, we also had a good support from the 

Mother Plant. I realize that this meeting program is not easy, 

but I would like to take a strong leadership in driving this kind 

of activities to make BKC the best quality factory in the world.” 


Environmental and Social Efforts 

With awareness of corporate social responsibility from a global perspective, the Komatsu Group is 

promoting a variety of activities in order to realize a sustainable society. 

Environmental 

Environmental Management 

 

 

To step up our efforts in environmental management on a global, group-wide basis, in 2000 we 

started the Global Environmental Affairs Meeting by inviting personnel in charge of 

environmental affairs from subsidiaries both in Japan and overseas to our Tokyo Head Office. In 

2005, we held the third meeting which included the area of occupational safety. 

To strengthen our regional efforts overseas, we began the Occupational Safety and 

Environmental Affairs Meeting in Europe in 2005 and held the second meeting in 2006. Also in 

2006, the personnel in charge of environmental affairs of Komatsu Ltd. conducted inspection tours 

of manufacturing subsidiaries in China. 

Products and Services 

The second European Health, Safety and 

Environmental Meeting 

PT Komatsu Remanufacturing Asia, 

the largest Reman facility of the 

Komatsu Group 

Production and Logistics 

We developed construction and mining equipment compliant with Tier 3 emission standards in 

the United States, Europe and Japan, effective 2006, including WA500-6 and WA600-6 

wheel loaders as well as PC128US-8 and 138US-8 tight-tail-swing hydraulic excavators. 

To cut down C02 emissions of our machines used by customers, we have been working to 

improve their fuel consumption and productivity. 

We have expanded the range of large AC Servo presses, which reduce environmental impact with 

40% less energy required, 1.2 times higher productivity, and 20dB less noise, compared 

with mechanical presses. 

We have developed a battery-driven hybrid forklift truck which lessens the impact on the 

environment with a maximum reduction of 20% energy consumption. 

We are promoting our Reman business on a global basis to promote the reuse and recycle of 

key components of construction and mining equipment. 

 

 

 

 

 

We have been promoting activities to reduce CO2 emissions at our plants as part 

of our efforts to mitigate global warming. For our target of reducing the 

basic unit volume of CO2 emissions in value by 25% per production by the end 

of fiscal 2011 compared with fiscal 1991. We have already achieved a 27.3% 

reduction in fiscal 2007. We are working on lowering this even further. 

We achieved Zero Emissions at all our plants in Japan in fiscal 2006. 

We have been promoting activities to curtail the generation of industrial waste. We 

have set the target of a 15% reduction by basic unit (fiscal 2006 fiscal 2011). 

With respect to environmental risk management, we completed the measure for 

our underground tanks (removal or doubling 

the walls) in fiscal 2002. We are going to 

carry out the same measure for those placed 

underground for 20 or more years. 

 

Concerning logistics of heavy items, we are 

continuing our promotion for a modal shift 

from trucking to marine transportation and 

railway. 

Procurement 

HM300 articulated dump truck ready for 

shipment from the Port of Hitachinaka, 

adjacent to the Ibaraki Plant in Japan 

Amount of CO2 Emissions by Komatsu Manufacturing 

Facilities and Komatsu Castex Himi Plant 


(1,000t) % 

400 

100 

100 

300 276 

83.6 84.3 

86.5 265 251 

90 

200 

191 

210 253 

83.1 

80 

100 

0 

1991 

2003 

Amount of CO2 emissions 

2004 

2005 

2006 

72.7 


75.0 

2011e 

Index per unit of manufacturing value 

(compared to FY1990) 

Manufacturing value: The total production cost excluding direct material 

cost,other facilities' components, and procured components. 

70 

0 

 

To develop an environmental management structure, we have established an environmental affairs committee with 58 suppliers, and we 

are supporting their introduction of the environmental management system. 

Sales and Services 

 

We distributed our guidelines for occupational safety and environmental affairs in 

2005. We held seminars and offered instructions concerning those guidelines at 13 sales 

and rental companies in 2006. 

Occupational safety and environmental conservation training at workplace 


Social Activities 

Management 

We have established The KOMATSU Way Division, disseminating and putting The KOMATSU Way in place. 

We revised “Komatsu’s Code of Worldwide Business Conduct” in 2006. The seventh edition includes a discussion on reliability of 

financial control. 

We reinforced our business continuation plan for natural disaster and other emergency cases, and carried out drills in 2006. 

Relationships with Stakeholders 

Social Contribution Activities 

 

We have continued to support the Flower Association of Japan, a nonprofit 

organization dedicated to planting and protecting cherry trees. As part 

of its 45 th anniversary celebration, the Association produced the “Dreams and 

Plans for Cherry Trees” CD-ROM for free distribution in 2006. 

Roof-top garden (right) of Komatsu Bldg., open to the 

public, and the “Dreams and Plans for Cherry Trees” CD 

We changed the trading unit of shares from 1,000 to 100 on August 1, 2006. 

We have improved communication activities with all stakeholders, such as employees, 

suppliers and shareholders. 

Our action plan for supporting employees’ childcare was selected for official recognition in 

April 2007. 

All our plants started their process to introduce the occupational safety and health 

management system (OSHMS), preparing for certification in fiscal 2008. 

Meeting with individual shareholders in Sendai (December 17, 2006) 

 

We opened the curriculum “Komatsu Techno College” in collaboration with Komatsu College in Ishikawa, Japan. 

 

Members of the Komatsu Women’s Judo Team won the champion medals in four international 

competitions. They also received national teams from various countries for joint trainings, making 

contributions to the growth of international judo. 

Joint training with the national team of Tunisia at Komatsu Women’s Judo Team’s dojo 

 

The Komatsu Group made donations and provided commercial vehicles at no cost to the 

devastated areas of the May 2006 earthquake in Java. 

Relief activities for the earthquake-devastated areas in Java, Indonesia 

 

 

We made donations and provided prefabricated housing units to the devastated areas of the Noto Peninsula earthquake (March 2007) through 

Ishikawa Prefectural Government. We also sent volunteers from our plants in the vicinity. 

We invited staff members of a non-governmental organization of Afghanistan and trained them with the operation and mechanical 

maintenance of our demining machine for anti-personnel landmines before delivery from Japan. 

 

Komatsu Group companies worldwide have expanded their community activities. Komatsu 

(China) Ltd. established a social contribution fund to continuously support the establishment of 

schools. 

Completion ceremony for Komatsu School of Hope in Gansu Province 

Note: For more information concerning our environmental and social efforts, refer to the Environmental & Social Report 2007. 

(http://www.komatsu.com/ComapnyInfo/csr/) 


Development of Demining Machines for Anti-Personnel Landmines: 

Incorporating Construction Equipment Technologies 

It is estimated that there are 20,000 casualties caused by anti-personnel landmines 

around the world today. It is also estimated that 6 million and 10 million anti-personnel 

landmines were placed during the civil wars in Cambodia and Afghanistan, respectively. 

Conventionally, landmines have been removed manually. Needless to say, it is very 

dangerous and inefficient. In 2003, we at Komatsu applied for the public offering of 

subsidies of Japan’s Ministry of Economy, Trade and Industry and The New Energy and 

Industrial Technology Development Organization (NEDO) for the development of antipersonnel 

demining equipment based on bulldozers. Our machine has already been 

tested for its performance and safety in Afghanistan and Cambodia since 2004 and 

2006, respectively. With its demining capability of 500 square meters per hour, it has 

demonstrated productivity at 50 times that of manpower. 

To maximize the safety of demining workers, we incorporated the remote control 

technologies of construction equipment, which have been proven in actual reconstruction 

projects of natural disaster-devastated areas, into our demining machine. 

Equally dispensable as the development of machines is the technical training of local 

operators. In 2004, we invited two members of a non-governmental organization specializing 

in demining in Afghanistan for the first technical training in Japan. In May 2007, 

we offered a second training to three Afghan people from a different NGO. We are 

going to continue our support for deminning projects in a variety of ways. 

Bulldozer-based anti-personnel 

demining machine 

Mr. Shah Wali Ayubi 

Executive Manager of Operation 

Mine Detection and Dog Centre 

(MDC), Afghanistan 

“We estimate 700 km 2 of our land is contaminated with landmines and unexploded 

ordnance (UXO), which covers 23 provinces with 4.2 million people. Even today there 

are about 60 victims per month by mines or UXO. In addition, mines are a big problem 

for infrastructure development for schools, hospitals, et cetra. We are one of 

seven NGOs, that have been working to remove mines since 1988 under the coordination 

of the UN Mine Action Program for Afghanistan (MAPA). We have about 2,000 staff members, including 10 mine 

dog groups each with 30 people and 4 dogs, 24 demining teams each with 21 people, 6 demining mechanical units, 

including this Komatsu-made D85EX demining machine, 46 mine dog sets each with 4 people and 3 dogs, and 2 explosive 

disposal teams each with 12 specialists. Our organization has cleared 170 km 2 , about half of the highly impacted areas of 

Afghanistan. Compared to more conventional ways of using metal detectors and mine dogs, this demining machine will be 

a lot more effective and significantly safer especially in the highly impacted areas. It will be used first in Parwan Province, 

north of Kabul. We hope to clear all highly impacted areas by 2013. Lastly, I would like to thank the government of Japan, 

the Japanese people and Komatsu for all the assistance we have received.” 

Mr. Mohammad Ibrahim “I have been working for this organization exactly 10 years now. I am very 

Demining Machine Operator/ impressed by this Komatsu-made machine. I feel very safe to operate it and I can 

Mechanic 

easily imagine that it will be very productive once it’s deployed for demining in 

Afghanistan. While I have seen a lot of demining machines, I am particularly 

impressed by the powerful roller in the front and the remote control system, which I have never seen before in demining 

machines. The remote control is very responsive, allowing for excellent maneuverability of the machine. When I go back, I 

will also be training other staff members for machine operation.” 

Mr. Mohammad Amin 

“Since I joined MDC in 1998, I have been working most of the time in the workshop 

Demining Machine Operator/ as mechanic. I have worked on bulldozers, tractors, loaders and other construction 

Mechanic 

machines. Concerning this demining machine, I am most of all impressed by the 

roller which can dig the ground in the depth of 30 cm. When landmines are located 

around the depth of 30 cm especially in bushy areas, dogs are not effective. But with this machine, I am very sure that no 

mines will be left undetected. I am very excited about this machine.” 


Review of Operations 

Trends and Percentage of Net Sales 


Main Product Groups 

Construction and Mining Equipment 

Net sales 


1,600 

Percentage of net sales 

for fiscal 2007 

1,400 

1,200 

1,000 

800 

600 

400 

82.8% 

200 

0 

2005 

2006 


Industrial Machinery, Vehicles and Others 

Net sales* 


300 



250 

200 

150 

15.7% 

100 

50 

0 

2005 

2006 


Electronics 

Net sales* 


50 

40 



1.5% 

30 

20 

10 

0 

2005 

2006 


* In accordance with the Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” sales figures in 

the prior years of the operations which were discontinued during the fiscal year, ended March 31, 2007, have been reclassified retrospectively. 




Sales by Region for Fiscal 2007 

Net Sales 

Segment Profit 


1,600 


240 

16.0 

9.9% 

14.7% 

18.0% 

6.9% 30.6% 

1,400 

1,200 

1,000 

800 

210 

180 

150 

120 

14.0 

12.0 

10.0 

8.0 

19.9% 

600 

90 

6.0 

400 

60 

4.0 

200 

30 

2.0 

0 

2005 

2006 


0 

2005 

2006 


0.0 

Middle East & Africa 

Asia (excluding Japan & China) & Oceania 

China 

Europe & CIS 

Americas 

Japan 

Segment profit 

Segment profit ratio 


Consolidated net sales* of construction and mining equipment 

for the year under review climbed 21.4% over the 

previous year, to ¥1,567.7 billion (US$13,286 million). As the 

market for our equipment continued to grow worldwide, we 

expanded our production capacity in cooperation with suppliers, 

worked jointly with our distributors to launch updated 

models which are compliant with new emissions regulations in 

North America, Europe and Japan. We also reinforced our 

sales and service operations in Greater Asia in particular. 

---------- 

* Sales made to external customers after elimination of internal sales 

Segment profit of the construction and mining equipment 

business reached ¥220.6 billion (US$1,870 million), up 54.4% 

over the previous year, driven by improved prices of our 

equipment in Japan and overseas in addition to expanded 

sales. Segment profit ratio improved significantly by 3.0 points 

to 14.1%. 

With respect to production, we proactively expanded our 

capacity for key components, such as engines and hydraulic 

equipment. In January of this year, we opened the Ibaraki 

Plant in Hitachinaka City, Ibaraki Prefecture, expanding our 

production capacity for large dump trucks and wheel loaders. 

In India, where the economy has been growing rapidly, we 

established Komatsu India Private Limited and also embarked 

on the production of large dump trucks for which we project 

demand will accelerate into the future. 

Demand for Construction & Mining Equipment 


Units 

300,000 

250,000 

200,000 

150,000 

Units:Estimated by Komatsu 

Japan 

China 

Asia, Oceania, 

CIS, Middle East, 

Africa & Latin America 

Europe 

North America 

100,000 

50,000 

0 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

Applicable Machine Types:1) Hydraulic excavator, 2) Wheel-type hydraulic excavator, 3) Bulldozer, 4) Wheel loader 

5) Rigid-type dump truck, 6) Articulated dump truck, and 7) Motor grader 

2000 

2001 

2002 

2003 

2004 

2005 

2006 



Japan 

While public-sector investments remained slack, 

private-sector capital outlays increased. 

Additionally, exports of used equipment facilitated market 

stock adjustment, expanding demand for new equipment, 

especially in the rental industry. 

Sales in Japan improved to ¥282.5 billion (US$2,395 million), 

up 2.8% from the previous year, supported by not only 

expanded sales of new equipment which is compliant with the 

new emissions regulations, and price realization, but also 

increased sales of used equipment. We also worked to further 

improve management efficiency, including the merger of 10 

affiliated rental companies in October 2006. 

Auction for used equipment held by Komatsu Used Equipment Corp. 

930E super-large offhighway dump truck (the same model) is part of this order. 

18.4 billion-yen Order for Mining Equipment from Gold Mine in Mexico 

Komatsu Latin-America Corp., Komatsu's regional headquarter 

subsidiary for the Latin American business, won an order 

for 64 units worth about US$160 million (approx. ¥18.4 billion) 

of large mining equipment from Minera Peñasquito 

S.A.DE C.V., a Mexican subsidiary of Goldcorp Inc., a premier 

senior intermediate gold producer. Komatsu will deliver 930E 

super-large dump trucks and various other equipment to the 

customer's Peñasquito property, one of the largest undeveloped 

precious metal deposits in Mexico. With the first 

equipment shipment made in February 2007, Komatsu plans 

to complete the total delivery by 2011. 

The Americas 

In North America, while the slowing 

housing starts in the United States 

caused a decline in demand for small equipment in particular, 

demand for other equipment remained brisk in non-residential 

construction works, highway-related works and resource development. 

In Latin America, demand, primarily for mining 

equipment, increased. Under such an environment, we promoted 

our efforts to expand sales of Tier 3-compliant models and to 

realize our prices in North America. We also worked to reinforce 

sales and product support capabilities for the mining industry in 

both regions. As a result, sales in the Americas increased 14.0% 

over the previous year, to ¥480.1 billion (US$4,069 million) for 

the fiscal year under review. 

Training Center of Komatsu America Corp. 

Europe & CIS 

In Europe, market demand improved 

in Germany, the largest European 

market, and in eastern Europe, continuing to expand the markets. 

In addition, we worked to step up sales of Tier 

3-compliant models, including a large wheel loader with reinforced 

capabilities, streamline production, and strengthen 

distribution networks in eastern Europe. As a result, sales in 

Europe improved from the previous year. 

In the Commonwealth of Independent States (CIS: former 

Soviet republics), sales expanded, driven by strong demand in 

resource development-related sectors and infrastructure development 

in metropolitan areas. 

As a result, we expanded sales by 39.0% over the previous 

year, to ¥311.8 billion (US$2,642 million) in Europe & CIS. 

Order for 153 Units of Construction Equipment to Build Pipeline in Russia 

Jointly with Nippon Steel Trading Co., Ltd., we have won a lump 

sum order for 153 units of our construction equipment from a 

contractor of Gazprom of Russia for construction of a new pipeline 

for natural gas. We started shipping the equipment in May this 

year and plan to complete delivery by the end of the year. The deal 

between Nippon Steel Trading Co., Ltd. and the contractor 

amounts to US$110 million (approx. ¥12.6 billion) in total. 



D355C large pipelayer (background) and PC400 medium-sized hydraulic 

excavator (foreground) deployed for pipelaying in Yamal Peninsula 

Komatsu mining equipment at a Chinese coal mine 

The 153-unit order consists of 100 units of the D355C 

large pipelayer, medium-sized hydraulic excavators and large 

bulldozers. All our machines will be deployed for the construction 

of a new pipeline (approx. 1,200km long) as part of the 

Yamal-Europe pipeline. 

China 

The Chinese market continued to generate a high 

rate of growth in demand for our equipment during 

the year, as the number of civil engineering projects 

increased in line with rural area development measures of the 

11th Five-Year Guidelines and ongoing urbanization. The mining 

industry worked to streamline operational efficiency and 

develop new mines. We also focused efforts to streamline our 

production and sales operations based on business negotiation 

and machine operation information obtained through IT 

deployment. We also expanded sales of mining equipment 

centering on large dump trucks. As a result, sales in China 

accelerated 59.1% over the previous year, to ¥108.3 billion 

(US$919 million) for the year under review. 

¥13.8-billion Order for Mining Equipment from Chinese Mining Company 

Jointly with Toyota Tsusho Corporation, we have won an 

order for 45 units of large equipment, worth US$120 million 

(approx. ¥13.8 billion), from Pingshuo Coal Industry Co., Ltd., 

a member company of China National Coal Group Corp. 

("China Coal") which is one of the two major state-owned 

coal producers of China. The current order represents the second 

one from Pingshuo Coal Industry Co., Ltd., following the 

first order contract for equipment, worth about ¥10 billion, 

signed in January 2006. 

China is the world's largest producer of coal. Against the 

backdrop of strong economic growth for recent years, however, 

it has become urgent for China to produce more coal. 

With present plans calling for the annual expansion of coal 

production by 100 million tons annually for 2010, the Chinese 

government is promoting large-scale, efficient mining, including 

the consolidation of smaller-scale mines. We project that 

capital investments in mining should continue into the future. 

Asia & Oceania 

While strong sales of mining 

equipment continued especially 

in Oceania, demand recovered in civil engineering, 

agriculture and forestry sectors in Indonesia, the largest 

Southeast Asian market. As a result, sales in Asia and Oceania 

improved 17.4% over the previous year, to ¥229.8 billion 

(US$1,948 million) for the year under review. 

Komatsu super-large dump trucks at an Australian mine 

The Middle East 

& Africa 

Demand continued to expand, 

primarily driven by an increase 

in the number of infrastructure 

development projects in 

Saudi Arabia and other oil producing countries as well as in 

Turkey, and by buoyant mine developments in African countries. 

Under these market conditions, we carried out 

aggressive sales activities and worked to reinforce our product 

support capabilities. As a result, sales in the Middle East and 

Africa accelerated 44.5% over the previous year, to ¥154.8 

billion (US$1,312 million) for the year under review. 


Research and Development 

We are promoting our R&D efforts to develop technologies 

which will enhance customers’ productivity, safety and conservation 

efforts in natural and social environments, to improve 

the capability of our products and to substantially reduce our 

costs. To keep apace with the globalization of our business, we 

are also stepping up our efforts to facilitate global R&D operations 

through personnel exchange and joint development. We 

are focusing on IT applications and environment-friendly technologies 

as the mid to long-range areas of importance. 

Research and Development Expenses : 

Construction & Mining Equipment 



40 

30 

20 

10 

0 

2005 

2006 

IT Applications 

We have developed and are developing a variety of IT-applied 

systems, such as KOMTRAX (Komatsu Machine Tracking 

System) and VHMS (Vehicle Health Monitoring System), in 

order to improve customers’ safety and operating efficiency. 

KOMTRAX-applied Product Lifecycle Business 

KOMTRAX is a vehicle management system in which devices 

mounted on our construction equipment transmit information 

concerning the location, hours of use, operating conditions 

and the like. As of May 2007, there are over 60,000 units of 

KOMTRAX-mounted equipment working in Japan, China, 

North America and Europe. By analyzing information obtained 

from KOMTRAX, we are supporting our customers to improve 

their machine utilization and running costs throughout the 

product lifecycle of their equipment. By acquiring the operating 

hours of KOMTRAX-equipped machines on a real-time 

basis, we are also better positioned to analyze changes on the 

market at an early stage and thereby improve the accuracy of 

production, sales and inventory plans. 


begun developing new engines which will meet Interim Tier4 

emission standards to take effect in 2011. Furthermore, with a 

firm conviction that the simultaneous realization of environmental 

and economic performance is possible throughout the lifecycle of 

our products, we are reducing environmental impact, promoting 

energy savings, recycling and reusing parts, and advancing the 

research and development of environmental impact evaluation 

technologies based on the lifecycle assessment.* 

--------------- 

* Lifecycle assessment: To determine the environmental impact of 

products in all stages of their lifecycles, from obtaining raw materials 

and production to use and disposal. 

WA500 and WA600 Wheel Loaders 

Both WA500-6 and WA600-6 models demonstrate our commitment 

to environment- and operator-friendly machines by 

incorporating our diverse ideas of what an ideal wheel loader 

should be. In addition to meeting the new emission standards in 

the United States, Europe and Japan with the mounting of our 

leading-edge “ecot3” engine, these models achieve an outstanding 

reduction of 20% in fuel consumption per work load 

and cut down CO2 and NOx emissions significantly, compared to 

the corresponding conventional models. This is made possible by 

combining the special large-capacity torque converter. 

Lifecycle Assessment Provisional Calculations for the WA600-6 Model 

Emissions 

CO2 

NOx 

Previous 

Model 

WA600-6 

Previous 

Model 

WA600-6 

Effect on environmental impact 

Raw materials 

Operation 

Manufacturing 

Disposal 

0 20 40 60 80 100 (%) 

Environment-Friendly Technologies 

We have completed our product development programs and 

launched products in response to new emission standards in the 

United States, Europe and Japan effective since 2006. We have 

WA600-6 wheel loader powered by the leading-edge “ecot3” engine 



Expanding Production Capacity for 


To meet expanding demand for construction and mining 

equipment worldwide, we have established and launched production 

at the Ibaraki Plant, a new plant in Japan, for the first 

time in 13 years, and Komatsu India Private Limited, the second 

production base in India. Simultaneously, to expand the 

production volume of key components which we concentrate 

their production in Japan and supply them to our overseas 

plants, we have reinforced our capacities, including an additional 

facility for hydraulic equipment and additional lines for 

engines at the Oyama Plant. 

Ibaraki Plant Begins Production of Large Equipment for Mining Use 

In January 2007, we launched the production of large wheeltype 

equipment, such as dump trucks and wheel loaders for 

mining use, at the Ibaraki Plant. Over 90% of its factory shipment 

is destined for exports to North America, Europe, Asia, 

Oceania, Africa and Latin America. By taking advantage of its 

next-door proximity to the Port of Hitachinaka for loading for 

exports, we are reducing CO2 emissions required for land 

transportation. Concerning certain equipment made at the 

Ibaraki Plant and destined for exports from the Port of 

Tokyo/Yokohama, we have made a modal shift from land to 

ocean transport from Hitachinaka to Tokyo/Yokohama by 

chartering a vessel for large equipment, thus further reducing 

CO2 emissions. As a result, we are expecting to cut back CO2 

emissions by 2,300 tons annually. 

The Plant also features a simple-structure assembly line, 

and its production management system extensively incorporates 

IT advantages, such as IC tags. As a result, the Plant is 

designed to flexibly meet unexpected changes in production 

volume and product specifications. It is also a model manufacturing 

plant for energy-saving features, including a solar 

panel roof. 

--------------- 

[Profile] 

Location: Hitachinaka City, Ibaraki Prefecture, Japan 

Site area: Approx. 190,000 square meters 

Floor area: Approx. 26,000 square meters for Plant No. 1 and 

approx. 14,000 square meters for Plant No. 2 

Invested: Approx. ¥22 billion 

(incl. land, buildings and manufacturing equipment) 

Products: Large dump trucks and large wheel loaders 

Production capacity: 130 units per month for dump trucks and 

wheel loaders combined 

Komatsu India, Our Second Production Base, Begins Operation 

In India, whose economy has gained a growth momentum in 

the 21 st century, domestic resource development projects are 

buoyant, including coal for power generation and steel production, 

iron ore, copper and non-ferrous metals. This is 

driven by expanding demand for energy and investments in 

infrastructure development. In this environment, the modernization 

of mine development has been underway in the form 

of mechanization, sharply expanding the demand for large 

equipment for mining use. 

We established Komatsu India Private Limited in Chennai, 

India, and in January 2007, Komatsu India launched the production 

of large dump trucks for the local market. Sharing the 

basic design concept with the Ibaraki Plant, Komatsu India also 

incorporates a simple-structure assembly line and an assembly 

instruction system with display panels. By making the production 

process “visible” in these ways, Komatsu India has built an 

operational system to supply high-quality products. 

--------------- 

[Profile] 

Location: Chennai (formerly Madras), India 


Floor area: Approx. 10,000 square meters (incl. office space) 

Invested: Approx. ¥1.4 billion as initial investment 


Products: Large dump trucks 

Production capacity: 200 units per year 

Ibaraki Plant 

Assembly of Komatsu India 


Global Manufacturing Operation for Construction and Mining Equipment 

Assembly 

The 

Americas 

Europe 

and CIS 

Asia 

China 

Japan 

U.S.A. 

Canada 

Brazil 

U.K. 

Germany 

Italy 

Sweden 

Indonesia 

Thailand 

India 

Mother plants are factories with development capabilities for respective product categories. 

* 

HE W–HE WL Bull RDT ADT MG 

Komatsu America 

Chattanooga 

Peoria 

Newberry 

* 

Komatsu Forest* 

Komatsu America Candiac 

Komatsu do Brasil 

Komatsu UK 

Komatsu Hanomag 

Komatsu Mining Germany 

* 

Komatsu Utility Europe * 

Komatsu Forest 

* 

* 

Komatsu Indonesia 

Bangkok Komatsu 

L&T-Komatsu 

Komatsu India 

Komatsu (Changzhou) Construction Machinery 

Komatsu Shantui Construction Machinery 

Komatsu Utility Machine 

Komatsu Awazu 

Osaka 

Rokko* 

Mooka 

Ibaraki* 

Komatsu Utility Kowagoe 

* 

Mini HE SSL BHL TH Mini WL 

Mobil 

Crushers Forestry 

HE : Hydraulic excavators W–HE : Wheel-type hydraulic excavators WL : Wheel loaders Bull : Bulldozers RDT : Rigid-type dump trucks ADT : Articulated dump trucks 

MG : Motor graders Mini HE : Mini hydraulic excavators SSL : Skid steer loaders BHL : Backhoe loaders TH : Telescopic handlers Mini WL : Mini wheel loaders 

Peoria Manufacturing Operation 

of Komatsu America Corp. 

Komatsu Hanomag GmbH 

Components, parts and applied products 

The 

Americas 

Europe 

and CIS 

Asia 

China 

Japan 

U.S.A. 

Mexico 

Brazil 

Czech 

Norway 

Russia 

Indonesia 

Thailand 

Cummins Komatsu Engine 

Hensley Industries 

Komatsu Mexicana 

Atommix Industria 

Stavmek 

Komatsu KVX 

KRANEKS International 

Komatsu Undercarriage Indonesia 

Pandu Dayatama Patria 

Komatsu Forging Industry 

CABTEC THAI 

Bangkok Komatsu Industries 

Komatsu (Changzhou) Foundry 

Hensley Lingfeng 

Komatsu Power Generation Systems (Shanghai) 

Komatsu 

Oyama 

Koriyama 

Komatsu Cummins Engine 

Komatsu Castex 

Komatsu Cabtec 

*GET : Ground-engaging tools 

Number of plants 

Engines 

Hydraulic 

component 

GET* 

attachments 

Undercarriages 

Sheet metal 

parts 

Casting 

parts 

Cabs 

Generators 

PT Komatsu Indonesia 

Komatsu Shantui Construction 

Machinery Co., Ltd. 

Kawagoe Plant of Komatsu 

Utility Co., Ltd. 

Assembly 

Components, parts and applied products 

Total 

The Americas Europe and CIS Asia China Japan Total 

06 

04 

10 

5 

3 

8 

4 

5 

9 

3 

3 

6 

6 

5 

11 

24 

20 

44 

* March 31, 2007 

Oyama Plant of Komatsu Ltd. 




Net Sales 



300 


30 

15.0 

200 

20 

10.0 

100 

10 

5.0 

0 

2005 

2006 


0 

2005 

2006 


0.0 

Overseas 

Japan 




Consolidated net sales* 1 of industrial machinery, vehicles and 

other operations reached ¥298.0 billion (US$2,526 million), 

up 6.6% over the previous year, reflecting strong sales recorded 

by main subsidiaries, such as Komatsu Forklift Co., Ltd. and 

Komatsu Industries Corporation. 

Segment profit of the industrial machinery, vehicle and 

other operations business advanced 31.5% over the previous 

year, to ¥29.5 billion (US$250 million), improving segment 

profit ratio to 9.9%, up 1.9 points from the previous year. 

Komatsu Ltd. signed a definitive agreement to sell the outdoor 

power equipment of Komatsu Zenoah Co. to a Japanese 

subsidiary of Husqvarna AB of Sweden. The sale was completed 

in April 2007.* 2 

---------- 

* 1 Sales made to external customers after elimination of internal sales 

* 2 As a result of the definitive agreement having been reached, the outdoor 

power equipment (OPE) business of Komatsu Zenoah and its subsidiaries 

engaging in the OPE business will no longer be consolidated in Komatsu’s 

results. Therefore, operating results related to the OPE business are excluded 

from sales and segment profit of the industrial machinery, vehicles and others 

business. The changes in percentage from the previous years were obtained 

after reclassifying the previously reported amounts accordingly. 

Forklift Truck 

Business 

Komatsu Forklift Co., Ltd. expanded 

sales for the year by boosting 

overseas sales, particularly in the 

Middle East and Asia, and by 

launching sales of full-update battery-powered models. In 

August 2006, Komatsu Ltd. bought the 35.0% of Komatsu 

Forklift’s equity from Linde AG of Germany, making 

Komatsu Forklift a wholly owned subsidiary. 

In April 2007, Komatsu Forklift merged with Komatsu 

Zenoah and changed its corporate name to Komatsu Utility 

Co., Ltd. By unifying the forklift truck business and the 

mini-construction equipment business of Komatsu Zenoah 

as the utility equipment business, Komatsu Utility is well 

positioned to take comprehensive and effective advantage 

of management resources of the two and accelerate synergy 

in the production and development in order to enhance 

product competitiveness and improve earnings. 

Launching New Battery-Powered ARION Forklift Trucks 

The portion of battery-powered models is growing in the total 

market of forklift trucks today. About half of new forklift 

trucks are battery powered in Japan, while more than 60% of 

forklift trucks is battery-powered in Europe. 

Under such an environment, Komatsu Utility Co., Ltd. has 

launched the new battery-powered ARION forklift truck series 

with four-wheel and three-wheel models after full model 

FB15HB battery-powered hybrid model produced by Komatsu Utility 


change. These are the first updates of four-wheel and threewheel 

models in 8 and 11 years, respectively. In addition to 

powerful traveling and controllability on rough and wet surfaces 

comparable to engine-powered counterparts, the new 

ARION series features comfortable operability designed to 

minimize operator’s fatigue and thorough safety. 

Komatsu Utility launched the world’s first* battery hybrid 

model, which features excellent energy efficiency. Hybrid 

forklift trucks are equipped with two power systems, the 

capacitor which collects and stores electricity generated while 

the motor is in operation, and the battery. By efficiently alternating 

the use of the two power systems according to the 

energy needs, hybrid models can reduce power consumption 

by 20% at maximum compared to standard battery-powered 

models. 

With these new models, Komatsu Utility is working to further 

enhance its market position. 

---------- 

* The world’s first hybrid forklift truck equipped with a hybrid mechanism as of 

May 2007 

Industrial 

Machinery Business 

In the industrial machinery 

sector, Komatsu 

Industries Corporation 

achieved good sales of 

sheet metal and press machinery. With respect to large 

presses, Komatsu has enjoyed a growing number of orders 

for AC Servo motor-driven products. In January 2007, 

Komatsu built the new Kanazawa Plant in Kanazawa City, 

Ishikawa Prefecture, expanding its production capacity for 

large presses. Komatsu has also invested in NIPPEI TOYAMA 

CORPORATION which enjoys a large market share in transfer 

machines and lathes for the machining of automobile 

engines. We are currently building an alliance relationship 

in the areas of sheet metal and press machinery as well as 

machine tools. 

Komatsu has received Toyota Motor’s Technology & Development 

Award for this AC Servo motor-driven large press. 

Kanazawa Plant: New Production Facility for Large Presses 

To expand its production capacity for large presses for use in 

manufacturing automotive bodies, Komatsu has built the new 

Kanazawa Plant adjacent to the Port of Kanazawa in Ishikawa 

Prefecture. In January 2007, the new plant began operation. The 

Kanazawa Plant integrates sheet metal forming, machining and 

assembling key components of large presses. Thanks to an 

enhanced process through integrated production as well as new 

technologies which have been introduced, the new plant is capable 

of further improvement of product quality and substantial 

reduction of delivery lead-time. The Kanazawa Plant is also an 

environment-friendly facility, reducing its environmental impact 

by cutting down the volume of CO2 emissions by over 1,900 tons 

per year. It also provides a comfortable work environment with 

advanced air conditioning and dust collector systems. 

Furthermore, the new plant is effectively positioned to reduce onland 

transport costs because of its proximity to the port facilities. 

Kanazawa Plant 

--------------- 

[Profile] 

Location: Kanazawa City, Ishikawa Prefecture, Japan 


Floor area: Approx. 15,000 square meters 

Invested: Approx. ¥8.5 billion 


Products: Key components of large presses (slides and beds) 

Production capacity: 210 units per year for key components 

Alliance with NIPPEI TOYAMA 

In December 2006 we acquired 29.3% of the shares of NIPPEI 

TOYAMA CORPORATION, a top manufacturer of transfer 

machines used in the processing of automobile engines, various 

grinding machines, wire saws used in the semiconductor and 

solar application industries, and laser cutting machines. The 

major customers for both NIPPEI TOYAMA and our industrial 

machinery business are the industries related to automobiles and 

semiconductors, and the product mix of the two is highly complementary. 

In addition, they each have manufacturing bases in 

the same region of Japan. Under this alliance, we are going to 

produce collaborative effects in the manufacturing area as well 

as in the research, development, sales and service areas. 



Electronics 

Net Sales 



50 


7.5 

% 

15.0 

40 

30 

5.0 

10.0 

20 

10 

2.5 

5.0 

0 

0 

0.0 

2005 

2006 


2005 

2006 


Overseas 

Japan 




Komatsu Electronics Inc., a wholly owned subsidiary engaging 

in the production and sale of temperature-control equipment 

for semiconductor manufacturing, expanded sales for the year. 

However, consolidated net sales from the electronics operation 

declined 33.4% from the previous year, to ¥27.5 billion 

(US$234 million). The decline in sales reflects the sale of the 

polycrystalline silicon business executed last fiscal year. While 

segment profit of this operation declined 29.8% from the previous 

year, to ¥2.1 billion (US$18 million), segment profit ratio 

increased to 7.7%, up 0.3 points from the previous year. 

---------- 

* Sales made to external customers after elimination of internal sales 

Silicon Wafer Business Sold 

We have positioned “industrial-use machinery” which includes 

construction and mining equipment as well as industrial machinery 

in the broad sense as our core business. Concerning the 

electronics business which included the silicon wafer business 

of Komatsu Electronic Metals Co., Ltd. (currently SUMCO 

TECHXIV CORPORATION), we worked to ensure independent 

management strength and promote business growth through 

alliance with a leading partner. Under this initiative, Komatsu 

Ltd. accepted SUMCO CORPORATION’s tender offer for 

51.0% of Komatsu Electronic Metals Co., Ltd. stock in October 

2006. The Company had held a total of 61.9%. Therefore, 

Komatsu Electronic Metals and its subsidiaries are no longer 

consolidated in our business results. 

---------- 

Notes: 1) Income from the sale and operating results related to the discontinued 

operations are excluded from sales and segment profit of the electronics 

business. The changes in percentage from the previous years were 

obtained after reclassifying the previously reported amounts accordingly. 

2) Starting in the current fiscal year ending March 31, 2008, Komatsu is 

including the electronics business in the new Industrial Machinery, 

Vehicles and Others segment. 

Komatsu Electronics-made temperature-control equipment for dry etchers 


Financial Section 

Financial Review...................................................................................................................................................................................................... 38 

Five-Year Summary .................................................................................................................................................................................................. 48 

Consolidated Balance Sheets ................................................................................................................................................................................... 50 

Consolidated Statements of Income ......................................................................................................................................................................... 52 

Consolidated Statements of Shareholders’ Equity...................................................................................................................................................... 53 

Consolidated Statements of Cash Flows ................................................................................................................................................................... 54 

Notes to Consolidated Financial Statements ............................................................................................................................................................. 55 

Management’s Report on Internal Control over Financial Reporting .......................................................................................................................... 88 

Report of Independent Registered Public Accounting Firm ........................................................................................................................................ 89 


Financial Review 

Results of Operations 

(1) General 

Consolidated business results of Komatsu Ltd. (“Company”) 

and consolidated subsidiaries (together “Komatsu”) for the fiscal 

year ended March 31, 2007 continued to renew the recordhigh 

figures in both net sales and profits, registering the fifth 

consecutive year of improvements in the two figures. 

Results for the Year 

Increase 

Sales 1,893.3 billion yen 17.4% 

Operating income (*1) 244.7 billion yen 49.8% 

Income from continuing operations 

before income taxes, minority 

interests and equity in earnings of 

affiliated companies (*2) 236.4 billion yen 51.8% 

Income from discontinued 

operations (*3) 11.3 billion yen 120.9% 

Net income 164.6 billion yen 44.1% 

Note *1: Starting from the current year, Komatsu changed its form of consolidated 

statement of income from single- to multiple-step. To ensure accurate 

comparison of the change from the amounts of the previous year, the 

percentage was obtained after reclassifying the previously reported 

amounts. 

Note *2: On October 18, 2006, the Company sold 51.0% of the shares of Komatsu 

Electronic Metals Co., Ltd. (“KEM”, currently SUMCO TECHXIV 

CORPORATION) to SUMCO CORPORATION. Prior to this disposition, the 

Company held a 61.9% equity interest. Accordingly, KEM and its 

subsidiaries are no longer consolidated in Komatsu’s results. On January 30, 

2007, the Company’s signed a definitive agreement to sell the outdoor 

power equipment (OPE) business of Komatsu Zenoah Co. to a Japanese 

subsidiary of Husqvarna AB of Sweden. Accordingly, the OPE business of 

Komatsu Zenoah Co. and its subsidiaries engaging in the OPE business are 

no longer consolidated in Komatsu’s results. The concerned sale was 

completed on April 2, 2007. In accordance with Statement of Financial 

Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment 

or Disposal of Long-Lived Assets,” operating results after deducting those of 

such business are defined as continuing operations and those income 

before income taxes are presented as “income from continuing operations 

before income taxes, minority interests and equity earnings of affiliated 

companies” in the consolidated statements of income. 

Note *3: In accordance with SFAS No. 144, gain on sale of KEM’s shares and 

operating results, less applicable income taxes, related to KEM and its 

subsidiaries as well as the operating results, less applicable income taxes of 

the OPE business of Komatsu Zenoah Co. and its OPE business subsidiaries 

are presented as one line, “income from discontinued operations less 

applicable income taxes, minority interests and equity in earnings of 

affiliated companies” in the consolidated statements of income. 

Consolidated net sales increased 17.4% over the previous 

year, to ¥1,893,343 million (US$16,045 million, at US$1=¥118). 

In the construction and mining equipment segment, Komatsu 

continued to increase sales for the year by effectively capitalizing 

on expanded market demand resulting from buoyant developments 

of commodities and infrastructure around the world. 

In the industrial machinery, vehicles and others segment, 

Komatsu recorded good performance and advanced sales. 

Sales of the electronics segment declined from the previous 

year, as primarily affected by the sales of the polycrystalline 

business which was executed in the previous year. 

Operating income advanced to ¥244,741 million (US$2,074 

million), and operating income ratio improved by 2.8 percentage 

points to 12.9%. Profits further improved due not only to 

expanded sales, centering on construction and mining equipment, 

but also to the realization of prices for construction 

equipment both in Japan and abroad. Income from continuing 

operations before income taxes, minority interests and equity in 

earnings of affiliated companies reached ¥236,491million 

(US$2,004 million), reflecting a substantial increase in operating 

profit. Net income for the year, the sum of income from continuing 

and discontinued operations, totaled ¥164,638 million 


(2) Impact of Foreign Exchange Rate 

In comparison to the previous year, Japanese yen was weak 

against both US dollar and Euro during the current year. Due to 

such currency fluctuations, segment profit in the construction 

Return on Net Sales 

% 

R&D Expenses as a 

Percentage of Net Sales 

% 

Capital Investment as a 

Percentage of Net Sales 

% 


% 

10 

5 

12 

50 

40 

30 

20 

10 

8 

6 

4 

2 

4 

3 

2 

1 

10 

8 

6 

4 

2 

0 

2003 2004 2005 2006 2007 

0 

2003 2004 2005 2006 2007 

0 

2003 2004 2005 2006 2007 

0 

2003 2004 2005 2006 2007 


FINANCIAL REVIEW 

and mining equipment segment for the year increased by 

approximately ¥16.1 billion from the previous year. The impact 

of currency fluctuations is determined as the sum of the 

amounts obtained by multiplying foreign currency transactions 

of each entity by the change in the applicable exchange rate. 

However, the effects of change of selling price due to currency 

fluctuations were not taken into account. 

(3) Sales 

(In this section, the amounts of sales represent sales to the 

customer in each region.) 

Consolidated net sales expanded 17.4% over the previous 

year, to ¥1,893,343 million (US$16,045 million), replacing the 

record-high figure renewed in the previous year. Sales in Japan 

increased 0.9% over the previous year, to ¥487,103 million 

(US$4,128 million). Sales in overseas countries increased 

24.5% over the previous year, to ¥1,406,240 million 



Consolidated net sales of construction and mining equipment 

advanced 21.4% over the previous year, to ¥1,567,723 million 

(US$13,286 million). As the markets for the construction and 

mining equipment continued to grow worldwide, the 

Company expanded its production capacity in cooperation with 

suppliers, worked jointly with distributors to launch renewed 

models, which are compliant with new emission gas regulations 

in Japan, North America and Europe, and reinforced sales 

and service operations in Greater Asia in particular. 

With respect to production, the Company proactively expanded 

its capacity for key components, such as engines and 

hydraulic equipment. In January 2007, the Company opened 

the Ibaraki Plant in Hitachinaka City, Ibaraki Prefecture, where 

the Company started the production of large dump trucks and 

wheel loaders. In India where the economy has been growing 

rapidly, the Company established Komatsu India Private Limited 

and also embarked on the production of large dump trucks for 

which demand is expected to accelerate into the future. 

 

While public-sector investments remained slack, private-sector 

capital outlays increased. Exports of used equipment facilitated 

market stock adjustment, expanding demand for new equipment, 

especially in the rental industry. Sales in Japan improved 

from the previous year, supported by not only expanded sales 

of new equipment, which is compliant with the new emission 

gas regulations, and price realization, but also increased sales 

of used equipment. Komatsu also worked to further improve 

management efficiency, including the merger of 10 affiliated 

rental companies in October 2006. 

 

In North America, while demand declined for small equipment 

in particular, as affected by the slowing housing starts in the 

United States, demand for other equipment remained brisk in 

non-resident construction works, highway-related works and 

resource development. In Latin America, demand, primarily for 

mining equipment, increased. Under such an environment, 

Komatsu promoted efforts to expand sales of Tier 3-compliant 

models and to realize prices in North America. Komatsu also 

worked to reinforce sales and product support capabilities for 

the mining industry in both regions. As a result, sales in both 

North and Latin Americas increased from the previous year. 

 

In Europe, market demand improved in Germany, the largest 

European market, and in Eastern Europe, continuing to expand 

the markets. In addition, Komatsu worked to step up sales of 

Tier 3-compliant models, including a large wheel loader with 

reinforced capabilities, streamline production, and strengthen 

distribution networks in Eastern Europe, As a result, sales in 

Europe improved from the previous year. In the 

Commonwealth of Independent States (CIS), sales expanded 

driven by strong demand in resource development-related sectors 

and infrastructure development in metropolitan areas. 

 

The Chinese market continued to generate a high rate of 

growth in demand for construction equipment for the year, as 

the number of civil engineering projects increased in line with 

rural area development measures of the 11th Five-Year 

Guidelines and ongoing urbanization. The mining industry 

worked to streamline operational efficiency and develop new 

mines. Komatsu focused efforts to streamline the production 

and sales operations based on business negotiation and machine 

operation information obtained through IT deployment. 

Komatsu also expanded sales of mining equipment centering 

on large dump trucks. As a result, sales in China accelerated 

from the previous year. 



 

While strong sales of mining equipment continued especially in 

Oceania, demand recovered in civil engineering, agriculture 

and forestry sectors in Indonesia, the largest Southeast Asian 

market. As a result, sales in Asia and Oceania improved from 

the previous year. 

 

Demand continued to expand, primarily driven by an increase 

in the number of infrastructure development projects in Saudi 

Arabia and other oil producing countries as well as in Turkey, 

and by buoyant mine developments in African countries. Under 

these market conditions, Komatsu carried out aggressive sales 

activities and worked to reinforce product support capabilities. 

As a result, sales in the Middle East and Africa accelerated from 

the previous year. 


Consolidated net sales of industrial machinery, vehicles and 

other operations reached ¥298,022 million (US$2,526 million), 

up 6.6% over the previous year, reflecting strong sales recorded 

by main subsidiaries, such as Komatsu Forklift Co., Ltd. and 

Komatsu Industries Corp.. Komatsu Forklift Co., Ltd. stepped 

up sales by not only expanding sales in the Middle East, Asia 

and other overseas markets, but also launching fully renewed, 

battery-powered models. In August 2006, the Company 

bought the 35.0% of Komatsu Forklift’s equity held by Linde 

AG of Germany, making Komatsu Forklift Co., Ltd. a wholly 

owned subsidiary. In the industrial machinery business, sales of 

Komatsu Industries’ sheet metal and press machines were 

brisk. With respect to large presses, the Company launched 

production at the new plant in Kanazawa City, Ishikawa 

Prefecture in January 2007, expanding its production capacity 

to meet growing orders for AC Servo technology-incorporated 

presses. The Company also acquired 29.3% of the equity of 

NIPPEI TOYAMA CORPORATION, which enjoys a large market 

share of transfer machines and lathes for use in machining automobile 

engines, building a collaborative relationship in the 

areas of sheet metal and press machines as well as machine 

tools. Concerning the outdoor power equipment business of 

Komatsu Zenoah Co., the Company signed a definitive agreement 

to sell it to a Japanese subsidiary of Husqvarna AB of 

Sweden. The sale was completed in April 2007. 

Electronics 

Komatsu Electronics Inc., a wholly owned subsidiary engaging 

in the production and sale of temperature-control equipment 

for semiconductor manufacturing, expanded sales for the year. 

However, sales from the electronics operation declined 33.4% 

from the previous year, to ¥27,598 million (US$234 million), as 

affected mainly by declined sales resulting from the sale of the 

polycrystalline silicon business executed previous year. In 

October 2006, the Company accepted SUMCO CORPORATION’s 

tender offer for KEM and sold 51.0% of the shares of KEM. 

The Company had held a total of 61.9%. 

(4) Cost of Sales, Selling, General and Administrative 

Expenses 

Accompanying the rise in sales, costs of sales rose by 14.5% 

over the previous year to ¥1,356,511 million (US$11,496 million). 

Komatsu’s efforts at reducing manufacturing costs by 

improvement activity of purchase price and efficiency of production 

contributed to a 1.9 point improvement in the cost of 

sales to sales ratio to 71.6% from the previous year. Selling, 

general and administrative expenses (SG&A) rose by 9.4% over 

the previous year to ¥287,086 million (US$ 2,433 million), primarily 

due to higher direct selling expenses, which is in line 

with the increase in sales volume during the current year. 

Although the expenses for research and development, reinforcement 

of sales and product support organization and management 

of safety, environment and compliance increased, the 

ratio of SG&A to sales fell by 1.1 points from the previous year 

to 15.2% due to the reduction in fixed cost as part of Reform 

of Business structure project. Moreover, research and development 

expenses, which are included in cost of sales and SG&A, 

rose by 3.9% year over year to ¥46,306 million(US$ 392 million). 

Among the main factors responsible for this increase are 

the development of new Unique and Unrivaled products, development 

of next generation engines that comply with new 

emissions regulations, and aggressive development of products 

in the construction and mining equipment division. 

(5) Segment Profit 

(Segment profit is obtained by subtracting cost of sales and 

selling, general and administrative expenses, from net sales in 

conformity with Japanese accounting principles.) 

Segment profit in the construction and mining equipment 

segment increased by ¥77,702 million over the previous year to 

¥220,606 million (US$ 1,870 million). This increase was primarily 

due to positive factors such as expanded gross margin as 

a result of increased sales volume, gain from foreign exchange 

rate, price raise and cost reduction which outweighed negative 

factors such as soaring prices of parts purchased including steel 

materials, increase of fixed cost for research and development 

for renewed models which are compliant with new emission 

gas regulations, and reinforcement of sales and product 

support organization. 

With regards to industrial machinery, vehicle and others 

segment, the expansion in the business of Komatsu Forklift 

Co., Ltd., Komatsu Industries Corp., Komatsu Machinery Corp., 

Komatsu Logistics Corp., and other subsidiaries also experienced 

an increase in profits by ¥7,085 million to ¥29,555 million 

(US$250 million). 

In the electronics segment, while Komatsu Electronics Inc., a 



wholly owned subsidiary engaging in the production and sale 

of temperature-control equipment for semiconductor manufacturing, 

increased profits of the electronic segment, the sale of 

polycrystalline silicon business reduced segment profits to 

¥2,137 million (US$18 million) by ¥908 million over the previous 

year. Consequently overall consolidated segment profit improved 

further by ¥85,245 million from the previous year to 

¥249,746 million (US$2,116 million). 

(6) Impairment Loss on Long-lived Assets Held for Use 

Impairment loss on long-lived assets held for use for the fiscal 

year ended March 31, 2007 decreased by ¥4,710 million, to 

¥81 million (US$0.69 million) as compared to ¥4,791 million 

for the fiscal year ended March 31, 2006. 

(7) Impairment Loss on Goodwill 

While impairment loss on goodwill for the fiscal year ended 

March 31, 2006 was ¥3,041 million, it didn’t occur for the 

fiscal year ended March 31, 2007. 

(8) Other Operating Income (Expenses) 

Other operating expenses of ¥4,924 million(US$42 million) for 

the fiscal year ended March 31, 2007 decreased by ¥11,683 

million as compared to income of ¥6,759 million for the fiscal 

year ended March 31, 2006. This decrease was primarily due to 

the gain recognized on the sale of the Company’s ownership 

interest in the polycrystalline silicon business in the fiscal year 

ended March 31, 2006. 

(9) Operating Income 

As a result, operating income rose by ¥81,313 million to 

¥244,741 million (US$2,074 million) in the current year from 

the ¥163,428 million recorded during the previous year. 

(10) Other Income (Expense) 

Interest and dividend income of ¥8,532 million (US$72 million) 

was up ¥1,708 million compared with ¥6,824 million in the 

previous year. Due to an increase in interest rates, interest 

expense of ¥15,485 million (US$131 million) was up ¥3,277 

million compared with ¥12,208 million in the previous year. 

(11) Income from Continuing Operations before Income 

Taxes, Minority Interests and Equity in Earnings of 

Affiliated Companies 

Income from continuing operations before income taxes rose 

by ¥80,712 million to ¥236,491 million (US$2,004 million) in 

the current year from the ¥155,779 million recorded during the 

previous year. 

(12) Income Taxes 

Corporate income taxes increased by ¥35,775 million to 

¥79,745 million (US$ 676 million) from an income tax expense 

of ¥43,970 million for the previous year. The actual effective 

tax rate was 33.7% from 28.2% for the previous year. The difference 

between the combined statutory tax rate of 40.8% and 

the actual effective tax rate of 33.7% was caused by a realization 

of tax benefits on operating losses of subsidiaries, income 

of foreign subsidiaries taxed at a rate lower than the Japanese 

statutory rate offset in part by non deductible expenses. 

(13) Minority Interests in Income of Subsidiaries 

Komatsu Australia Pty Ltd., Komatsu Shantui Construction 

Machinery Co., Ltd. and other subsidiaries increased earnings 

as a result of their favorable business performances. 

Consequently, minority interests in income of subsidiaries increased 

to ¥6,580 million (US$56 million) from ¥5,335 million 

in the last year. 

(14) Equity in Earnings of Affiliated Companies 

Thanks to the improvement in earnings of affiliated companies 

held under the equity accounting method, their contributions 

improved from ¥2,667 million in profit in the previous year to 

¥3,098 million (US$26 million) profit in the current year. 

(15) Income from Continuing Operations 

Income from continuing operations rose by ¥44,123 million to 

¥153,264 million (US$1,299 million) in the current year from 

the ¥109,141 million recorded during the last year. 

(16) Income from Discontinued Operations, less 

applicable income taxes, minority interests and 

equity in earnings of affiliated companies 

Income from discontinued operations less applicable income 

taxes, minority interests and equity in earnings of affiliated 

companies for the fiscal year ended March 31, 2007 increased 

by 120.9%, or ¥6,225 million, to ¥11,374 million (US$96 million) 

as compared to ¥5,149 million for the fiscal year ended 

March 31, 2006. Income from discontinued operations less applicable 

income taxes, minority interests and equity in earnings 

of affiliated companies for the fiscal year ended March 31, 

2007 includes gain on sale of KEM’s shares, approximately 

¥7.5 billion (US$64 million). 

(17) Net Income 

Net income for the year, the sum of income from continuing 

operations and discontinued operations, grew by 44.1% to 

¥164,638 million (US$1,395 million) from the previous year’s 

level of ¥114,290 million. Similarly net income per share rose 

to ¥165.70 from ¥115.13 in the previous year. (The earnings 

per share diluted is ¥165.40 and ¥114.93 respectively for the 

year and previous year.) 



Liquidity and Capital Resources 

(1) Funding and Liquidity Management 

Komatsu’s principal capital resources policy is to maintain sufficient 

capital resources in order to be prepared to respond 

promptly to future capital needs in its operations and to maintain 

an appropriate level of liquidity. 

Komatsu expects to fund its future capital expenditures and 

working capital needs with cash generated by its operations 

and capital raising activities. Komatsu’s interest-bearing debt, 

including its capital lease obligations, as of March 31, 2007 totaled 

¥349,074 million (US$2,958 million), which decreased by 

¥28,839 million in fiscal year ended March 31, 2007 as compared 

to fiscal year ended March 31, 2006. Net interest-bearing 

debt after deducting cash and deposits also decreased by 

¥51,041 million to ¥256,821 million (US$2,176 million) in fiscal 

year ended March 31, 2007. As a result, Komatsu’s net debt-toequity 

ratio as of March 31, 2007 was 0.33, which reflected an 

improvement of 0.16 points as compared to March 31, 2006. 

Komatsu’s short-term debt as of March 31, 2007 increased 

by ¥4,118 million to ¥102,248 million (US$867 million) from 

March 31, 2006. Komatsu’s long-term debt, including debt that 

was scheduled to mature as of March 31, 2008, decreased by 

¥32,957 million to ¥246,826 million (US$2,092 million) in fiscal 

year ended March 31, 2007 as compared to fiscal year ended 

March 31, 2006. Komatsu’s short-term debt primarily consists 

of short-term bank loans and is used as working capital. As of 

March 31, 2007, Komatsu’s long-term debt excluding market 

value adjustment consisted of ¥96,458 million in loans from 

banks, insurance companies and other financial institutions and 

so on, ¥64,486 million in Euro Medium Term Notes (EMTN), 

¥20,000 million in unsecured bonds due 2007, ¥10,000 million 

in unsecured bonds due 2009 and ¥55,882 million in capital 

lease obligations, most of which are used primarily for capital 

expenditures and long-term working capital. 

Komatsu has established a program to issue up to ¥100,000 

million (US$847 million) of variable-term bonds, and the 

Company, Komatsu Finance America Inc. and Komatsu Europe 

Coordination Center N.V. have established a 1.2 billion US 

Dollar EMTN program to fulfill Komatsu’s medium- to long-term 

funding needs. Outstanding borrowings under these programs 

were ¥64,486 million (US$546 million) as of March 31, 2007. 

The Company and certain of its consolidated subsidiaries 

have also established programs to securitize trade notes and 

accounts receivables for the purpose of accelerating the receipt 

of cash related to its finance receivables and diversifying their 

sources of funding. As of March 31, 2007, the balance of such 

off-balance sheet securitized receivables was ¥184,938 million 


As of March 31, 2007, current assets increased by ¥195,844 

million to ¥1,143,745 million (US$9,693 million), while current 

liability increased by ¥96,337 million to ¥785,180 million 

(US$6,654 million). As the increase of current liability was 

lower than it of current assets, the current ratio, which is calculated 

by dividing current assets by current liabilities, as of 

March 31, 2007 was 145.7%, which reflected an increase of 

8.1 percentage points from fiscal year ended March 31, 2006. 

Judging from the current levels in working capital and the current 

ratio, Komatsu believes that it maintains an adequate level 

of liquidity. Short-term funding needs are met mainly by cash 

flows from operating activities, as well as by bank loans, securitized 

receivables and commercial paper. Komatsu and certain 

consolidated subsidiaries maintain committed credit line agreements 

totaling ¥43,192 million (US$366 million) with financial 

institutions to secure liquidity. As of March 31, 2007, approximately 

¥36,438 million (US$309 million) is available to be used 

under such credit line agreements. The Company holds 

¥80,000 million (US$678 million) commercial paper program 

and had ¥80,000 million unused amount as of March 31, 2007. 

(2) Cash Flows 

Net cash provided by operating activities for the fiscal year 

ended March 31, 2007 increased by ¥26,017 million to 

¥162,124 million (US$1,374 million) as compared to fiscal year 

ended March 31, 2006. While Komatsu required a greater 

amount of working capital due to increased demand for 

Komatsu’s products for the fiscal year ended March 31, 2007, 

improvements in Komatsu’s business performance more than 

offset such increase in working capital needs. 

Net cash used in investing activities for the fiscal year ended 

March 31, 2007 increased by ¥17,828 million to ¥99,620 million 

(US$844 million) as compared to fiscal year ended March 

31, 2006. Such increase was primarily attributable to the continued 

capital investments to enhance its production capabilities 

and productivity in Japan and overseas. The Proceeds from the 

sale of the shares of KEM to SUMCO in an amount of ¥35,368 

million (US$300 million) were used to invest on one of our core 

business, Industrial Machinery, Vehicles and Others Business, 

through the acquisition of the equity of NIPPEI TOYAMA COR- 

PORATION and so on. 

Net cash used in financing activities in fiscal year ended 

March 31, 2007 decreased by ¥42,071 million to ¥41,389 

million (US$351 million) as compared to fiscal year ended 

March 31, 2006. 

As a result of the above, cash and cash equivalents as of 

March 31, 2007 totaled ¥92,199 million (US$781 million), an 

increase of ¥22,202 million compared to the fiscal year ended 

March 31, 2006. 

The cash flows attributable to the operating, investing and 

financing activities of the discontinued operations are not presented 

separately from the cash flows attributable to activities 

of the continuing operations. Net cash provided by operating 

activities of the discontinued operations were ¥14,805 million 

(US$125 million), ¥24,823 million and ¥17,166 million. Net 



cash used in investing activities of the discontinued operations 

were ¥18,295 million (US$155 million), ¥21,665 million and 

¥10,683 million for the fiscal years ended March 31, 2007, 

2006 and 2005, respectively. Net cash provided by financing 

activities of the discontinued operations was ¥1,870 million 

(US$16 million) for the fiscal year ended March 31, 2007 and 

net cash used in financing activities of the discontinued 

operations were ¥4,090 million and ¥5,519 million for the fiscal 

years ended March 31, 2006 and 2005, respectively. 

Cash flows used in investing activities of its discontinued operations 

have been provided mainly by cash flows from their operating 

activities. In addition, Komatsu’s discontinued operations 

did not have any material effect on cash flows from its financing 

activities. Accordingly, Komatsu does not expect that the absence 

of cash flows from its discontinued operations has any 

material impact on Komatsu’s future liquidity and capital resources. 

(3) Capital Investment 

With a prime focus on the Construction and Mining Equipment 

Business, Komatsu responded to a rising level of demand by bolstering 

Komatsu’s production capacity for large mining equipment 

etc., and by bolstering Komatsu’s production capacity for 

main components of Komatsu’s equipment, such as transmissions, 

axles, final drives, hydraulics and engines. In addition, 

Komatsu invested for the DANTOTSU (Unique and Unrivaled) 

products and the latest emission regulations. In the Industrial 

Machinery, Vehicles and Other Business, Komatsu invested for 

the purpose of improving productivity. In the Electronic Business, 

Komatsu invested in improving productivity and in shifting to 

higher-quality products. 

As a result, Komatsu’s capital investment, on a consolidated 

basis, for the fiscal year ended March 31, 2007 were ¥129,680 

million (US$1,099 million), an increase of ¥15,746 million from 

the previous fiscal year. 

(4) Contractual Obligations 

The following table sets forth Komatsu's contractual obligations as of March 31, 2007. 


Cash payments due by period 

Less than 

More 

Total 1 year 1-3years 3-5 years than 

5 years 

Short-term debt obligations 102,406 102,406 — — — 

Long-term debt obligations (excluding Capital lease obligations) 192,525 54,340 108,496 29,281 408 

Capital (Finance) lease obligations 55,882 19,188 25,289 9,187 2,218 

Operating lease obligations 11,629 3,220 3,850 1,706 2,853 

Interest on interest-bearing debt 14,841 9,720 3,869 972 280 

Pension and other postretirement obligations 5,096 5,096 — — — 

Total 382,379 193,970 141,504 41,146 5,759 

Millions of U.S. dollars 

Cash payments due by period 

Less than 

More 

Total 1 year 1-3years 3-5 years than 

5 years 

Short-term debt obligations 868 868 — — — 

Long-term debt obligations (excluding Capital lease obligations) 1,632 461 919 248 4 

Capital (Finance) lease obligations 474 163 214 78 19 

Operating lease obligations 98 27 33 14 24 

Interest on interest-bearing debt 125 82 33 8 2 

Pension and other postretirement obligations 43 43 — — — 

Total 3,240 1,644 1,199 348 49 

1. Short-term and long-term debt obligations exclude SFAS No.133 market value adjustments of ¥158 million (US$1 million) and ¥1,581 million (US$13 million), respectively. 

2. Interest on interest-bearing debt is based on rates in effect at March 31, 2007. 

3. Pension and other postretirement obligations reflect contributions expected to be made in the year ending March 31, 2008. only as the amount of funding obligations 

beyond the next year are not yet determinable. 

Commitments for capital investment outstanding at March 31, 2007 aggregated approximately ¥12,900 million (US$109 million). 



Business Risks 

Given the business environment in which Komatsu operates, 

Komatsu is exposed to a variety of risks and uncertainties. 

Komatsu has identified the following risks as its primary risks 

based on information currently available to it. 

1 Economic and market conditions 

As Komatsu is engaged in business on a global scale, the economic 

and market conditions and competitive environment in 

which Komatsu operates differ from region to region. In 

addition, demand for Komatsu’s products as well as the business 

environment in which Komatsu operates may change substantially 

as a result of changes in the economic and market 

conditions of each such region. 

In economically-advanced regions in which Komatsu operates, 

demand for Komatsu’s products in both the Construction and 

Mining Equipment operating segment and the Industrial 

Machinery, Vehicles and Others operating segment is generally 

affected by cyclical changes in the economies. Therefore, factors 

which are beyond Komatsu’s control, such as levels of 

housing starts, industrial production, public investments in infrastructure 

development and private-sector capital outlays, 

may affect demand for Komatsu’s products, which may lead to 

inefficient inventory levels and/or production capacities, thereby 

exerting a downward pressure on the sales prices of Komatsu’s 

products. Such changes in the business environment in which 

Komatsu operates may result in Komatsu recording lower profitability 

and incurring additional expenses in the Construction 

and Mining Equipment operating segment and the Industrial 

Machinery, Vehicles and Others operating segment, and may 

adversely affect Komatsu’s results of operations. 

2 Foreign currency exchange rate fluctuations 

Approximately 70% of Komatsu’s total sales are derived from 

sales outside of Japan, and a substantial portion of its overseas 

sales are affected by foreign currency exchange rate fluctuations. 

In general, an appreciation of the Japanese yen against 

another currency would adversely affect Komatsu’s results of 

operations, while a depreciation of the Japanese yen against 

another currency would have a favorable impact thereon. In 

addition, foreign currency exchange rate fluctuations may also 

affect the comparative prices between products sold by 

Komatsu and products sold by its foreign competitors in the 

same market, as well as the cost of materials used in the production 

of such products. Komatsu strives to alleviate the effect 

of such foreign currency exchange rate fluctuations by locating 

its production bases globally and placing such bases closer to 

the respective markets in which the products manufactured by 

such bases are sold. Komatsu also engages in hedging activities 

to minimize the effects of short-term foreign currency exchange 

rate fluctuations. Despite Komatsu’s efforts, if the foreign 

currency exchange rate fluctuates beyond Komatsu’s 

projected fluctuation range, Komatsu’s results of operations 

may be adversely affected. 

3 Fluctuations in financial markets 

While Komatsu is currently working on improving the efficiency 

of its assets to reduce its interest-bearing debt, its aggregate 

short- and long-term interest-bearing debt was approximately 

¥350 billion as of March 31, 2007. Although Komatsu has 

strived to reduce the effect of interest rate fluctuations by 

procuring funds at fixed interest rates, an increase in interest 

rates may increase Komatsu’s interest expenses with respect to 

its interest-bearing debt subject to floating interest rates, 

thereby adversely affecting Komatsu's results of operations. In 

addition, fluctuations in the financial markets, such as fluctuations 

in the fair value of marketable securities and interest 

rates, may also increase the unfunded obligation portion of 

Komatsu’s pension plans or pension liabilities, which may result 

in an increase in pension expenses. Such an increase in interest 

expenses and pension expenses may adversely affect Komatsu’s 

results of operations and financial condition. 

4 Laws and regulations of different countries 

Komatsu is subject to various governmental regulations and 

approval procedures in the countries in which it operates. If the 

government of a given country enacts new laws and regulations, 

such as laws and regulations relating to import/export 

duties, quotas, currency restrictions and taxation, which are 

unfavorable to Komatsu, Komatsu may be required to bear increased 

expenses in order to comply with such regulations. 

Such increased expenses may adversely affect Komatsu’s results 

of operations. 



5 Environmental laws and regulations 

Komatsu’s products and business operations are required to 

comply with increasingly stringent environmental laws and regulations 

in the numerous countries in which Komatsu operates. 

Komatsu expends a significant share of its management 

resources, such as research and development expenses, to 

comply with regulations concerning air and wastewater emission 

levels of its manufacturing facilities and products. If the 

existing standards are amended, Komatsu may be required to 

bear increased costs and to make further capital expenditures 

to comply with such new standards. Incurrence of such additional 

environmental compliance costs may adversely affect 

Komatsu’s results of operations. 

6 Product liability 

While Komatsu endeavors to sustain and ensure the quality 

and reliability of its operations and products based on stringent 

standards established internally by Komatsu, it may face product 

liability claims or become exposed to other liabilities if 

unexpected defects in its products result in accidents. If the 

costs for addressing such claims or other liabilities are not covered 

by Komatsu’s existing insurance policies, Komatsu may be 

required to bear the cost thereto, which may adversely affect 

its financial condition. 

7 Alliances and collaborative relationships 

Komatsu has entered into various alliances and collaborative 

relationships with distributors, suppliers and other companies in 

its industry to reinforce its international competitiveness. Through 

such arrangements, Komatsu is working to improve its product 

development, production, supply and service capabilities. While 

Komatsu expects its alliances and collaborative relationships to 

be successful, Komatsu’s failure to attain expected results or 

the termination of such alliances or collaborative relationships 

may adversely affect Komatsu’s results of operations. 

8 Procurement, production and other matters 

Komatsu’s procurement of parts and materials for its products 

is exposed to the fluctuations in commodity prices, mainly in 

the price of steel metal. Price increases in our commodities may 

increase the costs of materials as well as production costs of 

Komatsu’s products. In addition, an increase in commodity 

prices may result in a shortage of product parts and materials, 

making it difficult for Komatsu to engage in the timely procurement 

of parts and materials and manufacture of its products, 

thereby lowering Komatsu’s production efficiency. In an effort 

to reduce any adverse effect to its business as a result of an 

increase in material costs, Komatsu plans to reduce other costs 

and pass on the increase in material costs to its customers 

through its product prices. Komatsu plans to minimize the effects 

of a shortage in product parts or materials by promoting 

closer collaboration among all of its related business divisions. 

However, if the increase in commodity prices exceeds 

Komatsu’s expectations or a prolonged shortage of materials 

and parts occurs, Komatsu’s results of operations may be 

adversely affected. 

9 Information security, intellectual property and other 

matters 

Komatsu may obtain confidential information concerning its 

customers and individuals in the normal course of its business. 

Komatsu also holds confidential business and technological 

information. Komatsu maintains such confidential information 

with the utmost care. To safeguard such confidential information 

from unauthorized access, tampering, destruction, leakage, 

losses and other damages, Komatsu employs appropriate safety 

measures, including implementing technological safety measures 

and strengthening its information management capabilities. 

If a leak of confidential information concerning customers 

and individuals were to occur, Komatsu may become liable for 

damages, or its reputation and its customers’ confidence in 

Komatsu may be adversely affected. In addition, if Komatsu’s 

confidential business and technological information were 

leaked or misused by a third party, or Komatsu’s intellectual 

properties were infringed upon by a third party, or a third party 

were to claim that Komatsu is liable for infringing on such 

third party’s intellectual property rights, Komatsu’s results of 

operations may be adversely affected. 

10 Natural calamities, wars, terrorism, accidents and 

other matters 

Komatsu conducts its business operations on a global scale and 

operates and maintains development, production, sales and 

other business facilities in many countries. If natural disasters, 

such as earthquakes and floods, wars, terrorist acts, accidents, 

unforeseeable criticism or interference by third parties or any 

malfunction of information and telecommunication systems in 

regions in which Komatsu operates occurs that causes extensive 

damage to one or more of its facilities that cannot become 

fully operational within a short period of time, delays or disruption 

in the procurement of materials and parts or the production 

and sales of Komatsu’s products and other service 

activities may result. Such delays or disruptions may adversely 

affect Komatsu’s results of operations. 



Market Risk Exposure 

Komatsu is exposed to market risk primarily from changes in foreign 

currency exchange rates and interest rates with respect to 

international operations and foreign currency denominated 

credits and debts. In order to manage these risks that arise in the 

normal course of business, Komatsu enters into various derivative 

financial transactions pursuant to their policies and procedures. 

Komatsu does not enter into derivative financial 

transactions for trading or speculative purposes. 

Komatsu is exposed to credit-related losses in the event of 

nonperformance by counterparties to derivative financial instruments. 

However, because of the counterparties’ satisfactory 

credit ratings, none are expected to fail to meet their obligations. 

Foreign Exchange Risk 

To reduce foreign exchange risks against foreign currency 

denominated assets and liabilities, Komatsu executes forward 

exchange contracts and option contracts in a range of 50% to 

100% based on their projected cash flow in foreign currencies. 

The following table provides information concerning derivative 

financial instruments of Komatsu in relation to foreign currency 

exchange transactions existing as of March 31, 2007, 

which are translated into yen at the rate used on that date, 

together with the related weighted average contractual exchange 

rates as of March 31, 2007. As of March 31, 2007, 

the notional amount of option contracts is ¥2,532 million 

(US$21,458 thousand). 

Millions of yen (except average contractual rates) 

Forwards to sell foreign currencies: US$/Yen EUR/Yen EUR/SEK US$/SEK US$/EUR Others Total 

Contract amounts ¥ 48,887 ¥ 20,074 ¥ 2,799 ¥ 2,474 ¥ 2,101 ¥ 5,680 ¥ 82,015 

Average contractual rates 117.23Yen/US$ 151.30Yen/EUR 9.27SEK/EUR 6.97SEK/US$ 0.75EUR/US$ — — 

Forwards to buy foreign currencies: GBP/EUR Yen/Yuan Yen/A$ Yen/GBP US$/ZAR Others Total 

Contract amounts ¥ 13,597 ¥ 6,886 ¥ 4,582 ¥ 3,453 ¥ 2,503 ¥10,757 ¥ 41,778 

Average contractual rates 0.68GBP/EUR 15.29Yen/Yuan 92.81Yen/A$ 228.09Yen/GBP 0.14US$/ZAR — — 

Thousands of U.S. dollars 

Forwards to sell foreign currencies: US$/Yen EUR/Yen EUR/SEK US$/SEK US$/EUR Others Total 

Contract amounts $414,297 $170,119 $ 23,720 $20,966 $17,805 $48,135 $695,042 

Forwards to buy foreign currencies: GBP/EUR Yen/Yuan Yen/A$ Yen/GBP US$/ZAR Others Total 

Contract amounts $115,229 $ 58,356 $ 38,831 $29,263 $21,212 $91,160 $354,051 



Interest Rate Risk 

To reduce risks and hedge variability of cash flow, Komatsu engages 

in certain interest rate swaps, cross-currency swaps and 

cap option transactions for interest payment and interest receipt. 

Certain interest rate swap contracts are not qualified as hedges 

for financial reporting purposes and are recorded at the fair 

value and the resultant gains and losses are recognized as income 

and expenses. 

The following tables provide information concerning debt 

obligations excluding capital lease obligations (including due 

within one year), interest rate swaps, cross-currency swaps and 

interest caps. For debt obligations, the tables present fair value, 

principal cash flows and related weighted average interest rates 

by expected maturity dates. For interest rate and cross-currency 

swaps, the following tables present fair value, notional amounts 

and weighted average receive and pay interest rates. For interest 

caps, the following tables present fair value, notional amounts 

and its average strike rate. 

Long-term debt excluding capital lease obligations (including due within one year) 


Expected maturity date 

Average interest rate Fair value Total 2008 2009 2010 2011 2012 Thereafter 

Japanese yen bonds 1.20% ¥ 29,688 ¥ 30,000 ¥ 20,000 ¥ — ¥ 10,000 ¥ — ¥ — ¥ — 

Euro medium-term notes (relating to variable interest rate) 5.10% 64,486 66,067 13,259 16,300 12,853 7,026 16,629 — 

Loans, principally from banks (relating to variable interest rate) 2.23% 19,254 19,254 8,088 8,078 3,056 17 15 — 

Loans, principally from banks (relating to fixed interest rate) 2.18% 75,611 77,204 12,993 45,172 13,037 3,831 1,763 408 

Total ¥ 189,039 ¥ 192,525 ¥ 54,340 ¥ 69,550 ¥ 38,946 ¥ 10,874 ¥ 18,407 ¥ 408 

Interest rate swaps, cross-currency swaps and interest caps 


Average interest rate 


Receive Pay Fair value Total 2008 2009 2010 2011 2012 Thereafter 

U.S. dollar interest rate swap 5.01% 4.62% ¥ 193 ¥ 145,687 ¥ 69,556 ¥ 48,242 ¥ 22,641 ¥ 5,248 ¥ — ¥ — 

Yen/US$ cross-currency swap 1.09% 5.48% (899) 63,500 12,000 7,000 20,500 7,000 17,000 — 

Yen/EUR cross-currency swap 0.88% 3.98% (1,173) 18,500 10,500 2,000 2,000 2,000 2,000 — 

Euro interest cap — 4.01% 33 17,778 6,246 5,931 5,601 — — — 

Others (61) 7,907 826 885 2,419 2,360 472 945 

Total ¥ (1,907) ¥ 253,372 ¥ 99,128 ¥ 64,058 ¥ 53,161 ¥ 16,608 ¥ 19,472 ¥ 945 

Long-term debt excluding capital lease obligations (including due within one year) 



Average interest rate Fair value Total 2008 2009 2010 2011 2012 Thereafter 

Japanese yen bonds 1.20% $ 251,593 $ 254,238 $169,492 $ — $ 84,746 $ — $ — $ — 

Euro medium-term notes (relating to variable interest rate) 5.10% 546,492 559,890 112,364 138,136 108,924 59,542 140,924 — 

Loans, principally from banks (relating to variable interest rate) 2.23% 163,169 163,169 68,542 68,458 25,898 144 127 — 

Loans, principally from banks (relating to fixed interest rate) 2.18% 640,771 654,271 110,110 382,813 110,483 32,466 14,941 3,458 

Total $1,602,025 $1,631,568 $460,508 $589,407 $330,051 $ 92,152 $155,992 $ 3,458 

Interest rate swaps, cross-currency swaps and interest caps 


Average interest rate 


Receive Pay Fair value Total 2008 2009 2010 2011 2012 Thereafter 

U.S. dollar interest rate swap 5.01% 4.62% $ 1,636 $1,234,636 $589,458 $408,831 $191,873 $ 44,474 $ — $ — 

Yen/US$ cross-currency swap 1.09% 5.48% (7,619) 538,136 101,695 59,322 173,729 59,322 144,068 — 

Yen/EUR cross-currency swap 0.88% 3.98% (9,941) 156,780 88,984 16,949 16,949 16,949 16,949 — 

Euro interest cap — 4.01% 280 150,661 52,932 50,263 47,466 — — — 

Others (517) 67,007 7,000 7,500 20,500 20,000 4,000 8,007 

Total $ (16,161) $2,147,220 $840,069 $542,865 $450,517 $140,745 $165,017 $ 8,007 


Five-Year Summary 





2007 2006 

For the fiscal period 

Net sales ¥1,893,343 ¥1,612,140 

Cost of sales 1,356,511 1,185,240 

Income from continuing operations before income taxes, minority interests 

and equity in earnings of affiliated companies 236,491 155,779 

Net income 164,638 114,290 

As percentage of sales 8.7% 7.1% 

Capital investment 129,680 113,934 

At fiscal period-end 

Total assets ¥1,843,982 ¥1,652,125 

Working capital 358,565 259,058 

Property, plant and equipment 388,393 400,667 

Long-term debt—less current maturities 174,340 195,203 

Shareholders’ equity 776,717 622,997 

As percentage of total assets 42.1% 37.7% 

Per share data 

Net income per share: 

Basic ¥165.70 ¥115.13 

Diluted 165.40 114.93 

Cash dividends per share 23.00 14.00 

Shareholders’ equity per share 781.57 626.98 

Yen per U.S. dollar 


Other information 

Exchange rate into U.S. dollars 

(per the Federal Reserve Bank of New York): 

At fiscal period-end ¥ 118 ¥ 117 

Average for the fiscal period 117 114 

Range for the fiscal period: 

High 121 120 

Low 112 105 

1. Net income in 2003 includes a charge of ¥265 million for the cumulative effect of accounting changes for goodwill and other intangible assets. 

2. In accordance with SFAS No. 144, the consolidated statements of income in the prior years have been retrospectively reclassified for discontinued operations. 


FIVE-YEAR SUMMARY 



2005 2004 2003 

¥1,356,071 ¥1,127,300 ¥1,027,290 

1,009,859 830,897 770,515 

91,869 22,503 9,853 

59,010 26,963 3,009 

4.4% 2.4% 0.3% 

76,907 65,235 60,163 

¥1,449,068 ¥1,348,645 ¥1,306,354 

172,998 191,680 175,764 

366,660 367,361 400,087 

217,714 307,143 310,717 

477,144 425,507 395,366 

32.9% 31.6% 30.3% 

¥ 59.51 ¥ 27.17 ¥ 3.09 

59.47 27.16 3.09 

9.00 6.00 6.00 

481.27 428.73 398.34 

Yen per U.S. dollar 

2005 2004 2003 

¥ 107 ¥ 104 ¥ 118 

107 113 121 

111 120 128 

103 104 118 


Consolidated Balance Sheets 


March 31, 2007 and 2006 

Thousands of 

U.S. dollars 

Millions of yen (Note 1) 

Assets 2007 2006 2007 

Current assets 

Cash and cash equivalents (Note 10) ¥ 92,199 ¥ 69,997 $ 781,347 

Time deposits 54 54 458 

Trade notes and accounts receivable, less allowance 

for doubtful receivables of ¥11,808 million ($100,068 thousand) 

in 2007 and ¥11,786 million in 2006 (Notes 1, 5 and 25) 478,063 397,998 4,051,381 

Inventories (Notes 1 and 6) 437,894 370,074 3,710,966 

Assets held for sale (Note 4) 16,321 — 138,314 

Deferred income taxes and other current assets (Notes 1, 7, 16, 20, 21, 23 and 25) 119,214 109,778 1,010,288 

Total current assets 1,143,745 947,901 9,692,754 

Long-term trade receivables (Note 5) 73,669 72,844 624,314 

Investments 

Investments in and advances to affiliated companies (Notes 1 and 8) 36,688 21,726 310,915 

Investment securities (Notes 1, 7 and 21) 108,173 94,744 916,720 

Other 10,285 9,047 87,162 

Total investments 155,146 125,517 1,314,797 

Property, plant and equipment—less accumulated depreciation 

(Notes 1, 9, 10 and 17) 388,393 400,667 3,291,466 

Goodwill (Notes 1 and 11) 20,594 22,000 174,525 

Other intangible assets (Notes 1 and 11) 25,243 25,418 213,924 

Deferred income taxes and other assets (Notes 1, 16, 20, 21 and 25) 37,192 57,778 315,186 

The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. 

¥1,843,982 ¥1,652,125 $15,626,966 


CONSOLIDATED BALANCE SHEETS 

Thousands of 

U.S. dollars 


Liabilities and Shareholders’ Equity 2007 2006 2007 

Current liabilities 

Short-term debt (Note 12) ¥ 102,248 ¥ 98,130 $ 866,508 

Current maturities of long-term debt (Notes 10, 12, 17 and 21) 72,486 84,580 614,288 

Trade notes and accounts payable 365,065 304,776 3,093,771 

Income taxes payable (Note 16) 54,933 37,004 465,534 

Liabilities held for sale (Note 4) 7,919 — 67,110 

Deferred income taxes and other current liabilities (Notes 1, 16, 20 and 21) 182,529 164,353 1,546,857 

Total current liabilities 785,180 688,843 6,654,068 

Long-term liabilities 

Long-term debt (Notes 10, 12, 17 and 21) 174,340 195,203 1,477,458 

Liability for pension and retirement benefits (Notes 1 and 13) 37,783 45,148 320,195 

Deferred income taxes and other liabilities (Notes 1, 16, 20 and 21) 50,188 52,065 425,322 

Total long-term liabilities 262,311 292,416 2,222,975 

Minority interests 19,774 47,869 167,576 

Commitments and contingent liabilities (Note 19) 

Shareholders’ equity (Notes 1 and 14) 

Common stock: 

Authorized 3,955,000,000 shares in 2007 and 2006 

Issued 998,744,060 shares in 2007 and 2006 

Outstanding 993,786,759 shares in 2007 and 

993,645,492 shares in 2006 67,870 67,870 575,169 

Capital surplus 137,155 136,137 1,162,331 

Retained earnings: 

Appropriated for legal reserve 24,267 23,416 205,653 

Unappropriated 517,450 376,522 4,385,169 

Accumulated other comprehensive income (loss) (Notes 1, 7, 13 and 15) 33,501 23,095 283,907 

Treasury stock at cost, 4,957,301 shares in 2007 

and 5,098,568 shares in 2006 (Note 14) (3,526) (4,043) (29,882) 

Total shareholders’ equity 776,717 622,997 6,582,347 

¥1,843,982 ¥1,652,125 $15,626,966 


Consolidated Statements of Income 


Years ended March 31, 2007, 2006 and 2005 

Thousands of 

U.S. dollars 



(Note 1) (Note 1) 

Net sales (Notes 1 and 8) ¥1,893,343 ¥1,612,140 ¥1,356,071 $16,045,280 

Cost of sales (Notes 17 and 24) 1,356,511 1,185,240 1,009,859 11,495,856 

Selling, general and administrative expenses (Notes 17 and 24) 287,086 262,399 252,011 2,432,933 

Impairment loss on long-lived assets held for use (Note 1) 81 4,791 4,200 686 

Impairment loss on goodwill (Note 1 and 11) — 3,041 — — 

Other operating income (expenses) (Note 24) (4,924) 6,759 5,861 (41,729) 


Other income (expenses) (Note 24) (8,250) (7,649) (3,993) (69,915) 

Interest and dividend income 8,532 6,824 5,138 72,305 

Interest expense (15,485) (12,208) (10,611) (131,229) 

Other–net (1,297) (2,265) 1,480 (10,991) 

Income from continuing operations before income taxes, 

minority interests and equity in earnings of 

affiliated companies 236,491 155,779 91,869 2,004,161 

Income taxes (Notes 1 and 16) 

Current 76,102 45,751 16,056 644,932 

Deferred 3,643 (1,781) 18,229 30,873 

Total 79,745 43,970 34,285 675,805 

Income from continuing operations before minority interests 

and equity in earnings of affiliated companies 156,746 111,809 57,584 1,328,356 

Minority interests in income of consolidated subsidiaries (6,580) (5,335) (2,603) (55,763) 

Equity in earnings of affiliated companies 3,098 2,667 887 26,254 

Income from continuing operations 153,264 109,141 55,868 1,298,847 

Income from discontinued operations less applicable income 

taxes, minority interests and equity in earnings of 

affiliated companies (Note 4) 11,374 5,149 3,142 96,390 

Net income ¥ 164,638 ¥ 114,290 ¥ 59,010 $ 1,395,237 

Yen 

U.S. cents 

Per share data (Notes 1 and 18): 

Income from continuing operations: 

Basic ¥ 154.25 ¥ 109.94 ¥ 56.34 ¢ 130.72 

Diluted 153.97 109.75 56.30 130.48 

Income from discontinued operations: 

Basic 11.45 5.19 3.17 9.70 

Diluted 11.43 5.18 3.17 9.69 

Net income: 

Basic 165.70 115.13 59.51 140.42 

Diluted 165.40 114.93 59.47 140.17 

Cash dividends per share (Note 1) 23.00 14.00 9.00 19.49 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 


Consolidated Statements of Shareholders’ Equity 



Thousands of 

U.S. dollars 



Common stock 

Balance, beginning of year ¥ 67,870 ¥ 67,870 ¥ 67,870 $ 575,169 

Balance, end of year ¥ 67,870 ¥ 67,870 ¥ 67,870 $ 575,169 

Capital surplus 

Balance, beginning of year ¥136,137 ¥135,792 ¥135,675 $1,153,703 

Sales of treasury stock 394 345 117 3,339 

Issuance of stock acquisition rights (Notes 1 and 14) 663 — — 5,619 

Others (39) — — (330) 

Balance, end of year ¥137,155 ¥136,137 ¥135,792 $1,162,331 

Retained earnings, appropriated for legal reserve 


Transfer from unappropriated retained earnings 851 1,075 712 7,212 


Unappropriated retained earnings 

Balance, beginning of year ¥376,522 ¥277,196 ¥227,825 $3,190,864 

Net income 164,638 114,290 59,010 1,395,237 

Cash dividends paid (22,859) (13,889) (8,927) (193,720) 

Transfer to retained earnings appropriated for legal reserve (851) (1,075) (712) (7,212) 

Balance, end of year ¥517,450 ¥376,522 ¥277,196 $4,385,169 

Accumulated other comprehensive income (loss) 

Balance, beginning of year ¥ 23,095 ¥(21,485) ¥ (23,794) $ 195,720 

Other comprehensive income for the year, net of tax (Note 15) 20,263 44,580 2,309 171,721 

Adjustment to initially apply SFAS No. 158, net of tax (Note 13) (9,857) — — (83,534) 

Balance, end of year ¥ 33,501 ¥ 23,095 ¥ (21,485) $ 283,907 

Treasury stock 

Balance, beginning of year ¥ (4,043) ¥ (4,570) ¥ (3,698) $ (34,263) 

Purchase of treasury stock (632) (2,027) (1,624) (5,356) 

Sales of treasury stock 1,149 2,554 752 9,737 

Balance, end of year ¥ (3,526) ¥ (4,043) ¥ (4,570) $ (29,882) 

Total shareholders’ equity ¥776,717 ¥622,997 ¥477,144 $6,582,347 

Disclosure of comprehensive income 

Net income for the year ¥164,638 ¥114,290 ¥ 59,010 $1,395,237 

Other comprehensive income for the year, net of tax (Note 15) 20,263 44,580 2,309 171,721 

Comprehensive income for the year ¥184,901 ¥158,870 ¥ 61,319 $1,566,958 



Consolidated Statements of Cash Flows 



Thousands of 

U.S. dollars 



Operating activities 

Net income ¥164,638 ¥114,290 ¥ 59,010 $ 1,395,237 

Adjustments to reconcile net income to net cash 

provided by operating activities: 

Depreciation and amortization 72,709 72,640 69,020 616,178 

Deferred income taxes 4,334 (747) 19,409 36,729 

Net gain from sale of investment securities and subsidiaries (19,101) (20,989) (162) (161,873) 

Net gain on sale of property (13) (132) (11,269) (110) 

Loss on disposal of fixed assets 2,121 8,284 4,311 17,975 

Impairment loss on long-lived assets held for use 81 4,899 4,200 686 

Pension and retirement benefits, net 1,078 5,123 3,662 9,136 

Changes in assets and liabilities: 

Increase in trade receivables (93,141) (58,821) (33,266) (789,331) 

Increase in inventories (73,448) (52,228) (42,418) (622,441) 

Increase in trade payables 70,693 32,360 39,261 599,093 

Increase (decrease) in income taxes payable 19,680 24,532 (721) 166,780 

Other, net 12,493 6,896 10,332 105,873 

Net cash provided by operating activities 162,124 136,107 121,369 1,373,932 

Investing activities 

Capital expenditures (122,860) (112,915) (72,873) (1,041,187) 

Proceeds from sale of property 17,626 12,915 31,780 149,373 

Proceeds from sale of available for sale investment securities 1,844 4,112 2,593 15,627 

Purchases of available for sale investment securities (6,737) (5,681) (4,690) (57,093) 

Proceeds from sale of subsidiaries, net of cash disposed 35,368 26,610 — 299,729 

Acquisition of subsidiaries and equity investees, net of cash acquired (24,621) (10,464) (148) (208,652) 

Collection of loan receivables 5,736 12,874 17,485 48,610 

Disbursement of loan receivables (5,974) (9,244) (12,375) (50,627) 

Decrease (increase) in time deposits (2) 1 497 (17) 

Net cash used in investing activities (99,620) (81,792) (37,731) (844,237) 

Financing activities 

Proceeds from long-term debt 44,781 51,432 29,331 379,500 

Repayments on long-term debt (74,943) (118,165) (47,489) (635,110) 

Increase (decrease) in short-term debt, net 22,526 7,108 (19,924) 190,898 

Repayments of capital lease obligations (11,411) (10,473) (9,954) (96,703) 

Sale (purchase) of treasury stock, net 517 527 (872) 4,381 

Dividends paid (22,859) (13,889) (8,927) (193,720) 

Net cash used in financing activities (41,389) (83,460) (57,835) (350,754) 

Effect of exchange rate change on cash and cash equivalents 1,087 1,632 301 9,211 

Net increase (decrease) in cash and cash equivalents 22,202 (27,513) 26,104 188,152 

Cash and cash equivalents, beginning of year 69,997 97,510 71,406 593,195 

Cash and cash equivalents, end of year ¥ 92,199 ¥ 69,997 ¥ 97,510 $ 781,347 



Notes to Consolidated Financial Statements 


1. Description of Business, Basis of Financial Statements and Summary of Significant Accounting Policies 

Description of Business 

Komatsu Ltd. (“Company”) and consolidated subsidiaries 

(together “Komatsu”) primarily manufacture and market various 

types of construction and mining equipment throughout the 

world. Komatsu is also engaged in the manufacture and sale of 

industrial machinery, and vehicles and electronics products including 

temperature-control equipments. 

The consolidated net sales of Komatsu for the year ended 

March 31, 2007, consisted of the following:Construction and 

mining equipment – 82.8%, Industrial Machinery, Vehicles and 

Others – 15.7%, Electronics – 1.5%. 

Sales are made principally under the Komatsu brand name, 

and are almost entirely through sales subsidiaries and sales distributors. 

These subsidiaries and distributors are responsible for marketing 

and distribution and primarily sell to retail dealers in their 

geographical area. Of consolidated net sales for the year ended 

March 31, 2007, 74.3% were generated outside Japan, with 

28.4% in the Americas, 17.1% in Europe and CIS, 6.8% in 

China, 13.4% in Asia (excluding Japan and China) and Oceania, 

and 8.6% in the Middle East and Africa. 

The manufacturing operations of Komatsu are conducted 

primarily at plants in Japan, United States, Germany, United 

Kingdom, Sweden, Indonesia, Brazil, Italy, and China. 

Basis of Financial Statements 

The accompanying consolidated financial statements are stated 

in Japanese yen, the functional currency of the country in which 

the Company is incorporated and principally operates. The translation 

of Japanese yen amounts into United States dollar 

amounts for the year ended March 31, 2007, is included solely 

for the convenience of readers and has been made at the rate of 

¥118 to $1, the approximate rate of exchange prevailing at the 

Federal Reserve Bank of New York on March 30, 2007. Such 

translation should not be construed as a representation that 

Japanese yen amounts could be converted into United States 

dollars at the above or any other rate. 

The Company and its domestic subsidiaries maintain their 

books of account in conformity with accounting principles generally 

accepted in Japan, and its foreign subsidiaries generally 

maintain their books of account in conformity with those in the 

country of their domicile. The accompanying consolidated financial 

statements reflect certain adjustments, not recorded in 

Komatsu’s books, to present them in conformity with U.S. generally 

accepted accounting principles. These adjustments are made 

mainly in connection with accounting for liability for pension and 

other retirement benefits, leases, derivative financial instruments, 

and recognition of certain accrued expenses. Certain reclassifications 

have been made to prior year amounts to conform with 

current year presentation. 

Summary of Significant Accounting Policies 

(1) Consolidation and Investments in Affiliated Companies 

The consolidated financial statements include the accounts 

of the Company and all of its majority-owned domestic and 

foreign subsidiaries, except for certain immaterial subsidiaries. 

The accounts of any variable interest entities that must be consolidated 

under Financial Accounting Standards Board (“FASB”) 

Interpretation No. 46 (revised December 2003), “Consolidation of 

Variable Interest Entities” (“FIN 46R”) because the Company has 

been determined to be the primary beneficiary, are included in 

the consolidated financial statements. 

Investments in 20 to 50% owned affiliated companies whereby 

Komatsu has the ability to exercise significant influence over 

the operational and financial policies of a company are accounted 

for by the equity method. 

(2) Translation of Foreign Currency Accounts 

Under the provisions of Statement of Financial Accounting 

Standards (“SFAS”) No. 52, “Foreign Currency Translation,” assets 

and liabilities are translated at the exchange rates in effect 

at each fiscal year-end, and income and expenses are translated 

at the average rates of exchange prevailing during each fiscal 

year in consolidating the financial statements of overseas 

subsidiaries. The resulting translation adjustments are included 

as a separate component of accumulated other comprehensive 

income (loss) in the accompanying consolidated financial statements. 

All foreign currency transaction gains and losses are included 

in other income (expenses) in the period incurred. 

(3) Allowance for Doubtful Trade Receivables 

Komatsu records allowance for doubtful receivables as the best 

estimate of the amount of probable credit losses in Komatsu’s 

existing receivables. The amount is determined based on historical 

experience, credit information of individual customers, and 

assessment of overdue receivables. An additional reserve for individual 

receivable is recorded when Komatsu becomes aware of 

a customer's inability to meet its financial obligations, such as in 

the case of bankruptcy filings or deterioration of the customer's 

business performance. The amount of estimated credit losses is 

further adjusted to reflect changes in customer circumstances. 

(4) Inventories 

Inventories are stated at the lower of cost or market. Komatsu 

determines cost of work in process and finished products using 

the specific identification method based on actual costs accumulated 

under a job-order cost system. The cost of finished parts is 

determined principally using the first-in first-out method, with 

certain immaterial amounts using the last-in first-out method. 

Cost of materials and supplies is stated at average cost. 




(5) Investment Securities 

In compliance with SFAS No. 115, “Accounting for Certain 

Investments in Debt and Equity Securities,” Komatsu’s investments 

in debt and marketable equity securities are categorized as 

available-for-sale securities which are stated at fair value. 

Changes in fair values are included as a separate component of 

accumulated other comprehensive income (loss) in the accompanying 

consolidated financial statements. 

Unrealized losses on marketable securities are charged 

against net earnings when a decline in market value below cost 

is determined to be other than temporary based primarily on the 

financial condition and near term prospects of the issuer and the 

extent and length of the time of the decline. Investments with 

unrealized losses that continue for six months or more are written 

down to fair value. 

In assessing other-than-temporary impairment of investment 

securities which are stated at cost, the Company considers the 

financial condition and prospects of each investee company and 

other relevant factors. Impairment to be recognized is measured 

based on the amount by which the carrying amount of the investment 

securities exceeds its estimated fair value which is determined 

using discounted cash flows or other valuation 

techniques considered appropriate. 

(6) Property, Plant and Equipment, and Related 

Depreciation 

Property, plant and equipment are stated at cost. Depreciation is 

computed principally using the declining-balance method at 

rates based on the estimated useful lives of the assets. The average 

depreciation periods are 26 years for buildings and 7 years 

for machinery and equipment. Effective rates of depreciation for 

buildings, machinery and equipment for the years ended March 

31, 2007, 2006 and 2005, were as follows: 

2007 2006 2005 

Buildings 8% 8% 8% 

Machinery and equipment 27% 26% 25% 

Certain leased machinery and equipment are accounted for 

as capital leases in conformity with SFAS No. 13, “Accounting 

for Leases.” The aggregate cost included in property, plant and 

equipment and related accumulated depreciation as of March 

31, 2007 and 2006 were as follows: 


Thousands of 

U.S. dollars 

2007 2006 2007 

Aggregate cost ¥81,618 ¥72,700 $691,678 

Accumulated depreciation 26,145 26,864 221,568 

Ordinary maintenance and repairs are charged to expense as 

incurred. Major replacements and improvements are capitalized. 

When properties are retired or otherwise disposed of, the costs 

of those properties and the related accumulated depreciation 

are relieved from the consolidated balance sheets and the differences 

between the costs of those properties and the related 

accumulated depreciation are recognized in other operating 

income (expenses) of the consolidated statements of income. 

(7) Goodwill and Other Intangible Assets 

Komatsu applies the provisions of SFAS No.141 “Business 

Combinations” and SFAS No.142 “Goodwill and Other Intangible 

Assets.” SFAS No. 141 requires the use of the purchase method 

of accounting for business combinations and establishes a basis 

for the determination of intangible assets acquired in a purchase 

business combination. SFAS No. 142 precludes the amortization 

of goodwill and instead requires annual impairment testing 

thereof. SFAS No. 142 also requires recognized intangible assets 

with a definite useful life to be amortized over their respective 

estimated useful lives and reviewed for impairment in accordance 

with SFAS No. 144 “Accounting for the Impairment or 

Disposal of Long-Lived Assets.” An impairment loss would be recognized 

when the carrying amount of an asset exceeds the estimated 

undiscounted cash flows expected to be generated by 

the assets. The amount of the impairment loss to be recorded is 

determined by the difference between the fair value of the asset 

using a discounted cash flow valuation model and carrying 

value. Any recognized intangible asset determined to have an indefinite 

useful life is not to be amortized, but instead tested for 

impairment annually based on its fair value until its life is determined 

to no longer be indefinite. 

(8) Revenue Recognition 

Komatsu recognizes revenue when (1) persuasive evidence of an 

arrangement exists, (2) delivery has occurred or services have 

been rendered for customers or dealers, (3) sales price is fixed or 

determinable, and (4) collectibility is reasonably assured. 

Revenue from sales of products including construction and 

mining equipment, industrial machinery, and vehicles is recognized 

when title and risk of ownership is transferred to independently 

owned and operated customers or dealers, which occurs 

upon the attainment of customer acceptance or when installation 

is completed. The conditions of acceptance are governed by 

the terms of the contract or arrangement. For arrangements 

with multiple elements, which may include any combination of 

products, installation and maintenance, Komatsu allocates revenue 

to each element based on its relative fair value if such 

elements meet the criteria for treatment as a separate unit of accounting 

as prescribed in the Emerging Issues Task Force (“EITF”) 

Issue No. 00-21, “Revenue Arrangements with Multiple 

Deliverables.” When Komatsu enters into a separate contract to 

render transportation or technical advice, principally related to a 

sale of large-sized industrial machinery such as large presses, 

these service revenues are accounted for separately from the 

product sale and recognized at the completion of the service delivery 

specified in the contract. 


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

Service revenues from repair and maintenance and from transportation 

are recognized at the completion of service delivery. 

Revenues from long-term fixed price maintenance contracts are 

recognized ratably over the contract period. 

Certain of consolidated subsidiaries rent construction equipments 

to customers. Rent revenue is recognized on a straight-line 

basis over the rental period. 

Revenues are recorded net of discounts. 

(9) Income Taxes 

In accordance with SFAS No. 109, “Accounting for Income 

Taxes,” income taxes are accounted for under the asset and 

liability method. Deferred tax assets and liabilities are recognized 

for the future tax consequences attributable to differences 

between the financial statement carrying amounts of 

existing assets and liabilities and their respective tax bases and 

operating loss and tax credit carryforwards. Deferred tax assets 

and liabilities are measured using enacted tax rates expected to 

apply to taxable income in the years in which those temporary 

differences and carryforwards are expected to be realized or 

settled. The effect on deferred tax assets and liabilities of a 

change in tax rates is recognized in income in the period that 

includes the enactment date. 

Komatsu uses a specific identification method to release the 

residual tax effects associated with components of accumulated 

other comprehensive income (loss) resulting from a change in 

tax law or rate. 

(10) Product Warranties 

Komatsu establishes a liability for estimated product warranty 

cost after sales. Estimates for accrued product warranty cost 

are primarily based on historical experience and are classified as 

other current liabilities. 

(11) Pension and Retirement Benefits 

The defined benefit plans are accounted for in accordance with 

SFAS No. 87, “Employers’ Accounting for Pensions” and SFAS 

No. 158, ”Employer’s Accounting for Defined Benefit Pension 

and Other Postretirement Plans-an amendment of SFAS No. 87, 

88, 106 and 132(R)” except for certain subsidiaries’ pension 

plans which in the aggregate are not significant. Certain domestic 

subsidiaries also have local severance payment plans under 

which accrued severance liabilities are stated on a vested benefit 

obligation basis, which is the amount required to be paid if all 

eligible employees voluntarily terminated their employment as of 

the balance-sheet date. 

Amortization of actuarial net gain or loss is included as a 

component of the Company’s net periodic pension cost for a 

year if, as of the beginning of the year, that unrecognized net 

gain or loss exceeds 10 percent of the greater of (1) the projected 

benefit obligation or (2) the fair value of that plan’s assets. 

In such case, the amount of amortization recognized is the 

resulting excess divided by average remaining service period of 

active employees expected to receive benefits under the plan. 

The expected return on plan assets is determined based on the 

historical long-term rate of return on plan assets. The discount 

rate is determined based on the rates of return of high-quality 

fixed income investments currently available and expected to be 

available during the period to maturity of the pension benefits. 

(12) Stock-Based Compensation 

Effective April 1, 2006, Komatsu adopted SFAS No. 123 (revised 

2004), “Share-Based Payment” (“SFAS No. 123R”) for 

the year ended March 31, 2007 using the modified prospective 

method. In accordance with SFAS No. 123R, Komatsu recognizes 

compensation expense using the fair value method. 

Compensation expense is measured at grant-date fair value of 

the stock option and charged to expense over the vesting period. 

For the years ended March 31, 2006 and 2005, Komatsu 

had applied the intrinsic value method under Accounting 

Principles Board (APB) Opinion No. 25, “Accounting for Stock 

Issued to Employees”. No compensation expense was recognized 

as the exercise price was at least equal to the market 

price on the date of grant. 

The following table summarizes pro forma net income of 

Komatsu if compensation expense for stock options granted 

under the plan had been determined in accordance with the 

fair value based method prescribed by SFAS No. 123R for the 

years ended March 31, 2006 and 2005: 


2006 2005 

Net income, as reported ¥114,290 ¥59,010 

Compensation expense 699 256 

Pro forma net income 113,591 58,754 

Yen 

Net income per share, basic and diluted: 2006 2005 

Basic earnings per share As reported ¥ 115.13 ¥ 59.51 

Pro forma 114.42 59.25 

Diluted earnings per share As reported 114.93 59.47 

Pro forma 114.23 59.21 




(13) Per Share Data 

Basic net income per share has been computed by dividing net 

income by the weighted-average number of common shares 

outstanding during each fiscal year, after deducting treasury 

shares. Diluted net income per share reflects the potential dilution 

computed on the basis that all stock options were exercised 

(less the number of treasury shares assumed to be purchased 

from proceeds using the average market price of the Company’s 

common shares) to the extent that each is not antidilutive. 

Dividends per share shown in the accompanying consolidated 

statements of income are based on dividends approved and paid 

in each fiscal year. 

(14) Consolidated Statements of Cash Flows 

For the purpose of the consolidated statements of cash flows, cash 

and cash equivalents include highly liquid investments with an 

original maturity of three months or less at the date of purchase. 

(15) Derivative Financial Instruments 

Komatsu uses various derivative financial instruments to manage 

its interest rate and foreign exchange exposure. 

Komatsu accounts for its investment in derivative financial instruments 

in accordance with SFAS No. 133, “Accounting for 

Derivative Instruments and Hedging Activities”as amended. 

SFAS No. 133 as amended requires that all derivatives, including 

derivatives embedded in other financial instruments, be measured 

at fair value and recognized as either assets or liabilities on 

the consolidated balance sheet. Changes in the fair values of derivative 

instruments not designated or not qualifying as hedges 

under SFAS No. 133 and any ineffective portion of qualified 

hedges are recognized in earnings in the current period. 

Changes in the fair values of derivative instruments used effectively 

as fair value hedges are recognized in earnings, along with 

changes in the fair value of the hedged item. Changes in the fair 

value of the effective portions of cash flow hedges are reported in 

accumulated other comprehensive income (loss), and recognized 

in earnings when the hedged item is recognized in earnings. 

(16) Impairment of Long-Lived Assets and Long-Lived 

Assets to be Disposed of 

In accordance with SFAS No. 144, long-lived assets and certain 

identifiable intangibles to be held and used by Komatsu are 

reviewed for impairment based on a cash flow analysis of related 

operations whenever events or changes in circumstances indicate 

that the carrying amount of an asset may not be 

recoverable. The assets to be held for use are considered to be 

impaired when estimated undiscounted cash flows expected to 

result from the use of the assets and their eventual disposition is 

less than their carrying amounts. The impairment losses are 

measured as the amount by which the carrying amount of the 

asset exceeds the fair value of the asset. Long-lived assets and 

certain identifiable intangibles to be disposed of are reported at 

the lower of carrying amount or fair value less cost to sell. 

(17) Use of Estimates 

Komatsu’s management has made a number of estimates and 

assumptions that affect the reported amounts of assets, 

liabilities, revenues and expenses presented in these financial 

statements prepared in conformity with U.S. generally accepted 

accounting principles. Actual results could differ from the estimates 

and assumptions. 

Komatsu has identified six areas where it believes 

assumptions and estimates are particularly critical to the financial 

statements. These are the determination of the allowance for 

doubtful receivables, impairment loss on long-lived assets and 

goodwill, pension liabilities and expenses, fair value of financial 

instruments, realization of deferred tax assets and securitization 

of trade notes and account receivable. 

(18) New Accounting Standards 

In February 2006, the FASB issued SFAS No.155, ”Accounting 

for Certain Hybrid Financial Instruments – an amendment of 

SFAS No.133 and 140, Accounting for Transfers and Servicing of 

Financial Assets and Extinguishments of Liabilities.” SFAS 

No.155 permits fair value re-measurement for any hybrid financial 

instrument that contains an embedded derivative, and establishes 

a requirement to evaluate interests in securitized 

financial assets to identify interests that are freestanding derivatives 

or that are hybrid financial instruments that contain an embedded 

derivative. SFAS No.155 is effective for the fiscal periods 

beginning after September 15, 2006 and is required to be 

adopted by Komatsu in the fiscal year beginning April 1, 2007. 

Komatsu is currently evaluating the effect that the adoption of 

SFAS No.155 will have on its consolidated results of operations 

and financial condition but expects it will not have a material impact. 

In March 2006, the FASB issued SFAS No.156, ”Accounting 

for Servicing of Financial Assets – an amendment of FASB 

Statement No.140.” SFAS No.156 amends SFAS No.140 to clarify 

the accounting for servicing assets and servicing liabilities. 

Among other provisions, the new accounting standard requires 

all separately recognized servicing assets and servicing liabilities 

to be initially measured at fair value, if practicable. SFAS No.156 

is effective for the fiscal periods beginning after September 15, 

2006 and is required to be adopted by Komatsu in the fiscal 

year beginning April 1, 2007. Komatsu is currently evaluating 

the effect that the adoption of SFAS No.156 will have on its 

consolidated results of operations and financial condition but expects 

it will not have a material impact. 

In June 2006, the FASB issued Interpretation No.48 

(“FIN 48”), ”Accounting for Uncertainty in Income Taxes – an 

interpretation of SFAS No.109, Accounting for Income Taxes.” 



FIN 48 clarifies the accounting for uncertainty in income taxes 

recognized in financial statements in accordance with SFAS 

No.109. This interpretation also provides guidance on derecognition, 

classification, interest and penalties, accounting in interim 

periods, disclosure, and transition. FIN 48 is effective for the 

fiscal periods beginning after December 15, 2006 and is required 

to be adopted by Komatsu in the fiscal year beginning 

April 1, 2007. Komatsu is currently evaluating the effect that 

the adoption of FIN 48 will have on its consolidated results of 

operations and financial condition but expects it will not have a 

material impact. 

In September 2006, the FASB issued SFAS No.157, ”Fair 

Value Measurements.” SFAS No.157 defines fair value, establishes 

a framework for measuring fair value, and expands disclosures 

about fair value measurements. SFAS No.157 is effective 

for the fiscal periods beginning after November 15, 2007 and is 

required to be adopted by Komatsu in the fiscal year beginning 

April 1, 2008. Komatsu is currently evaluating the effect that the 

adoption of SFAS No.157 will have on its consolidated results of 

operations and financial condition but expects it will not have a 


In February 2007, the FASB issued SFAS No.159, ”The Fair 

Value Option for Financial Assets and Financial Liabilities – 

Including an amendment of SFAS No.115.” SFAS No.159 permits 

entities to choose to measure certain financial assets and liabilities 

at fair value. The unrealized gains and losses on items 

for which the fair value option has been elected are required to 

be reported in earnings. SFAS No.159 is effective for the fiscal 

periods beginning after November 15, 2007 and is required to 

be adopted by Komatsu in the fiscal year beginning April 1, 

2008. Komatsu is currently evaluating the effect that the adoption 

of SFAS No.159 will have on its consolidated results of operations 

and financial condition but expects it will not have a 


(19) Reclassification 

For the year ended March 31, 2007, Komatsu changed its form 

of consolidated statements of income from single- to multiplestep. 

The consolidated statement of income for the years ended 

March 31, 2006 and 2005 have been reclassified to conform to 

the presentation for the year ended March 31, 2007. 

This reclassification had no effect on the consolidated 

balance sheets or statements of cash flows. 

(20) Discontinued Operation 

Throughout the notes to consolidated financial statements, the 

amounts of discontinued operations related to consolidated 

statements of income have been excluded from past years, unless 

indicated otherwise. 

2. Supplemental Cash Flow Information 

Additional cash flow information and noncash investing and financing activities for the years ended March 31, 2007, 2006 and 

2005, are as follows: 

Thousands of 


U.S. dollars 


Additional cash flow information: 

Interest paid ¥15,513 ¥12,963 ¥10,687 $131,466 

Income taxes paid 75,058 26,929 16,642 636,085 

Noncash investing and financing activities: 

Capital lease obligations incurred ¥23,584 ¥23,713 ¥16,146 $199,864 

3. Acquisition and Divestiture 

In July, 2005, the Company’s wholly-owned subsidiary, 

Komatsu America Corp.(KAC), completed the sale of 75% of 

its ownership interest in Advanced Silicon Materials LLC (ASiMI) 

to Solar Grade Silicon Holdings Inc., a U.S. subsidiary of 

Renewable Energy Corporation AS, a Norwegian company and 

retained a 25% ownership interest. Simultaneously with the 

sale, the ownership interests in ASiMI were classified into Class 

A Units and Class B Units with the Class A Units having sole 

voting rights. Also simultaneously with the sale, Komatsu 

Electronic Metals Co., Ltd. entered into a long term materials 

supply agreement with ASiMI. KAC’s retained 25% ownership 

interest in ASiMI in the form of Class B Units which do not 

have voting rights but whose consent is required for certain 

matters, including a liquidation of ASiMI and certain actions relating 

to the long term materials supply agreement. Ownership 

of the Class B Units does not entitle KAC to share prospectively 

in the underlying profits and losses of ASiMI. 

As a result of such sale, Komatsu recognized a gain of 

¥18,340 million which is included in other operating income 

(expenses) in the accompanying consolidated statement of in- 




come for the year ended March 31, 2006. The results of operations 

of ASiMI were included in Electronics segment through 

the date of sale. The value ascribed to the retained 25% nonvoting 

interest held is not material to the accompanying consolidated 

financial statements and is being accounted for on the 

cost basis. 

Komatsu has evaluated the terms and conditions of its remaining 

25% ownership interest and ongoing supply agreement 

in conjunction with the provisions of EITF Issue 

No. 03-13, “Applying the Conditions in Paragraph 42 of SFAS 

No. 144 in Determining Whether to Report Discontinued 

Operations” and has concluded such interests represent significant 

continuing involvement in the business of ASiMI as contemplated 

by EITF Issue No. 03-13 and, accordingly, has not 

presented the financial position and results of operations of 

ASiMI as a discontinued operation in the accompanying 


4. Discontinued Operations 

On October 18, 2006, the Company sold 51.0% of the shares 

of Komatsu Electronic Metals Co., Ltd. (“KEM”, currently 

SUMCO TECHXIV CORPORATION) allocated to a reporting unit 

in the electronics segment to SUMCO CORPORATION. Prior to 

this disposition, the Company held a 61.9% equity interest. 

Accordingly, KEM and its subsidiaries are no longer consolidated 

in Komatsu’s results. On January 30, 2007, the Company 

signed a definitive agreement to sell the outdoor power equipment 

(OPE) business of Komatsu Zenoah Co. allocated to a reporting 

unit in the industrial machinery, vehicles and others 

segment to a Japanese subsidiary of Husqvarna AB of Sweden. 

Accordingly, the OPE business of Komatsu Zenoah Co. and its 

subsidiaries engaging in the OPE business are no longer consolidated 

in Komatsu’s results. The concerned sale was completed 

on April 2, 2007. In accordance with SFAS No. 144, the gain on 

sale of KEM’s shares and operating results, less applicable income 

taxes, minority interests and equity earnings of affiliated 

companies, related to KEM and its subsidiaries as well as the 

operating results, less applicable income taxes of the OPE business 

of Komatsu Zenoah Co. and its OPE business subsidiaries, 

are presented as one line, “income from discontinued operations 

less applicable income taxes, minority interests and equity 

in earnings of affiliated companies” in the consolidated statements 

of income. Assets and liabilities related to the OPE business 

of Komatsu Zenoah Co. and its OPE business subsidiaries 

are classified as held for sale on the consolidated balance sheet 

as of March 31, 2007. The cash flows attributable to the discontinued 

operations are not presented separately from the 

cash flows attributable to activities of the continuing operations 

in the consolidated statements of cash flows. 

Selected financial information in connection with the discontinued operations for the years ended March 31, 2007, 2006 and 

2005 are as follows: 

Thousands of 


U.S. dollars 


Net sales ¥63,416 ¥89,829 ¥78,717 $537,424 

Income before income taxes, minority interests and equity in earnings 

of affiliated companies (including gain on sale of KEM’s shares of 

¥18,769 million in 2007) 29,544 13,294 6,834 250,373 

Income taxes 14,566 3,051 1,759 123,441 

Minority interests in income of consolidated subsidiaries (3,613) (5,132) (1,985) (30,619) 

Equity in earnings of affiliated companies 9 38 52 77 

Income from discontinued operations less applicable income taxes, 

minority interests and equity in earnings of affiliated companies ¥11,374 ¥ 5,149 ¥ 3,142 $ 96,390 

Assets held for sale and liabilities held for sale at March 31, 2007 are summarized as follows: 

Thousands of 

Millions of yen U.S. dollars 

Assets held for sale 2007 2007 

Trade notes and accounts receivable ¥ 9,088 $ 77,017 

Inventories 3,567 30,229 

Property, plant and equipment 1,874 15,881 

Other assets 1,792 15,187 

Total ¥16,321 $138,314 

Thousands of 


Liabilities held for sale 2007 2007 

Short-term debt ¥1,294 $10,966 

Trade notes and accounts payable 4,242 35,949 

Other Liabilities 2,383 20,195 

Total ¥7,919 $67,110 



5. Trade Notes and Accounts Receivable 

Receivables at March 31, 2007 and 2006 are summarized as follows: 

Thousands of 


U.S. dollars 


Trade notes ¥136,837 ¥ 98,085 $1,159,636 

Accounts receivable 353,034 311,699 2,991,813 

Total 489,871 409,784 4,151,449 

Less: allowance (11,808) (11,786) (100,068) 

Trade receivables-current ¥478,063 ¥397,998 $4,051,381 

Long-term trade receivables ¥ 73,669 ¥ 72,844 $ 624,314 

Installment and lease receivables (less unearned interest) are 

included in trade notes and accounts receivable and long-term 

trade receivables. 

Lease receivables primarily represent receivables from customers 

for equipment leased by Komatsu Forklift Co., Ltd. These 

leases are accounted for as sales-type leases in conformity with 

SFAS No. 13. Equipment sales revenue from sales-type leases are 

recognized at the inception of the lease. 

At March 31, 2007 and 2006, lease receivables comprised 

the following: 

Thousands of 


U.S. dollars 


Minimum lease payments 

receivable ¥22,935 ¥20,298 $194,365 

Unearned income (2,212) (1,842) (18,746) 

Net lease receivables ¥20,723 ¥18,456 $175,619 

Cash flows received from the sale of trade notes and accounts 

receivable for the years ended March 31, 2007, 2006 and 2005 

were ¥355,627 million ($3,013,788 thousand), ¥382,669 million 

and ¥339,469 million. 

The Company and certain consolidated subsidiaries retain responsibility 

to service sold trade notes and accounts receivable 

that are sold pursuant to a securitization transaction, however 

contractual servicing fees are not received from the third parties 

separately. The investors and the trusts that hold the receivables 

have no or limited recourse rights to the Company and its consolidated 

subsidiaries’ assets in case of debtors’ default. Appropriate 

reserves have been established for potential losses relating to the 

limited recourse of the sold receivables. Also the Company and its 

consolidated subsidiaries, except for a certain U.S. subsidiary, as 

transferor do not retain any interest in the receivables sold. 

The components of securitized trade receivables and other assets 

managed together at March 31, 2007 and 2006 were as follows: 


Thousands of 

U.S. dollars 


Total amount of trade 

receivables that are 

managed and securitized ¥748,478 ¥ 654,638 $6,343,034 

Assets transferred (184,938) (172,010) (1,567,271) 

Total amount of trade 

receivable on balance sheet ¥563,540 ¥ 482,628 $4,775,763 

A certain U.S. subsidiary’s retained interests, which are included 

in the recourse provisions, are subordinate to investor’s 

interests. Their values are estimated based on the present value 

of future expected cash flows, using certain key assumptions 

such as a weighted average life, prepayment speed over the life 

and expected credit losses over the life. Key assumptions used in 

measuring the fair value of retained interests related to securitization 

transactions completed during the year ended March 31, 

2007 and 2006 were as follows: 


Weighted-average life 30 months 31 months 

Prepayment speed over the life 0.7% 0.6% 

Expected credit losses over the life 1.0% 1.6% 

The carrying amount of retained interest was ¥202 million 

($1,712 thousand) liability and ¥817 million liability as of March 

31, 2007 and 2006, respectively. The impacts of 10% and 20% 

changes to the key assumptions on the fair value of retained interest 

as of March 31, 2007 are immaterial. 




6. Inventories 

At March 31, 2007 and 2006, inventories comprised the following: 

Thousands of 


U.S. dollars 


Finished products, including finished parts held for sale ¥294,154 ¥243,164 $2,492,830 

Work in process 85,687 78,869 726,161 

Materials and supplies 58,053 48,041 491,975 

Total ¥437,894 ¥370,074 $3,710,966 

7. Investment Securities 

Investment securities at March 31, 2007 and 2006, primarily 

consisted of securities available for sale. Komatsu does not have 

intentions to sell these securities within a year as of the balance 

sheet date. 

The cost, gross unrealized holding gains and losses, and fair 

value for such investment securities by major security types at 

March 31, 2007 and 2006, are as follows: 


Gross unrealized holding 

Cost Gains Losses Fair value 

At March 31, 2007 

Investment securities available for sale: 

Marketable equity securities ¥ 24,589 ¥ 68,167 ¥ 57 ¥ 92,699 

Other investment securities at cost 15,474 — — 15,474 

Current portion of other investment securities at cost 417 — — 417 

¥ 40,480 ¥ 68,167 ¥ 57 ¥108,590 

At March 31, 2006 


Marketable equity securities ¥ 18,341 ¥ 63,514 ¥111 ¥ 81,744 


Current portion of other investment securities at cost 415 — — 415 

¥ 31,756 ¥ 63,514 ¥111 ¥ 95,159 


Gross unrealized holding 

Cost Gains Losses Fair value 

At March 31, 2007 


Marketable equity securities $208,381 $577,686 $483 $785,584 


Current portion of other investment securities at cost 3,534 — — 3,534 

$343,051 $577,686 $483 $920,254 

Other investment securities primarily include non-marketable 

equity securities. 

Unrealized holding gains and losses deemed to be temporary 

are included as a component of accumulated other comprehensive 

income (loss) until realized. 

Proceeds from the sales of investment securities available for 

sale were ¥1,844 million ($15,627 thousand), ¥4,112 million and 

¥2,593 million for the years ended March 31, 2007, 2006 and 

2005, respectively. 

Net realized gains on sale of investment securities available 

for sale during the years ended March 31, 2007, 2006 and 

2005, amounted to gains of ¥344 million ($2,915 thousand), 

gains of ¥18 million and losses of ¥126 million, respectively. 

Such gains and losses were included in “other income (expenses)” 

in the accompanying consolidated statements of income. 

The cost of the marketable securities and investment securities 

sold was computed based on the average-cost method. 



8. Investments in and Advances to Affiliated Companies 

At March 31, 2007 and 2006, investments in and advances to affiliated companies comprised the following: 

Thousands of 


U.S. dollars 


Investments in capital stock ¥32,647 ¥16,559 $276,669 

Advances 4,041 5,167 34,246 

Total ¥36,688 ¥21,726 $310,915 

The investments in and advances to affiliated companies 

relate to 20% to 50% owned companies whereby Komatsu has 

the ability to exercise significant influence over the operational 

and financial policies. 

Dividends received from affiliated companies were ¥679 million 

($5,754 thousand), ¥130 million and ¥80 million during the 

years ended March 31, 2007, 2006 and 2005, respectively. 

Trade notes and accounts receivable from affiliated companies 

at March 31, 2007 and 2006, were ¥30,919 million 

($262,025 thousand) and ¥27,763 million, respectively. 

Short-term loans receivable from affiliated companies at 

March 31, 2007 and 2006, were ¥2,764 million ($23,424 thousand) 

and ¥2,064 million, respectively. 

Trade notes and accounts payable to affiliated companies at 

March 31, 2007 and 2006, were ¥9,164 million ($77,661 thousand) 

and ¥7,560 million, respectively. 

Net sales for the years ended March 31, 2007, 2006 and 

2005, included net sales to affiliated companies in the amounts 

of ¥54,731 million ($463,822 thousand), ¥56,916 million and 

¥54,446 million, respectively. 

Intercompany profits (losses) have been eliminated in the 


As of March 31, 2007, consolidated unappropriated retained 

earnings included Komatsu’s share of undistributed earnings of 

50% or less owned companies accounted for by the equity 

method in the amount of ¥6,068 million ($51,424 thousand). 

The carrying value of the investments in affiliated companies 

exceeded Komatsu’s equity in the underling net assets of such 

associated companies by ¥5,487 million at March 31, 2007. The 

excess is attributed primarily to the goodwill at the time of the 

initial investments in those companies. 

Investments in affiliated companies include certain equity 

securities which have been quoted on an established market. 

The carrying amount and the quoted market value of the equity 

securities at March 31, 2007 were ¥13,288 and ¥20,294 

million, respectively. 

Summarized financial information for affiliated companies at March 31, 2007 and 2006, and for the years ended March 31, 

2007, 2006 and 2005, is as follows: 

Thousands of 


U.S. dollars 


Current assets ¥163,411 ¥ 98,735 $1,384,839 

Net property, plant and equipment—less accumulated depreciation 64,245 35,992 544,449 

Investments and other assets 18,785 7,272 159,195 

Total assets ¥246,441 ¥141,999 $2,088,483 

Current liabilities ¥139,661 ¥ 77,376 $1,183,568 

Noncurrent liabilities 33,515 23,625 284,025 

Shareholders’ equity 73,265 40,998 620,890 

Total liabilities and shareholders’ equity ¥246,441 ¥141,999 $2,088,483 


Thousands of 

U.S. dollars 


Net sales ¥197,434 ¥176,250 ¥175,593 $1,673,169 

Net income ¥ 6,486 ¥ 4,700 ¥ 2,511 $ 54,966 




9. Property, Plant and Equipment 

The major classes of property, plant and equipment at March 31, 2007 and 2006, are as follows: 

Thousands of 


U.S. dollars 


Land ¥ 78,437 ¥ 83,119 $ 664,720 

Buildings 278,214 278,696 2,357,746 

Machinery and equipment 561,416 611,725 4,757,763 

Construction in progress 8,250 14,737 69,915 

Total 926,317 988,277 7,850,144 

Less: accumulated depreciation (537,924) (587,610) (4,558,678) 

Net property, plant and equipment ¥ 388,393 ¥ 400,667 $3,291,466 

10. Pledged Assets 

At March 31, 2007, assets pledged as collateral for long-term debt and guarantees for debt are as follows: 

Thousands of 


Cash and cash equivalents ¥ 881 $ 7,466 

Property, plant and equipment—less accumulated depreciation 500 4,237 

Total ¥1,381 $11,703 

The above assets were pledged against the following liabilities: 

Appearing in the consolidated balance sheets as: 

Thousands of 


Long-term debt ¥ 500 $ 4,237 

Guarantees for debt 881 7,466 

Total ¥1,381 $11,703 

11. Goodwill and Other Intangible Assets 

The information for intangible assets other than goodwill at March 31, 2007 and 2006 are as follows: 



Gross Net Gross Net 

carrying Accumulated carrying carrying Accumulated carrying 

amount amortization amount amount amortization amount 

Other intangible assets subject to amortization: 

Software ¥ 23,541 ¥ (11,553) ¥ 11,988 ¥ 26,941 ¥ (16,751) ¥ 10,190 

Other 11,776 (3,714) 8,062 10,476 (2,692) 7,784 

Total 35,317 (15,267) 20,050 37,417 (19,443) 17,974 

Other intangible assets not subject to amortization 5,193 7,444 

Total other intangible assets ¥ 25,243 ¥ 25,418 





Gross 

Net 

carrying Accumulated carrying 

amount amortization amount 

Other intangible assets subject to amortization: 

Software $199,500 $ (97,907) $101,593 

Other 99,797 (31,475) 68,322 

Total 299,297 (129,382) 169,915 

Other intangible assets not subject to amortization 44,009 

Total other intangible assets $213,924 

The aggregate amortization expense of other intangible assets subject to amortization for the year ended March 31, 2007, 2006 

and 2005 were ¥5,656 million ($47,932 thousand), ¥5,665 million and ¥6,440 million, respectively. (In accordance with SFAS 

No. 144, the amortization expense in connection with the discontinued operations is not included in the aggregate amortization 

expense for the year ended March 31, 2007, 2006 and 2005.) The future estimated amortization expenses for each of five years 

relating to amounts currently recorded in the consolidated balance sheet are as follows: 

Thousands of 

Year ending March 31 Millions of yen U.S. dollars 

2008 ¥ 4,517 $ 38,280 

2009 4,186 35,475 

2010 3,567 30,229 

2011 2,503 21,212 

2012 1,513 12,822 

The changes in carrying amounts of goodwill for the year ended March 31, 2007 and 2006 were as follow: 

Thousands of 


U.S. dollars 


Balance at beginning of the year ¥22,000 ¥21,277 $186,441 

Goodwill acquired during the year 124 3,904 1,051 

Impairment loss — (3,581) — 

Recognition of deferred income taxes (1,387) — (11,754) 

Foreign exchange impact 57 400 482 

Other (200) — (1,695) 

Balance at end of the year ¥20,594 ¥22,000 $174,525 

At March 31, 2007, the amounts of goodwill allocated to 

the construction and mining equipment segment and the industrial 

machinery, vehicles and others segment were ¥20,569 

million ($174,314 thousand) and ¥25 million ($211 thousand), 

respectively. 

For the fiscal year ended March 31, 2007, Komatsu recognized 

¥1,387 million ($11,754 thousand) of deferred income 

taxes relating to preexisting net operating tax losses and temporary 

differences deductible in the future. In connection 

therewith, Komatsu reduced the related goodwill by the same 

amount. 

For the fiscal year ended March 31, 2006, Komatsu recognized 

an impairment loss of ¥3,041 million, on goodwill allocated 

to a reporting unit in the construction and mining 

equipment segment due to unfavorable business circumstance 

where the net assets of the reporting unit was located. In 

addition, an impairment loss of ¥540 million was recognized in 

the electronics segment. The impairment losses were recognized 

based on the difference by which the net book value of 

the reporting unit to which the goodwill was assigned exceeded 

the estimated fair value of the same reporting unit as determined 

based on estimated future discounted cash flows. 

Goodwill acquired during the fiscal year ended March 31, 

2006 principally resulted from the acquisition of additional 

shares of PT Komatsu Indonesia Tbk, and was allocated to the 

construction and mining equipment segment and the industrial 

machinery, vehicles and others segment. 




12. Short-Term and Long-Term Debt 

Short-term debt primarily consists of short-term bank loans. The 

weighted-average annual interest rates applicable to short-term 

debt outstanding at March 31, 2007 and 2006, were 5.0% and 

3.8%, respectively. The Company and certain consolidated subsidiaries 

have entered into contracts for committed credit lines 

totaling ¥43,192 million ($366,034 thousand) and have unused 

committed lines of credit amounting to ¥36,438 million 

($308,797 thousand) with certain financial institutions at March 

31, 2007, which are available for full and immediate borrowings. 

The Company is party to a committed ¥80,000 million 

($677,966 thousand) commercial paper program of which the 

entire amount was unused as of March 31, 2007. Financing 

under this program is available upon the satisfaction of certain 

customary procedural requirements. Long-term debt at March 

31, 2007 and 2006, consisted of the following: 

Thousands of 


U.S. dollars 


Long-term debt with collateral (Note 10): 

Banks, insurance companies and other financial institutions, 

maturing serially through 2007–2012, weighted-average rate 9.7% ¥ 339 ¥ 417 $ 2,873 

Long-term debt without collateral: 

Banks, insurance companies and other financial institutions, 

maturing serially through 2007–2017, weighted-average rate 2.2% 86,914 137,226 736,559 

Euro Medium-Term Notes 

maturing serially through 2007–2012, weighted-average rate 5.1% 64,486 57,071 546,492 

1.07% Unsecured Bonds due 2007 20,000 20,000 169,492 

1.45% Unsecured Bonds due 2009 10,000 10,000 84,746 

Capital lease obligations (Note 17) 55,882 47,692 473,576 

Other 9,205 7,377 78,008 

Total 246,826 279,783 2,091,746 

Less: current maturities (72,486) (84,580) (614,288) 

Long-term debt ¥174,340 ¥195,203 $1,477,458 

In 1996, the Company, Komatsu Finance America Inc. and 

Komatsu Finance (Netherlands) B.V. registered the US$1.0 billion 

Euro Medium-Term Note Program (“the Program”) on the 

London Stock Exchange. On April 1, 1999, the registered amount 

of the Program was increased to US$1.2 billion. On October 14, 

2003, Komatsu Europe Coordination Center N.V. was added as 

an issuer under the Program. At March 31, 2007, the issuers 

under the Program were the Company, Komatsu Finance 

America Inc. and Komatsu Europe Coordination Center N.V. 

Under the Program, each of the issuers may from time to time 

issue notes denominated in any currency as may be agreed between 

the relevant issuers and dealers. Komatsu Finance America 

Inc. issued ¥26,500 million ($224,576 thousand) during fiscal 

year ended March 31, 2007, and ¥12,000 million during fiscal 

year ended March 31, 2006 of Euro Medium-Term Notes with 

various interest rates and maturity dates. Komatsu Europe 

Coordination Center N.V. issued ¥13,500 million ($114,407 

thousand) during fiscal year ended March 31, 2007, and ¥6,500 

million during fiscal year ended March 31, 2006 of Euro Medium- 

Term Notes with various interest rates and maturity dates. 

The Company has established a program to issue up to 

¥100,000 million ($847,458 thousand) of variable term bonds. 

As is customary in Japan, substantially all bank loans are 

made under agreements which provide that the banks may 

require, under certain conditions, the borrower to provide 

collateral, additional collateral or guarantors for its loans. 

Lending banks have a right to offset cash deposited with 

them against any debt or obligation that becomes due and, in 

the case of default and certain other specified events, against all 

other debt payable to the banks. 



Under certain loan agreements, the lender may require the 

borrower to submit proposals for the payment of dividends and 

other appropriations of earnings for the lender’s review and approval 

before presentation to the shareholders. The companies 

have never received such a request. 

Annual maturities of long-term debt subsequent to March 

31, 2007, excluding market value adjustments for balances subject 

to qualifying fair value hedges of ¥1,581 million ($13,398 

thousand) are as follows: 

Thousands of 


2008 ¥ 73,528 $ 623,119 

2009 83,191 705,008 

2010 50,594 428,763 

2011 17,450 147,881 

2012 21,018 178,119 

2013 and thereafter 2,626 22,254 

Total ¥248,407 $2,105,144 

13. Liability for Pension and Other Retirement Benefits 

The Company’s employees, with certain minor exceptions, are 

covered by a severance payment and a defined benefit cash balance 

pension plan. The plan provides that approximately 60% of 

the employee benefits are payable as a pension payment, commencing 

upon retirement at age 60 (mandatory retirement age) 

and that the remaining benefits are payable as a lump-sum severance 

payment based on remuneration, years of service and certain 

other factors at the time of retirement. The plan also 

provides for lump-sum severance payments, payable upon earlier 

termination of employment. 

Under the cash balance pension plan, each employee has an 

account which is credited yearly based on the current rate of pay 

and market-related interest rate. 

Certain subsidiaries have various funded pension plans and/or 

unfunded severance payment plans for their employees, which 

are based on years of service and certain other factors. The 

Company and certain subsidiaries’ funding policy is to contribute 

the amounts to provide not only for benefits attributed to service 

to date but also for those expected to be earned in the future. 

At March 31, 2007, Komatsu adopted the recognition and 

disclosure provisions of SFAS No. 158, “Employer’s Accounting 

for Defined Benefit Pension and Other Postretirement Plans—an 

amendment of SFAS No. 87, 88, 106, and 132(R)” (“SFAS No. 

158”). SFAS No. 158 required Komatsu to recognize the funded 

status (i.e. the difference between the projected benefit obligations 

and the fair value of plan assets) of their pension plans in 

the March 31, 2007 consolidated balance sheet, with a 

corresponding adjustment to accumulated other comprehensive 

income, net of tax. 

The adjustment to accumulated other comprehensive income 

(loss) at adoption represents the unrecognized actuarial net gain 

or loss and unrecognized prior service cost, both of which were 

previously netted against the plans’ funded status in the consolidated 

balance sheet pursuant to the provisions of SFAS No. 87. 

These amounts will be subsequently recognized as net periodic 

benefit cost pursuant to Komatsu’s historical accounting policy 

for amortizing such amounts. Further, actuarial gains and losses 

that arise in subsequent periods and are not recognized as net 

periodic benefit cost in the same periods will be recognized as a 

component of other comprehensive income (loss). Those 

amounts will be subsequently recognized as a component of net 

periodic benefit cost on the same basis as the amounts recognized 

in accumulated other comprehensive income (loss) at 

adoption of SFAS No. 158. 

SFAS No. 158 also requires that the benefit obligations and 

the fair value of plan assets be measured as of the balance sheet 

date. Komatsu will adopt the provisions of measurement date in 

the year ending March 31, 2008. The change in the measurement 

date of defined benefit pension and other postretirement 

benefit plans is not expected to have a material impact on 

Komatsu’s consolidated results of operations and financial condition 

as Komatsu already uses a measurement date of March 31 

for substantially all of its plans. 

The incremental effects of adopting the provisions of SFAS No. 158 on the accompanying consolidated balance sheet at March 31, 

2007 are presented in the following table. 



Before After Before After 

Application of Application of Application of Application of 

SFAS No. 158 Adjustments SFAS No. 158 SFAS No. 158 Adjustments SFAS No. 158 

Deferred income taxes and other assets ¥ 37,125 ¥ 67 ¥ 37,192 $ 314,618 $ 568 $ 315,186 

Deferred income taxes and other current liabilities 181,577 952 182,529 1,538,788 8,068 1,546,856 

Liability for pension and retirement benefits 28,795 8,988 37,783 244,026 76,169 320,195 

Minority interests 19,758 16 19,774 167,440 136 167,576 

Accumulated other comprehensive income (loss) (5,443) (9,857) (15,300) (46,127) (83,534) (129,661) 




The reconciliation of beginning and ending balances of the benefit obligations and the fair value of the plan assets of the 

defined benefit plans are as follows: 

Thousands of 


U.S. dollars 


Change in benefit obligation: 

Benefit obligation, beginning of year ¥150,897 ¥146,617 $1,278,788 

Service cost 7,081 7,454 60,008 

Interest cost 3,770 3,565 31,949 

Actuarial loss (gain) (1,661) 4,625 (14,076) 

Plan amendment 434 — 3,678 

Acquisition — 66 — 

Divestiture (4,937) (3,180) (41,839) 

Benefits paid (10,102) (9,975) (85,610) 

Foreign currency exchange rate change 1,277 1,725 10,822 

Benefit obligation, end of year ¥146,759 ¥150,897 $1,243,720 

Change in plan assets: 

Fair value of plan assets, beginning of year ¥115,630 ¥ 97,959 $ 979,915 

Actual return on plan assets 5,249 16,294 44,483 

Employer contribution 5,039 8,007 42,703 

Divestiture — (1,583) — 

Benefits paid (6,449) (6,343) (54,653) 

Foreign currency exchange rate change 724 1,296 6,137 

Fair value of plan assets, end of year ¥120,193 ¥115,630 $1,018,585 

Funded status, end of year ¥ (26,566) ¥ (35,267) $ (225,135) 

Prepaid benefit cost ¥ 624 — $ 5,288 

Other current liability (196) — (1,661) 

Accrued benefit liability (26,994) — (228,762) 

¥ (26,566) — $ (225,135) 

Amounts recognized in accumulated other comprehensive income (loss) at March 31, 2007: 

Actuarial loss ¥ 12,080 — $ 102,373 

Prior service cost 7,851 — 66,534 

¥ 19,931 — $ 168,907 

Funded status of the plans at March 31, 2006: 

Funded status — ¥ (35,267) — 

Unrecognized net loss — 21,749 — 

Unrecognized prior service cost — 2,018 — 

Net amounts recognized — ¥ (11,500) — 

Amounts recognized in the consolidated balance sheet at March 31, 2006 consists of: 

Prepaid benefit cost — ¥ 6,967 — 

Accrued benefit liability — (37,452) — 

Intangible assets included in other assets — 2,018 — 

Amounts included in accumulated other comprehensive income (loss), gross of tax — 16,967 — 

Net amounts recognized — ¥ (11,500) — 

The accumulated benefit obligations for all defined benefit plans were ¥138,085 million ($1,170,212 thousand) and ¥142,338 

million, respectively, at March 31,2007 and 2006. 



Information for pension plans with accumulated benefit obligations in excess of plan assets and pension plans with projected 

benefit obligations in excess of plan assets is as follows: 


Thousands of 

U.S. dollars 


Plans with accumulated benefit obligations in excess of plan assets: 

Accumulated benefit obligations ¥118,701 ¥136,491 $1,005,941 

Plan assets 97,092 108,104 822,814 

Plans with projected benefit obligations in excess of plan assets: 

Projected benefit obligations ¥133,583 ¥150,506 $1,132,059 

Plan assets 106,637 115,188 903,703 

Components of net periodic pension cost 

Net periodic cost of the companies’ defined benefit plans for the years ended March 31, 2007, 2006 and 2005, consisted of 

the following components: 

Thousands of 


U.S. dollars 


Service cost–Benefits earned during the year ¥ 7,081 ¥ 7,454 ¥ 6,719 $ 60,008 

Interest cost on projected benefit obligation 3,770 3,565 3,866 31,949 

Expected return on plan assets (3,339) (2,947) (2,619) (28,296) 

Net amortization 1,187 2,951 3,171 10,059 

Net periodic cost ¥ 8,699 ¥11,023 ¥11,137 $ 73,720 

The estimated actuarial loss and prior service cost for the defined benefit plans that will be amortized from accumulated other 

comprehensive income into net periodic cost over the next fiscal year are summarized as follows. 


Thousands of 

U.S. dollars 

Actuarial loss ¥1,577 $13,364 

Prior service cost 630 5,339 

Information with respect to the defined benefit plans is as follows: 

Measurement date 

The Company and certain subsidiaries use a measurement date of March 31 for substantially all of its defined benefit plans. 

Assumptions 

Weighted-average assumptions used to determine benefit obligations at March 31: 

Domestic plans Foreign plans 

2007 2006 2007 2006 

Discount rate 1.9% 2.0% 5.6% 5.3% 

Assumed rate of increase in future compensation levels (Point-based benefit system) 3.7% 3.7% — — 

Assumed rate of increase in future compensation levels 2.3% 2.4% 4.1% 4.3% 

Weighted-average assumptions used to determine net periodic benefit cost for the years ended March 31: 

Domestic plans 

Foreign plans 

2007 2006 2005 2007 2006 2005 

Discount rate 2.0% 2.0% 2.2% 5.3% 5.9% 6.2% 

Assumed rate of increase in future compensation levels (Point-based benefit system) 3.7% 3.9% 3.9% — — — 

Assumed rate of increase in future compensation levels 2.4% 2.4% 2.3% 4.3% 4.4% 4.1% 

Expected long-term rate of return on plan assets 2.0% 1.9% 1.9% 7.6% 7.7% 8.4% 




The Company and a certain domestic subsidiary adopt defined 

benefit cash balance pension plans. These companies adopt the 

assumed rate of increase in future compensation levels under the 

point-based benefit system. 

The Company and certain subsidiaries determine the expected 

long-term rate of return on plan assets based on the consideration 

of the current expectations for future returns and actual historical 

returns of each plan asset category. 

Plan assets 

The benefit plan weighted-average asset allocations at March 31, 2007 and 2006 were as follows: 


Equity securities 46.3% 45.9% 

Debt securities 36.3% 33.7% 

Life insurance company general accounts 15.4% 18.2% 

Others 2.0% 2.2% 

Total 100.0% 100.0% 

In order to secure long-term comprehensive earnings, the 

Company and certain subsidiaries' investment policies are designed 

to ensure adequate plan assets to provide future payments 

of pension benefits to eligible participants. Taking into account the 

expected long-term rate of return on plan assets, the Company 

and certain subsidiaries formulate a basic portfolio comprised of 

the judged optimum combination of equity and debt securities. 

Plan assets are invested in individual equity and debt securities in 

accordance with the guidelines of the basic portfolio in order to 

produce a total return that will match the expected return on a 

mid-term to long-term basis. The Company and certain subsidiaries 

evaluate the gap between expected return and actual return 

of invested plan assets on an annual basis to determine if 

such differences necessitate a revision in the formulation of the 

basic portfolio. The Company and certain subsidiaries revise the 

basic portfolio when and to the extent considered necessary to 

achieve the expected long-term rate of return on plan assets. 

The "Pension and Retirement Benefit Committee" is organized 

in the Company in order to periodically monitor the employment 

of such plan assets. 

Equity securities include common stock of the Company in the 

amount of ¥13 million (0.02% of the Company's total plan assets) 

at March 31, 2007. Equity securities include common stock 

of the Company and certain of its domestic listed subsidiaries in 

the amount of ¥41 million (0.05% of the Company's total plan 

assets) at March 31, 2006. 

Cash flows 

(1) Contributions 

The Company and certain subsidiaries expect to contribute 

¥4,347 million ($36,839 thousand) to their benefit plans in the 

year ending March 31, 2008. 

(2) Estimated future benefit payments 

The benefits expected to be paid in each of the next five years, 

and in the aggregate for the five years thereafter which reflect 

estimated future employee service are as follows: 

Thousands of 


2008 ¥12,787 $108,364 

2009 12,535 106,229 

2010 12,956 109,797 

2011 12,088 102,441 

2012 12,779 108,297 

Through 2013-2017 ¥42,966 $364,119 



Other postretirement benefit plan 

Some U.S. subsidiaries provide certain postretirement health 

care and life insurance benefits for substantially all of their employees. 

The plans are contributory, with contributions indexed 

to salary levels. Employee contributions are adjusted to provide 

for any costs of the plans in excess of those paid for by the 

subsidiaries. The policy is to fund the cost of these benefits as 

claims and premiums are paid. These benefits are currently unfunded. 

Accumulated postretirement benefit obligation and funded status of the U.S. subsidiaries' plans at March 31,2007 and 2006: 


Thousands of 

U.S. dollars 


Accumulated postretirement benefit obligation ¥ 11,614 ¥ 12,224 $ 98,424 

Funded status, end of year ¥(11,614) ¥(12,224) $(98,424) 

Current liability ¥ (756) — $ (6,407) 

Accrued benefit liability (10,858) — (92,017) 

¥(11,614) — $(98,424) 

Amounts recognized in accumulated other comprehensive income (loss) at March 31, 2007: 

Actuarial loss ¥ 1,733 — $ 14,686 

Prior service cost 3,534 — 29,949 

¥ 5,267 — $ 44,635 

Funded status of the postretirement benefit plan at March 31, 2006: 

Funded status — ¥(12,224) — 

Unrecognized net loss — 4,561 — 

Unrecognized prior service cost — 1,976 — 

Accrued benefit liability — ¥ (5,687) — 

Components of net periodic postretirement benefit cost 

Net periodic postretirement benefit cost of the U.S. subsidiaries' plans for the years ended March 31, 2007, 2006 and 2005, 

included the following components: 

Thousands of 


U.S. dollars 


Service cost ¥ 329 ¥ 266 ¥ 253 $ 2,788 

Interest cost 608 625 663 5,153 

Net amortization 419 369 353 3,551 

Net periodic postretirement benefit cost ¥1,356 ¥1,260 ¥1,269 $11,492 

The estimated actuarial loss and prior service cost for the postretirement benefit plans that will be amortized from accumulated 

other comprehensive income into net periodic postretirement benefit cost over the next fiscal year are summarized as follows. 

Thousands of 


Actuarial loss ¥226 $1,915 

Prior service cost 148 1,254 




Information with respect to the plans is as follows: 

Measurement date 

The U.S. subsidiaries use December 31 as a measurement date for their post retirement benefit plan. 

Assumptions 

Weighted-average assumptions used to determine accumulated postretirement benefit obligations at March 31: 


Discount rate 5.5% 5.3% 

Weighted average assumptions used to determine net periodic postretirement benefit cost for the years ended March 31: 

2007 2006 2005 

Discount rate 5.3% 5.8% 6.3% 

At March 31, 2007 and 2006, the impact of a one percentage point change in the assumed health care cost trend rates was not 

material to Komatsu’s consolidated financial position or results of operations. 

Cash flows 

(1) Contributions 

The U.S. subsidiaries expect to contribute ¥749 million ($6,347 

thousand) to their post retirement benefit plan participant in 

the year ending March 31, 2008. 

(2) Estimated future benefit payments 

The benefits expected to be paid in each of the next five years, 

and in the aggregate for the five years thereafter which reflect 

estimated future employee service are as follows: 

Thousands of 


2008 ¥ 749 $ 6,347 

2009 760 6,441 

2010 781 6,619 

2011 796 6,746 

2012 811 6,873 

2013-2017 ¥4,322 $36,627 

In addition to the aforementioned plans, certain other subsidiaries 

provide retirement benefits to certain employees. 

These retirement benefit plans are generally not funded. At 

March 31, 2007, 2006 and 2005, these subsidiaries have fully 

provided for the benefits. Such amounts are not material to 

Komatsu’s consolidated financial position or results of operations 

for any of the periods presented. Directors of the 

Company and domestic subsidiaries are primarily covered by 

unfunded retirement allowance plans. At March 31,2007, 

2006 and 2005, the amounts required if all directors covered 

by the plans had terminated their service have been fully accrued. 

Such amounts are not material to Komatsu’s consolidated 

financial position or results of operations for any of the 

periods presented. 

Certain foreign subsidiaries maintain various defined contribution 

plans covering certain employees. The amount of cost recognized 

for all periods presented is not material to Komatsu’s 

consolidated financial position or results of operations. 



14. Shareholders’ Equity 

(1) Common Stock and Capital Surplus 

The Commercial Code of Japan (“the Code”) permitted, upon 

approval of the Board of Directors, transfer of amounts from 

capital surplus to common stock. Prior to October 2001, the 

Company from time to time made free share distributions that 

were accounted for by a transfer from capital surplus to common 

stock of the aggregate par value of shares issued. 

Effective on October 2001, the Code requires no accounting 

recognition for such free share distribution. Publicly owned corporations 

in the United States issuing shares in similar transactions 

would be required to account for them as stock dividends 

as of the shareholders’ record date by reducing retained earnings 

and increasing appropriate capital accounts by an amount 

equal to the fair value of the shares issued. 

If such United States practice had been applied to the 

cumulative free distributions made by the Company, capital 

surplus at March 31, 2007, would have been increased by 

¥103,189 million ($874,483 thousand) with a corresponding 

decrease in unappropriated retained earnings. At March 31, 

2007 and 2006, affiliated companies owned 1,010,200 and 

1,134,000 shares which represent 0.10% and 0.11% of the 

Company’s common stock outstanding, respectively. 

The Corporate Act, which has been in force since May 1, 

2006 (the Act), requires a company to obtain the approval of 

shareholders for transferring an amount between common stock 

and capital surplus. Common stock and capital surplus also are 

available for being transferred to other capital surplus or being 

used to reduce a deficit mainly upon an approval of shareholders. 

(2) Retained Earnings Appropriated for Legal Reserve 

The Act provides that an amount equal to 10% of retained 

earnings distributed each fiscal period shall be appropriated as 

a capital surplus or a legal reserve until the total amount of 

capital surplus and legal reserve becomes equal to 25% of the 

amount of common stock. 

Legal reserve is available for being transferred to other retained 

earnings or being used to reduce a deficit mainly upon 

an approval of shareholders. 

(3) Retained Earnings and Dividends 

The amount of retained earnings available for dividends under 

the Act is based on the amount recorded in the Company’s 

general books of account maintained in accordance with accounting 

principles generally accepted in Japan. In addition to 

the Act provision requiring an appropriation for capital surplus 

or legal reserve as discussed above, the Act imposes certain 

limitations on the amount of retained earnings available for 

dividends. Accordingly, total shareholders' equity of ¥305,568 

million ($2,589,559 thousand), included in the Company’s 

general books of account as of March 31, 2007 is available for 

dividends under the Act. 

The Board of Directors recommended to and approved by 

the shareholders, at the general meeting held on June 22, 

2007, payment of a cash dividend totaling ¥17,898 million 

($151,678 thousand) to shareholders of record on March 31, 

2007. In accordance with the Act, the approved dividend has 

not been reflected in the consolidated financial statements as 

of March 31, 2007. Dividends are reported in the consolidated 

statements of shareholders’ equity when approved and paid. 

The Act provides that a company can make dividends of 

earnings anytime with resolution of the shareholders. It also 

provides that a company can declare an interim dividend once 

a fiscal year according to its charter of corporation. 

(4) Stock Option Plan 

On June 24, 2005, the Board of Directors authorized the acquisition 

of 1,700,000 shares of the Company’s common stock for 

the total consideration not exceeding ¥1,800 million by July 29, 

2005. On June 25, 2004, the Board of Directors authorized the 

acquisition of 1,500,000 shares of the Company’s common 

stock for the total consideration not exceeding ¥1,200 million 

by July 30, 2004. The Company intends to transfer such treasury 

shares to directors and certain employees and certain directors 

of subsidiaries under an agreement granting the right 

for them to request such transfers at a predetermined price. 

The purchase price is set to equal an amount obtained by multiplying 

by 1.05 an average of the closing prices applicable to ordinary 

transactions of shares of the Company on the Tokyo 

Stock Exchange on all days for a month immediately preceding 

the month in which the date of grant of the right falls, provided 

that the exercise price shall not be less than the closing price 

of the shares of the Company on the Tokyo Stock Exchange on 

the date of the grant. Based on the resolutions of the shareholders’ 

meeting on June 23, 2006, June 24, 2005 and June 25, 

2004 and the Board of Directors on July 11, 2006, the 

Company issued 833 rights, 1,610 rights and 1,430 rights of its 

share acquisition rights during the years ended March 31, 

2007, 2006 and 2005, respectively. The options vest 100% on 

each of the grant dates and are exercisable from August 1, 

2007, August 1, 2006 and August 1, 2005, respectively. 

For periods prior to April 1, 2006, Komatsu accounted for 

stock options using the intrinsic value method prescribed by 




APB opinion No. 25. Effective April 1, 2006, Komatsu adopted 

SFAS No. 123R for the year ended March 31, 2007 using the 

modified prospective method. In accordance with SFAS 

No. 123R, Komatsu recognizes compensation expense of ¥663 

million ($5,619 thousand). As a result, income from continuing 

operations before income taxes, minority interests and equity in 

earnings of affiliated companies, and net income are decreased 

by ¥663 million ($5,619 thousand) and ¥394 million ($3,339 

thousand) respectively for the year ended March 31, 2007. The 

impact on the net income per share is immaterial. 

For the years ended March 31, 2006 and 2005, no compensation 

expense was recognized using the intrinsic value method 

as the exercise price was at least equal to the market price on 

the date of grant. 

The Company transfers treasury stock without issuance of 

new stock when the share acquisition rights are exercised. 

The following table summarizes information about stock option activity for the years ended March 31, 2007, 2006 and 2005: 

Number of 

shares 

2007 2006 2005 

Weighted average 

Number of 


Number of 


exercise price 

shares 


shares 


Yen U.S. dollars Yen Yen 

Outstanding at beginning of year 3,665,000 ¥ 848 $ 7.19 6,409,000 ¥ 665 6,460,000 ¥659 

Granted 833,000 2,325 19.70 1,610,000 1,126 1,430,000 673 

Exercised (845,000) 855 7.25 (4,254,000) 678 (491,000) 542 

Cancelled or Expired (5,000) 2,325 19.70 (100,000) 820 (990,000) 700 

Outstanding at end of year 3,648,000 1,182 10.02 3,665,000 848 6,409,000 665 

Exercisable at end of year 2,820,000 846 7.17 2,055,000 630 4,979,000 662 

The intrinsic values were ¥1,180 million ($10,000 thousand), ¥2,093 million and ¥83 million for the years ended March 31, 

2007, 2006 and 2005, respectively. 

The information for options outstanding and options exercisable at March 31, 2007 is as follows. 

Outstanding 

Options Exercisable 



Weighted average remaining Weighted average remaining 

Number of exercise price Intrinsic value contractual life Number of exercise price Intrinsic value contractual life 

shares 

shares 

Millions of Thousands of Millions of Thousands of 

Exercise Prices Yen U.S. dollars yen U.S. dollars years Yen U.S. dollars yen U.S. dollars years 

¥ 445 - 650 750,000 ¥ 556 $ 4.71 ¥1,443 $12,229 1.8 750,000 ¥ 556 $4.71 ¥1,443 $12,229 1.8 

¥ 651 - 900 800,000 673 5.70 1,446 12,254 5.3 800,000 673 5.70 1,446 12,254 5.3 

¥ 901 - 1,350 1,270,000 1,126 9.54 1,719 14,568 6.3 1,270,000 1,126 9.54 1,719 14,568 6.3 

¥1,351 - 2,325 828,000 2,325 19.70 129 1,093 7.3 — — — — — — 

¥ 445 - 2,325 3,648,000 1,182 10.02 4,737 40,144 5.4 2,820,000 846 7.17 4,608 39,051 4.8 

The fair value of each share option award is estimated on 

the date of grant using a discrete-time model (a binomial 

model) for the year ended March 31, 2007 and the Black- 

Sholes option pricing model for the years ended March 31, 

2006 and 2005 based on the assumptions noted in the following 

table. Because a discrete-time model incorporates ranges 

of assumptions for inputs, those ranges are disclosed. 

Expected volatilities are based on implied volatilities from 

historical volatility of the Company’s shares. 

The Company uses historical data to estimate share option 

exercise and employee departure behavior used in the dicretetime 

model. The expected term of share options granted is 

derived from the output of the option pricing model and represents 

the period of time that share options granted are 

expected to be outstanding. The risk-free rate for periods 

within the contractual term of the share option is based on 

the Japanese government bond yield curve in effect at the 

time of grant. 



2007 2006 2005 

Grant-date fair value ¥801 ($6.79) ¥434 ¥179 

Expected term 6 years — — 

Expected life — 8 years 8 years 

Risk-free rate 0.52%–2.00%* 1.12% 1.65% 

Expected volatility 39.00% 40.00% 30.00% 

Expected dividend yield 1.27% 1.24% 1.56% 

* Interest rate corresponding to discount periods is applied to risk-free rate, that is 0.52% in 1 year, 0.79% in 2 years, 1.03% in 3 years, 1.26% in 4 years, 1.44% in 5 years, 

1.60% in 6 years, 1.72% in 7 years, 1.83% in 8 years, 1.94% in 9 years and 2.00% in 10 years. 

At the shareholders’ meeting held on June 22, 2007, the 

resolution on the stock acquisition right to be issued as stock 

options was approved as follows: 

The maximum number of stock acquisition rights to be issued 

shall be 562. The number of shares subject to be issued to 

one stock acquisition right shall be 1,000 shares, and the maximum 

number of ordinary shares of the Company shall be 

562,000 shares. 

15. Other Comprehensive Income (Loss) 

Other comprehensive income (loss) consists of changes in foreign currency translation adjustments, net unrealized holding gains (losses) 

on securities available for sale, pension liability adjustments and net unrealized holding gains (losses) on certain derivative instruments, 

and is included in the consolidated statements of shareholders’ equity. 

Accumulated other comprehensive income (loss) at March 31, 2007, 2006 and 2005, is as follows: 

Thousands of 


U.S. dollars 


Foreign currency translation adjustments: 

Balance, beginning of year ¥ (2,240) ¥(22,161) ¥(26,825) $ (18,983) 

Aggregate adjustment for the year resulting from 

translation of foreign currency financial statements 11,444 19,921 4,664 96,983 

Balance, end of year ¥ 9,204 ¥ (2,240) ¥(22,161) $ 78,000 

Net unrealized holding gains on securities available for sale: 


Net increase 2,897 18,305 3,114 24,552 


Pension liability adjustments: 

Balance, beginning of year ¥(11,299) ¥(17,340) ¥(11,861) $ (95,754) 

Adjustment for the year 5,856 6,041 (5,479) 49,627 

Adjustment to initially apply SFAS No. 158 5,443 — — 46,127 

Balance, end of year ¥ — ¥(11,299) ¥(17,340) $ — 

Pension liability adjustments—After application of SFAS No. 158: 

Adjustment to initially apply SFAS No. 158 ¥(15,300) ¥ — ¥ — $(129,661) 

Balance, end of year ¥(15,300) ¥ — ¥ — $(129,661) 

Net unrealized holding gains (losses) on derivative instruments: 

Balance, beginning of year ¥ (276) ¥ (589) ¥ (599) $ (2,339) 

Net increase 66 313 10 559 

Balance, end of year ¥ (210) ¥ (276) ¥ (589) $ (1,780) 

Total accumulated other comprehensive income (loss) 

Balance, beginning of year ¥ 23,095 ¥(21,485) ¥(23,794) $ 195,720 

Other comprehensive income for the year 20,263 44,580 2,309 171,721 

Adjustment to initially apply SFAS No. 158 (9,857) — — (83,534) 

Balance, end of year ¥ 33,501 ¥ 23,095 ¥(21,485) $ 283,907 




Tax effects allocated to each component of other comprehensive income (loss) and adjustments are as follows: 


Pretax Tax (expense) Net of tax 

amount or benefit amount 

2007: 

Foreign currency translation adjustments ¥11,444 ¥ — ¥11,444 


Unrealized holding gains or (losses) arising during the year 5,014 (2,000) 3,014 

Less: reclassification adjustment for (gains) or losses included in net income (199) 82 (117) 

Net unrealized gains (losses) 4,815 (1,918) 2,897 

Pension liability adjustments 9,900 (4,044) 5,856 


Changes in fair value of derivatives (826) 337 (489) 

Net (gains) or losses reclassified into earnings 937 (382) 555 

Net unrealized gains (losses) 111 (45) 66 

Other comprehensive income (loss) ¥26,270 ¥ (6,007) ¥20,263 

2006: 

Foreign currency translation adjustments ¥19,921 ¥ — ¥19,921 







Changes in fair value of derivatives (1,951) 796 (1,155) 

Net (gains) or losses reclassified into earnings 2,479 (1,011) 1,468 


Other comprehensive income (loss) ¥62,785 ¥(18,205) ¥44,580 

2005: 

Foreign currency translation adjustments ¥ 4,664 ¥ — ¥ 4,664 





Pension liability adjustments (9,139) 3,660 (5,479) 


Changes in fair value of derivatives (480) 196 (284) 

Net (gains) or losses reclassified into earnings 497 (203) 294 


Other comprehensive income (loss) ¥ 835 ¥ 1,474 ¥ 2,309 




Pretax Tax (expense) Net of tax 

amount or benefit amount 

2007: 

Foreign currency translation adjustments $ 96,983 $ — $ 96,983 



Less: reclassification adjustment for (gains) or losses included in net income (1,686) 695 (991) 




Changes in fair value of derivatives (7,000) 2,856 (4,144) 

Net (gains) or losses reclassified into earnings 7,940 (3,237) 4,703 


Other comprehensive income (loss) $222,627 $(50,906) $171,721 

16. Income Taxes 

Income from continuing operations before income taxes, minority interests and equity in earnings of affiliated companies and income 

taxes for the years ended March 31, 2007, 2006 and 2005, were as follows: 

Thousands of 


U.S. dollars 


Income from continuing operations before income taxes , minority interests 

and equity in earnings of affiliated companies: 

Domestic ¥111,220 ¥ 56,082 ¥ 46,340 $ 942,542 

Foreign 125,271 99,697 45,529 1,061,619 

¥236,491 ¥155,779 ¥ 91,869 $2,004,161 

Income taxes: 

Current— 

Domestic ¥ 44,295 ¥ 29,740 ¥ 7,343 $ 375,381 

Foreign 31,807 16,011 8,713 269,551 

76,102 45,751 16,056 644,932 

Deferred— 

Domestic 681 2,287 15,109 5,771 

Foreign 2,962 (4,068) 3,120 25,102 

3,643 (1,781) 18,229 30,873 

Total ¥ 79,745 ¥ 43,970 ¥ 34,285 $ 675,805 

Total income taxes recognized for the years ended March 31, 2007, 2006 and 2005 were applicable to the following: 


Thousands of 

U.S. dollars 


Income from continuing operations ¥ 79,745 ¥ 43,970 ¥ 34,285 $675,805 

Income from discontinued operations 14,566 3,051 1,759 123,441 

Other comprehensive income (loss): 

Net unrealized holding gains on securities available for sale 1,918 12,500 2,179 16,254 

Pension liability adjustments 4,044 5,490 (3,660) 34,271 

Net unrealized holding gains (losses) on derivative instruments 45 215 7 381 

Amount credited directly to accumulated other comprehensive 

income (loss) upon adoption of SFAS No. 158 (5,560) — — (47,119) 

Total income taxes ¥ 94,758 ¥ 65,226 ¥ 34,570 $803,033 




Temporary differences and tax loss carryforwards which gave rise to deferred tax assets and liabilities at March 31, 2007 and 

2006, are as follows: 


Thousands of 

U.S. dollars 


Deferred tax assets: 

Allowances provided, not yet recognized for tax ¥ 4,044 ¥ 5,139 $ 34,271 

Accrued expenses 47,855 40,983 405,551 

Property, plant and equipment 9,561 8,194 81,025 

Inventories 9,388 10,752 79,559 

Net operating loss carryforwards 20,926 31,310 177,339 

Research and development expenses 386 4,903 3,271 

Other 18,659 20,018 158,128 

Total gross deferred tax assets 110,819 121,299 939,144 

Less valuation allowance (30,879) (35,490) (261,686) 

Total deferred tax assets ¥ 79,940 ¥ 85,809 $ 677,458 

Deferred tax liabilities: 

Unrealized holding gains on securities available for sale ¥ 27,944 ¥ 26,034 $ 236,814 

Deferral of profit from installment sales 315 398 2,669 

Property, plant and equipment 11,645 12,262 98,686 

Undistributed earnings of foreign subsidiaries and 

affiliated companies accounted for by the equity method 3,633 3,557 30,789 

Total deferred tax liabilities ¥ 43,537 ¥ 42,251 $ 368,958 

Net deferred tax assets ¥ 36,403 ¥ 43,558 $ 308,500 

Net deferred tax assets and liabilities as of March 31, 2007 and 2006 are reflected on the consolidated balance sheets under 

the following captions: 

Thousands of 


U.S. dollars 


Deferred income taxes and other current assets ¥ 49,717 ¥ 48,750 $ 421,331 

Deferred income taxes and other assets 20,335 30,298 172,331 

Deferred income taxes and other current liabilities (24) (16) (204) 

Deferred income taxes and other liabilities (33,625) (35,474) (284,958) 

¥ 36,403 ¥ 43,558 $ 308,500 

The valuation allowance was ¥50,273 million as of March 31, 

2004. The net changes in the total valuation allowance for the 

years ended March 31, 2007, 2006 and 2005 were a decrease 

of ¥4,611 million ($39,076 thousand), a decrease of ¥21,118 

million and an increase of ¥6,335 million, respectively. 

Subsequently recognized tax benefits relating to the valuation 

allowance for deferred tax assets in the amount of ¥719 

million ($6,093 thousand) as of March 31, 2007 will be 

allocated to goodwill and other intangible assets. 

In assessing the realizability of deferred tax assets, management 

considers whether it is more likely than not that some portion 

or all of the deferred tax assets will not be realized. 

The ultimate realization of deferred tax assets is dependent 

upon the generation of future taxable income during the periods 

in which those temporary differences become deductible 

and net operating losses available to be utilized. Management 

considers the scheduled reversal of deferred tax liabilities, projected 

future taxable income, and tax planning strategies in 

making this assessment. Based upon the level of historical taxable 

income and projections for future taxable income over the 

periods which the deferred tax assets are deductible, management 

believes it is more likely than not the companies will realize 

the benefits of these deductible differences and net operating 

loss carryforwards, net of the existing valuation allowances at 

March 31, 2007 and 2006. The amount of the deferred tax asset 

considered realizable, however, could be reduced in the near 

term if estimates of future taxable income during the carryforward 

period are reduced. 

The Company and its domestic subsidiaries are subject 

to a National Corporate tax rate of 30%, an inhabitant tax of 

approximately 6% and a deductible Enterprise tax of approximately 

8%, which in the aggregate resulted in a combined 

statutory income tax rate of approximately 40.8%. The inhabitant 

tax rate and Enterprise tax rate vary by local jurisdiction. 



The differences between the combined statutory tax rates and the effective tax rates for the years ended March 31, 2007, 2006 

and 2005, are summarized as follows: 

2007 2006 2005 

Combined statutory tax rate 40.8% 40.8% 40.8% 

Increase (decrease) in tax rates resulting from: 

Increase in valuation allowance 0.7 5.5 7.4 

Expenses not deductible for tax purposes 2.4 3.5 3.4 

Realization of tax benefits on operating losses of subsidiaries (2.2) (14.0) (5.6) 

Income of foreign subsidiaries taxed at lower than Japanese normal rate (6.2) (5.5) (7.1) 

Tax credit for research and development expenses (1.5) (2.2) — 

Other, net (0.3) 0.1 (1.6) 

Effective tax rate 33.7% 28.2% 37.3% 

Realization of tax benefits on operating losses of subsidiaries 

during the year ended March 31, 2006, which represented 

14.0% of the difference between the statutory and effective tax 

rate, related to the tax benefits recognized by Komatsu America 

Corp. amounting to ¥18,357 million on net operating loss carryforwards 

of its subsidiaries. 

Foreign subsidiaries are subject to income taxes of the countries 

in which they operate. At March 31, 2007 and 2006, 

undistributed earnings of foreign subsidiaries aggregated 

¥239,400 million ($2,028,814 thousand) and ¥171,391 million, 

respectively. At March 31, 2005, no deferred tax liabilities were 

recognized because the Company considered those earnings to 

be indefinitely reinvested. In the year ended March 31, 2006, 

the Company changed its policy to distribute a certain portion 

of undistributed earnings of a foreign subsidiary. As of March 

31, 2007 and 2006, Komatsu recognized deferred tax liabilities 

of ¥913 million ($7,738 thousand) and ¥1,090 million, respectively, 

associated with those earnings. As of March 31, 2007 

and 2006, Komatsu has not recognized deferred tax liabilities 

of ¥16,785 million ($142,246 thousand) and ¥11,551 million, 

respectively, for such portion of undistributed earnings of foreign 

subsidiaries that the Company intends to reinvest indefinitely. 

At March 31, 2007, the Company and certain 

subsidiaries had net operating loss carryforwards aggregating 

approximately ¥49,810 million ($422,119 thousand), which 

may be used as a deduction in determining taxable income in 

future periods. The period available to offset future taxable income 

varies in each tax jurisdiction as follows: 

Thousands of 


Within 5 years ¥ 6,155 $ 52,161 

6 to 20 years 34,691 293,992 

Indefinite periods 8,964 75,966 

Total ¥49,810 $422,119 

17. Rent Expenses 

Komatsu leases office space and equipment and employee housing 

under cancelable and non-cancelable lease agreements. Rent 

expenses under cancelable and non-cancelable operating leases 

amounted to ¥6,740 million ($57,119 thousand), ¥6,370 million 

and ¥5,588 million, respectively, for the years ended March 31, 

2007, 2006 and 2005. Lease contracts for equipment that qualify 

as capital leases in conformity with SFAS No. 13 have been 

capitalized. At March 31, 2007, the future minimum lease payments 

under non-cancelable operating leases and capital leases 

are as follows: 



Capital Operating lease Capital Operating lease 

Year ending March 31 leases commitments Total leases commitments Total 

2008 ¥21,931 ¥ 3,220 ¥25,151 $185,856 $ 27,288 $213,144 

2009 14,631 2,247 16,878 123,992 19,042 143,034 

2010 12,326 1,603 13,929 104,457 13,585 118,042 

2011 7,029 1,005 8,034 59,568 8,517 68,085 

2012 2,745 701 3,446 23,262 5,941 29,203 

Thereafter 2,494 2,853 5,347 21,136 24,178 45,314 

Total minimum lease payments ¥61,156 ¥11,629 ¥72,785 $518,271 $ 98,551 $616,822 

Less: amounts representing interest (5,274) (44,695) 

Present value of net minimum capital lease payments ¥55,882 $473,576 




18. Net Income per Share 

A reconciliation of the numerators and denominators of the basic and diluted net income per share computations is as follows: 

Thousands of 


U.S. dollars 


Income from continuing operations ¥153,264 ¥109,141 ¥55,868 $1,298,847 

Income from discontinued operations less applicable income taxes, 

minority interests and equity in earnings of affiliated companies 11,374 5,149 3,142 96,390 

Net income ¥164,638 ¥114,290 ¥59,010 $1,395,237 

Number of shares 

2007 2006 2005 

Weighted average common shares outstanding, less treasury stock 993,597,436 992,733,616 991,662,555 

Dilutive effect of: 

Stock options 1,788,951 1,697,534 660,966 

Weighted average diluted common shares outstanding 995,386,387 994,431,150 992,323,521 

Yen 

U.S. cents 


Income from continuing operations: 

Basic ¥154.25 ¥109.94 ¥56.34 ¢130.72 

Diluted 153.97 109.75 56.30 130.48 

Income from discontinued operations: 

Basic ¥ 11.45 ¥ 5.19 ¥ 3.17 ¢ 9.70 

Diluted 11.43 5.18 3.17 9.69 

Net income: 

Basic ¥165.70 ¥115.13 ¥59.51 ¢140.42 

Diluted 165.40 114.93 59.47 140.17 

19. Commitments and Contingent Liabilities 

At March 31, 2007, Komatsu was contingently liable for discounted 

and transferred receivables on a recourse basis with 

the financial institutions of ¥11,671 million ($98,907 thousand) 

(Note 5). 

Komatsu provides guarantees to third parties of loans of the 

employees, affiliated companies and other companies. The 

guarantees relating to the employees are mainly made for their 

housing loans. The guarantees of loans relating to the affiliated 

companies and other companies are made to enhance the 

credit of those companies. 

For each guarantee provided, Komatsu would have to perform 

under a guarantee, if the borrower defaults on a payment 

within the contract terms. The contract terms are from 10 years 

to 30 years in the case of employees with housing loans, and 

from 1 year to 5 years in the case of loans relating to the affiliated 

companies and other companies. The maximum amount of 

undiscounted payments Komatsu would have had to make in 

the event of default is ¥57,063 million ($483,585 thousand) at 

March 31, 2007. The fair value of the liabilities recognized for 

Komatsu’s obligations as guarantors under those guarantees at 

March 31, 2007 were insignificant. Certain of those guarantees 

were secured by collateral and insurance issued to the Company. 

Management of Komatsu believes that losses from those 

contingent liabilities, if any, would not have a material effect 

on the consolidated financial statements. 

Commitments for capital investment outstanding at 

March 31, 2007, aggregated approximately ¥12,900 million 

($109,322 thousand). 

Komatsu is involved in certain legal actions and claims arising 

in the ordinary course of its business. It is the opinion of management 

and legal counsel that such litigation and claims will be 

resolved without material effect on Komatsu’s financial position. 

Komatsu has business activities with customers, dealers and 

associates around the world and its trade receivables from such 

parties are well diversified to minimize concentrations of credit 

risks. Management does not anticipate incurring losses on its 

trade receivables in excess of established allowances. 

Komatsu also issues contractual product warranties under 

which it generally guarantee the performance of products delivered 

and services rendered for a certain period or term. Change 

in accrued product warranty cost for the years ended March 31, 

2007 and 2006 is summarized as follows: 

Thousands of 


U.S. dollars 


Balance at beginning of year ¥ 26,582 ¥ 21,251 $ 225,271 

Addition 39,756 22,051 336,915 

Utilization (37,862) (17,575) (320,864) 

Other 523 855 4,432 

Balance at end of year ¥ 28,999 ¥ 26,582 $ 245,754 



20. Derivative Financial Instruments 

Risk Management Policy 

Komatsu is exposed to market risk primarily from changes in foreign 

currency exchange and interest rates with respect to debt 

obligations, international operations and foreign currency denominated 

credits and debts. In order to manage these risks that 

arise in the normal course of business, Komatsu enters into various 

derivative transactions for hedging pursuant to its policies 

and procedures. Komatsu does not enter into derivative financial 

transactions for trading or speculative purposes. 

Komatsu has entered into interest rate swap and cap 

agreements, partly concurrent with currency swap agreements 

for the purpose of managing the risk resulting from changes in 

cash flow or fair value that arise in their interest rate and foreign 

currency exposure with respect to certain short-term and 

long-term debts. 

Komatsu operates internationally which expose Komatsu to 

the foreign exchange risk against existing assets and liabilities 

and transactions denominated in foreign currencies (principally 

the U.S. dollar and the Euro). In order to reduce these risks, 

Komatsu executes forward exchange contracts and option contracts 

based on its projected cash flow in foreign currencies. 

Komatsu is exposed to credit-related losses in the event of 

nonperformance by counterparties to derivative financial 

instruments, but Komatsu does not expect any counterparties 

to fail to meet their obligations because of the high credit rating 

of the counterparties. 

Fair Value Hedges 

Komatsu uses derivative financial instruments designated as fair 

value hedges to manage primarily interest rate and foreign 

exchange risks associated with debt obligations. Principally interest 

rate swaps and cross-currency swaps are used to hedge such 

risk for debt obligations. Changes in fair value of the hedged 

debt obligations and derivative instruments designated as fair 

value hedge are offset and recognized in other expense. For the 

years ended March 31, 2007, 2006 and 2005, hedge ineffectiveness 

resulting from fair value hedging activities was not material 

to Komatsu’s result of operations. During the same period, 

no fair value hedges were discontinued. 

Cash Flow Hedges 

Komatsu uses derivative financial instruments designated as cash 

flow hedges to manage Komatsu’s foreign exchange risks associated 

with forecasted transactions and Komatsu’s interest risks 

associated with debt obligations. For transactions denominated 

in foreign currencies, Komatsu typically hedges forecasted and 

firm commitment exposures to the variability in cash flow basically 

up to one year. For the variable rate debt obligations, 

Komatsu enters into interest rate swap contracts to manage the 

changes in cash flows. Komatsu records the changes in fair 

value of derivative instruments designated as cash flow hedges 

in other comprehensive income (loss). These amounts are reclassified 

into earnings through other income (expenses) when the 

hedged items impact earnings. Approximately ¥189 million 

($1,602 thousand) of existing loss included in accumulated other 

comprehensive income (loss) at March 31, 2007 will be reclassified 

into earnings within twelve months from that date. No cash 

flow hedges were discontinued during the years ended March 

31, 2007 as a result of anticipated transactions that are no 

longer probable of occurring. 

Undesignated Derivative Instruments 

Komatsu has entered into interest rate swap contracts not 

designated as hedging instruments under SFAS No. 133 as a 

means of managing Komatsu’s interest rate exposures for shortterm 

and long-term debts. Forward contracts and option contracts 

not designated as hedging instruments under SFAS No. 

133 are also used to hedge certain foreign currency exposures. 

The changes in fair value of such instruments are recognized 

currently in earnings. 

Notional Principal Amounts of Derivative Financial 

Instruments 

Notional principal amounts of derivative financial instruments 

outstanding at March 31, 2007 and 2006 are as follows. 

Thousands of 


U.S. dollars 


Forwards and options: 

Sale of foreign currencies ¥ 82,015 ¥ 69,675 $ 695,042 

Purchase of foreign 

currencies 41,778 35,656 354,051 

Option contracts (purchased) 2,532 2,128 21,458 

Interest rate swap, cross-currency 

swap and interest rate 

cap agreements 253,372 212,882 2,147,220 




21. The Fair Value of Financial Instruments 

(1) Cash and Cash Equivalents, Time Deposits, Trade Notes 

and Accounts Receivables, Other Current Assets, Short- 

Term Debt, Trade Notes and Accounts Payables, and 

Other Current Liabilities 

The carrying amount approximates fair value because of the 

short maturity of these instruments. 

(2) Investment Securities 

The fair values of investment securities available for sale for 

which it is practicable to estimate fair value are based on quoted 

market prices. 

(3) Installment Receivables 

The fair values of installment receivables are based on the present 

value of future cash flows through maturity, discounted 

using estimated current interest rates. The fair values computed 

on such a basis approximate the carrying amounts (Note 5). 

(4) Long-Term Debt 

The fair values of each of the long-term debts are based on the 

quoted price in the most active market or the present value of 

future cash flows associated with each instrument discounted 

using the current borrowing rate for similar debt of comparable 

maturity. 

(5) Derivative Financial Instruments 

The fair values of derivative financial instruments, consisting 

principally of foreign currency contracts and interest swap agreements, 

are estimated by obtaining quotes from brokers. 

The carrying amounts and the estimated fair values of the 

financial instruments, including financial instruments not qualifying 

as hedge, as of March 31, 2007 and 2006, are summarized 

as follows: 




Carrying Estimated Carrying Estimated Carrying Estimated 

amount fair value amount fair value amount fair value 

Investment securities ¥108,590 ¥108,590 ¥ 95,159 ¥ 95,159 $ 920,254 $ 920,254 

Long-term debt, including current portion 246,826 244,921 279,783 276,630 2,091,746 2,075,602 

Derivatives: 

Forwards and options 

Assets 614 614 367 367 5,203 5,203 

Liabilities 1,079 1,079 1,446 1,446 9,144 9,144 

Interest rate swap, cross-currency swap and 

interest rate cap agreements 

Assets 285 285 1,511 1,511 2,415 2,415 

Liabilities 2,192 2,192 3,041 3,041 18,576 18,576 

Limitations 

Fair value estimates are made at a specific point in time, based 

on relevant market information and information about the financial 

instrument. These estimates are subjective in nature and 

involve uncertainties and matters of significant judgment and 

therefore cannot be determined with precision. Changes in 

assumptions could affect the estimates. 

22. Business Segment Information 

Under SFAS No. 131, “Disclosures about Segments of an 

Enterprise and Related Information,” operating segments are 

defined as components of an enterprise about which separate 

financial information is available that is evaluated regularly by 

the chief operating decision maker, in deciding how to allocate 

resources and in assessing performance. The operating 

segments are managed separately because each operating segment 

represents a strategic business unit that offers different 

products and services. 

Komatsu operates on a worldwide basis with three operating 

segments: 1) Construction and mining equipment, 2) Industrial 

Machinery, Vehicles and Others, 3) Electronics. 



The following tables present certain information regarding Komatsu’s operating segments and geographic information at March 

31, 2007, 2006 and 2005, and for the years then ended: 

Operating segments: 

Thousands of 


U.S. dollars 


Net sales: 

Construction and Mining Equipment— 

Customers ¥1,567,723 ¥1,291,223 ¥1,061,161 $13,285,788 

Intersegment 20,253 21,203 15,199 171,636 

Total 1,587,976 1,312,426 1,076,360 13,457,424 

Industrial Machinery, Vehicles and Others— 

Customers 298,022 279,497 248,487 2,525,610 

Intersegment 99,229 82,196 62,155 840,924 

Total 397,251 361,693 310,642 3,366,534 

Electronics— 

Customers 27,598 41,420 46,423 233,882 

Intersegment 13 15 26 110 

Total 27,611 41,435 46,449 233,992 

Elimination (119,495) (103,414) (77,380) (1,012,670) 

Consolidated ¥1,893,343 ¥1,612,140 ¥1,356,071 $16,045,280 

Segment profit: 

Construction and Mining Equipment ¥ 220,606 ¥ 142,904 ¥ 78,427 $ 1,869,542 

Industrial Machinery, Vehicles and Others 29,555 22,470 15,440 250,466 

Electronics 2,137 3,045 5,414 18,110 

Total 252,298 168,419 99,281 2,138,118 

Corporate expenses and elimination (2,552) (3,918) (5,080) (21,627) 

Consolidated segment profit 249,746 164,501 94,201 2,116,491 

Impairment loss on long–lived assets held for use 81 4,791 4,200 686 

Impairment loss on goodwill — 3,041 — — 

Other operating income (expenses) (4,924) 6,759 5,861 (41,729) 


Interest and dividend income 8,532 6,824 5,138 72,305 


Other–net (1,297) (2,265) 1,480 (10,991) 

Consolidated income from continuing operations before income taxes ¥ 236,491 ¥ 155,779 ¥ 91,869 $ 2,004,161 

Identifiable assets: 

Construction and Mining Equipment ¥1,423,744 ¥1,167,336 ¥ 979,087 $12,065,627 

Industrial Machinery, Vehicles and Others 302,314 259,951 215,679 2,561,983 

Electronics 15,266 120,984 142,679 129,373 

Corporate assets and elimination 102,658 103,854 111,623 869,983 

Consolidated ¥1,843,982 ¥1,652,125 ¥1,449,068 $15,626,966 

Depreciation and amortization: 

Construction and Mining Equipment ¥ 57,444 ¥ 50,399 ¥ 46,630 $ 486,814 


Electronics 226 261 1,748 1,915 

Consolidated ¥ 65,421 ¥ 57,402 ¥ 55,682 $ 554,415 

Capital investment: 

Construction and Mining Equipment ¥ 111,003 ¥ 99,622 ¥ 64,547 $ 940,703 


Electronics 136 157 1,775 1,153 

Consolidated ¥ 129,680 ¥ 113,934 ¥ 76,907 $ 1,098,983 




Transfers between segments are made at estimated arm’slength 

prices. Segment profit represents net sales less cost of 

sales and selling, general and administrative expenses. 

Identifiable assets are those assets used in the operations of 

each segment. Unallocated corporate assets consist primarily of 

cash and cash equivalents and marketable investment securities 

maintained for general corporate purposes. Depreciation and 

amortization for the years ended March 31, 2007, 2006 and 

2005 do not include amortization of long-term prepaid expenses 

of ¥913 million ($7,737 thousand), ¥1,225 million and ¥1,416 

million, and do not include those for discontinued operations of 

¥6,375 million ($54,026 thousand), ¥14,013 million and ¥11,922 

million. The term “Capital investment” should be distinguished 

from the term “Capital expenditures” as used in the consolidated 

statements of cash flows. The term “Capital investment” is 

defined to refer to the acquisition of property, plant and equipment 

including properties under capital leases on an accrual 

basis which reflects the effects of timing differences between 

acquisition dates and payment dates. 

Certain amounts in the segment information do not reflect 

discontinued operations. Accordingly, segment information for 

the years ended March 31, 2006 and 2005 has been reclassified 

to conform to the presentation for the year ended March 31, 

2007. Industrial Machinery, Vehicles and Others segment does 

not include net sales to customers of discontinued operations 

amounting to ¥22,067 million ($187,008 thousand), ¥20,663 

million and ¥17,968 million and segment profit amounting to 

¥1,730 million ($14,661 thousand), ¥1,753 million and ¥1,417 

million for the years ended March 31, 2007, 2006 and 2005, respectively. 

Electronics segment does not include net sales to 

customers of discontinued operations amounting to ¥41,349 

million ($350,415 thousand), ¥69,166 million and ¥60,749 million 

and segment profit amounting to ¥9,288 million ($78,712 

thousand), ¥10,199 million and ¥6,305 million for the years 

ended March 31, 2007, 2006 and 2005, respectively. 

Geographic information: 

Net sales to customers recognized by sales destination for the years ended March 31, 2007, 2006 and 2005 are as follows: 

Thousands of 


U.S. dollars 


Net sales: 

Japan ¥ 487,103 ¥ 482,825 ¥ 479,007 $ 4,127,992 

The Americas 537,836 477,718 355,561 4,557,932 

Europe and CIS 324,071 232,329 195,281 2,746,364 

China 129,443 89,667 51,987 1,096,975 

Asia (excluding Japan, China) and Oceania 252,768 213,719 190,458 2,142,102 

Middle East and Africa 162,122 115,882 83,777 1,373,915 

Consolidated net sales ¥1,893,343 ¥1,612,140 ¥1,356,071 $16,045,280 

Net sales recognized by geographic origin and property, plant and equipment at March 31, 2007, 2006 and 2005, and for the 

years then ended are as follows: 


No individual country within Europe or other areas had a material impact on net sales or property, plant and equipment. 

There were no sales to a single major external customer for the years ended March 31, 2007, 2006 and 2005. 

Thousands of 

U.S. dollars 


Net sales: 

Japan ¥ 739,206 ¥ 682,260 ¥ 628,304 $ 6,264,458 

U.S.A. 527,680 465,726 356,063 4,471,864 

Europe 298,509 212,844 175,678 2,529,737 

Others 327,948 251,310 196,026 2,779,221 

Total ¥1,893,343 ¥1,612,140 ¥1,356,071 $16,045,280 

Property, plant and equipment: 

Japan ¥ 282,050 ¥ 298,807 ¥ 275,065 $ 2,390,254 

U.S.A. 60,609 48,871 50,451 513,636 

Europe 25,808 19,563 17,660 218,712 

Others 19,926 33,426 23,484 168,864 

Total ¥ 388,393 ¥ 400,667 ¥ 366,660 $ 3,291,466 



The following information shows net sales and segment profit 

recognized by geographic origin for the years ended March 

31, 2007, 2006 and 2005. In addition to the disclosure requirements 

under SFAS No. 131, Komatsu discloses this information 

as supplemental information in light of the disclosure requirements 

of the Japanese Securities and Exchange Law, which a 

Japanese public company is subject to: 

Thousands of 


U.S. dollars 


Net sales: 

Japan— 

Customers ¥ 739,206 ¥ 682,260 ¥ 628,304 $ 6,264,458 

Intersegment 396,361 297,784 231,812 3,358,991 

Total 1,135,567 980,044 860,116 9,623,449 

The Americas— 

Customers 527,792 466,049 356,284 4,472,814 

Intersegment 38,221 22,596 19,015 323,906 

Total 566,013 488,645 375,299 4,796,720 

Europe— 

Customers 298,509 212,844 175,678 2,529,737 

Intersegment 34,450 29,760 21,787 291,949 

Total 332,959 242,604 197,465 2,821,686 

Others— 

Customers 327,836 250,987 195,805 2,778,271 

Intersegment 20,678 19,250 9,404 175,237 

Total 348,514 270,237 205,209 2,953,508 

Elimination (489,710) (369,390) (282,018) (4,150,083) 

Consolidated ¥1,893,343 ¥1,612,140 ¥1,356,071 $16,045,280 

Segment profit: 

Japan ¥ 140,193 ¥ 89,913 ¥ 51,734 $ 1,188,076 

The Americas 51,842 38,966 24,652 439,339 

Europe 32,104 20,315 11,943 272,068 

Others 38,033 22,539 11,807 322,313 

Corporate and elimination (12,426) (7,232) (5,935) (105,305) 

Consolidated ¥ 249,746 ¥ 164,501 ¥ 94,201 $ 2,116,491 

Identifiable assets: 

Japan ¥1,065,487 ¥1,046,024 ¥1,014,317 $ 9,029,551 

The Americas 481,144 411,091 340,270 4,077,492 

Europe 221,012 151,664 125,891 1,872,983 

Others 237,839 201,168 142,897 2,015,585 

Corporate assets and elimination (161,500) (157,822) (174,307) (1,368,645) 

Consolidated ¥1,843,982 ¥1,652,125 ¥1,449,068 $15,626,966 

Overseas sales: 

The Americas ¥ 537,836 ¥ 477,718 ¥ 355,561 $ 4,557,932 

Europe 324,071 232,329 195,281 2,746,364 

Others 544,333 419,268 326,222 4,612,992 

Total ¥1,406,240 ¥1,129,315 ¥ 877,064 $11,917,288 

Transfers between segments are made at estimated arm’slength 

prices. Segment profit represents net sales less cost of 

sales and selling, general and administrative expenses. 

Identifiable assets are those assets used in the operations of 

each segment. Unallocated corporate assets consist primarily of 

cash and cash equivalents and investment securities maintained 

for general corporate purposes. 




23. Supplementary Information to Balance Sheets 

At March 31, 2007 and 2006, deferred income taxes and other current assets were comprised of the following: 

Thousands of 


U.S. dollars 


Prepaid expenses ¥ 3,663 ¥ 4,282 $ 31,042 

Short-term loans receivable: 

Affiliated companies 2,764 2,064 23,424 

Other 2,220 2,106 18,813 

Total ¥ 4,984 ¥ 4,170 $ 42,237 

Deferred income taxes 49,717 48,750 421,331 

Other 60,850 52,576 515,678 

Total ¥119,214 ¥109,778 $1,010,288 

24. Supplementary Information to Statements of Income 

The following information shows research and development expenses and advertising costs, for the years ended March 31, 2007, 

2006 and 2005. Research and development expenses, and advertising costs are charged to expense as incurred and are included in 

cost of sales and selling, general and administrative expenses in consolidated statements of income. 

Thousands of 


U.S. dollars 


Research and development expenses ¥ 46,306 ¥ 44,560 ¥ 41,123 $392,424 

Advertising costs 4,482 3,978 3,697 37,983 

Shipping and handling costs included in selling, general and administrative expenses for the years ended March 31, 2007, 2006 and 

2005, were as follows: 

Thousands of 


U.S. dollars 


Shipping and handling costs ¥ 44,065 ¥ 35,735 ¥ 30,941 $373,432 

Other operating income (expense) for the years ended March 31, 2007, 2006 and 2005, were comprised of the following: 

Thousands of 


U.S. dollars 


Gain from sale of subsidiaries ¥ — ¥ 18,484 ¥ — $ — 

Gain on sale of property — — 11,942 — 

Loss on disposal or sale of fixed assets (2,015) (8,176) (3,966) (17,076) 

Other (2,909) (3,549) (2,115) (24,653) 

Total ¥ (4,924) ¥ 6,759 ¥ 5,861 $ (41,729) 



Other income (expenses) for the years ended March 31, 2007, 2006 and 2005, were comprised of the following: 

Thousands of 


U.S. dollars 


Interest income– 

Installment receivables ¥ 945 ¥ 1,112 ¥ 1,511 $ 8,008 

Other 6,729 5,028 3,142 57,026 

Dividends 858 684 485 7,271 


Net gain (loss) from sale of investment securities 344 18 (126) 2,915 

Exchange gain or loss, net (903) (1,941) 2,318 (7,653) 

Other (738) (342) (712) (6,253) 

Total ¥ (8,250) ¥ (7,649) ¥ (3,993) $ (69,915) 

25. Valuation and Qualifying Accounts 

Valuation and qualifying accounts deducted from assets to which they apply: 


Thousands of 

U.S. dollars 

Allowance for doubtful receivables 2007 2006 2005 2007 

Balance at beginning of fiscal period ¥11,786 ¥14,664 ¥15,222 $ 99,881 

Additions 

Charged to costs and expenses 2,653 160 3,175 22,483 

Deductions 2,631 3,038 3,733 22,296 

Balance at end of fiscal period ¥11,808 ¥11,786 ¥14,664 $100,068 

Deductions were principally uncollectible accounts and notes charged to the allowance. 


Thousands of 

U.S. dollars 

Valuation allowance for deferred tax assets 2007 2006 2005 2007 

Balance at beginning of fiscal period ¥35,490 ¥56,608 ¥50,273 $300,763 

Additions 

Charged to costs and expenses 1,715 8,546 6,829 14,534 

Charged to other accounts 341 3,129 4,649 2,889 

Deductions 6,667 32,793 5,143 56,500 

Balance at end of fiscal period ¥30,879 ¥35,490 ¥56,608 $261,686 

Deductions were principally realization or expiration of net operating loss carryforwards. 

26. Subsequent Event 

Komatsu Zenoah Co., a subsidiary of the Company, split off its 

outdoor power equipment (OPE) business, and Zenoah Co., 

Ltd., a subsidiary of Komatsu Zenoah Co., took over the OPE 

business. All shares of Zenoah Co., Ltd. were sold to a Japanese 

subsidiary of Husqvarna AB of Sweden on April 2, 2007. After 

the sale of the OPE business which has few synergy effects with 

the construction and mining equipment business, Komatsu is 

better positioned to further improve management efficiency. 

Name and Line of Business of the Sub-Subsidiary Sold 

Name: 

Zenoah Co., Ltd. 

Line of Business: Manufacture and sale of 

outdoor power equipment 

Name of the Acquisition Company 

Name: 

Husqvarna Japan Ltd. 

Sale Price 

Sale Price: 

¥18,250 million 

Gain on sale 

Gain on sale (Pre-Tax): Approximately ¥8.4 billion 


Management’s Report on Internal Control over Financial Reporting 

The management of Komatsu is responsible for establishing and maintaining adequate internal control over financial reporting. 

Komatsu’s internal control over financial reporting is a process designed to provide reasonable assurances regarding the reliability of 

its financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted 

accounting principles. Komatsu’s internal control over financial reporting includes those policies and procedures that (i) pertain to the 

maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of 

Komatsu, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements 

in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of Komatsu are being made 

only in accordance with authorizations of management and directors of Komatsu and (iii) provide reasonable assurance regarding 

prevention or timely detection of unauthorized acquisition, use, or disposition of Komatsu’s assets that could have a material effect 

on its financial statements. 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections 

of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of 

changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

Management assessed the effectiveness of the Komatsu’s internal control over financial reporting as of March 31, 2007. In making 

this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway 

Commission (COSO) in Internal Control — Integrated Framework. 

Based on its assessment Komatsu concluded that, as of March 31, 2007, Komatsu’s internal control over financial reporting was effective 

based on those criteria. 

KPMG AZSA & Co., an independent registered public accounting firm, has issued an audit report on Komatsu’s assessment of the effectiveness 

of its internal control over financial reporting as of March 31, 2007. 

Kunio Noji 

President and CEO 

Kenji Kinoshita 

Director and Senior Executive Officer 

CFO 

June 29, 2007 


Report of Independent Registered Public Accounting Firm 

The Board of Directors and Shareholders 

Komatsu Ltd.: 

We have audited the accompanying consolidated balance sheets of Komatsu Ltd. and subsidiaries as of March 31, 2007 and 2006, 

and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year period 

ended March 31, 2007, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s 

management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 

are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in 

the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, 

as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for 

our opinion. 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of 

Komatsu Ltd. and subsidiaries as of March 31, 2007 and 2006, and the results of their operations and their cash flows for each of 

the years in the three-year period ended March 31, 2007, in conformity with U.S. generally accepted accounting principles. 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness 

of the Company’s internal control over financial reporting as of March 31, 2007, based on criteria established in Internal 

Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and 

our report dated June 29, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, 

internal control over financial reporting. 

The accompanying consolidated financial statements as of and for the year ended March 31, 2007 have been translated into United 

States dollars solely for convenience of the reader. We have audited the translation and, in our opinion, the consolidated financial 

statements, expressed in yen, have been translated into dollars on the basis set forth in Note 1 to the consolidated financial statements. 

Tokyo, Japan 



Report of Independent Registered Public Accounting Firm 

The Board of Directors and Shareholders 

Komatsu Ltd.: 

We have audited management's assessment, included in the accompanying Management’s Report on Internal Control over Financial 

Reporting, that Komatsu Ltd. and subsidiaries maintained effective internal control over financial reporting as of March 31, 2007, 

based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the 

Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial 

reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an 

opinion on management's assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting 

based on our audit. 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those 

standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial 

reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial 

reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal 

control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides 

a reasonable basis for our opinion. 

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of 

financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting 

principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to 

the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of 

the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements 

in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are 

being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance 

regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could 

have a material effect on the financial statements. 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections 

of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of 

changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

In our opinion, management's assessment that Komatsu Ltd. and subsidiaries maintained effective internal control over financial reporting 

as of March 31, 2007, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated 

Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, 

Komatsu Ltd. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of March 31, 

2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations 

of the Treadway Commission (COSO). 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated 

balance sheets of Komatsu Ltd. and subsidiaries as of March 31, 2007 and 2006, and the related consolidated statements 

of income, shareholders’ equity and cash flows for each of the years in the three-year period ended March 31, 2007, expressed in 

Japanese yen, and our report dated June 29, 2007 expressed an unqualified opinion on those consolidated financial statements. 

Tokyo, Japan 



Directors, Auditors and Officers 

(As of June 22, 2007) 

Board of Directors 

Masahiro Sakane 

Chairman of the Board 

Kunio Noji 

President and Chief Executive Officer 

Yoshinori Komamura 


President, Construction & Mining 

Equipment Marketing Division 

Yasuo Suzuki 


General Manager, 

Corporate Planning Division 

Supervising Structual Reorganization, 

External Corporate Affairs, Environment, 

Compliance, Legal Affairs, CSR, Human 

Resources and Industrial Machinery 

Business 

Masahiro Yoneyama 


Representative of All China Operations 

Susumu Isoda 


President, Komatsu Utility Co., Ltd. 

Kenji Kinoshita 


Chief Financial Officer 

Supervising Audit, Corporate 

Communications and Investor Relations 

Toshio Morikawa 

Outside Director 

Advisor, 

Sumitomo Mitsui Banking Corporation 

Hajime Sasaki 


Chairman of the Board, 

NEC Corporation 

Morio Ikeda 


Advisor, 

Shiseido Company, Limited 

Corporate Auditors 

Makoto Nakamura 

Corporate Auditor (Full time) 

Masafumi Kanemoto 

Corporate Auditor (Full time) 

Takaharu Dohi 

Outside Corporate Auditor 

Attorney at law 

Makoto Okitsu 


Chairman, 

Teijin Limited 

Hiroyuki Kamano 


Partner, 

Kamano Sogo Law Offices 

Executive Officers 

Mamoru Hironaka 

Senior Executive Officer 

Vice President, Construction & Mining 

Equipment Marketing Division 

President, Product Support Division 

Masao Fuchigami 


President, Research Division 

Supervising Design & Development 

and Quality Assurance 

Taizo Kayata 


President, Overseas Marketing, 


Marketing Division 

Masaji Kitamura 


President, Construction & Mining 

Equipment Strategy Division 

Nobukazu Kotake 


President, Development Division 

Susumu Yamanaka 


President, Defense Systems Division 

Masakatsu Hioki 

Executive Officer 

General Manager, Human Resources 

Supervising Safety 

Tetsuji Ohashi 


President, Production Division 

Supervising e-KOMATSU 

Shinichiro Komiya 


President, Japanese Marketing, 


Marketing Division 

Koji Yamada 


President, Industrial Machinery Division 

Tetsuro Kajiya 


President, Procurement Division 

Nobuki Hasegawa 


General Manager, Construction 

Equipment Technical Center 2, 

Development Division 

Mikio Fujitsuka 


Deputy General Manager, 

Corporate Planning Division 

Ichiro Sasaki 


Osaka Plant Manager, 

Production Division 

Fujitoshi Takamura 



Equipment Technical Center 1, 


Yoshisada Takahashi 


Awazu Plant Manager, 


Tadashi Okada 


General Manager, Corporate 

Communications and CSR 

Supervising General Affairs 

Masahiro Uegaki 


Mooka Plant Manager, 


Kazunori Kuromoto 



Equipment Electronics, 


Mitsuru Ueno 


President, Engines & Hydraulics Business 

Division and Oyama Plant Manager 


Komatsu Group Investment Holdings 

(As of March 31, 2007) 

Subscribed 

capital Participation 

Company in millions (%) 

Komatsu Ltd. ¥67,870 — 

Consolidated Subsidiaries 

Komatsu Hokkaido Ltd. ¥487 100.0 

Komatsu Aomori Ltd. ¥30 98.1 

Komatsu Niigata Ltd. ¥80 100.0 

Komatsu Tokyo Ltd. ¥950 100.0 

Komatsu Tokai Ltd. ¥50 100.0 

Komatsu Gifu Ltd. ¥300 100.0 

Komatsu Kinki Ltd. ¥1,700 100.0 

Komatsu Hyogo Ltd. ¥613 90.0 

Komatsu Chugoku Ltd. ¥984 100.0 

Komatsu Nishi-Nihon Ltd. ¥200 100.0 

Komatsu Zenoah Co. ¥5,099 100.0 

Komatsu Castex Ltd. ¥4,979 100.0 

Komatsu Used Equipment Corp. ¥290 (4.8) 100.0 

Komatsu Rental Japan Ltd. ¥1,000 100.0 

Komatsu Diesel Co.,Ltd. ¥50 100.0 

Komatsu Business Support Ltd. ¥20 100.0 

Komatsu Cabtec Co.,Ltd. ¥300 95.0 

Komatsu All Parts Support Ltd. ¥30 100.0 

Komatsu Forklift Co.,Ltd. ¥13,033 100.0 

Komatsu Industries Corporation ¥990 100.0 

Komatsu Machinery Corporation ¥600 100.0 

Komatsu Logistics Corp. ¥1,080 100.0 

Komatsu House Ltd. ¥1,436 (1.9) 89.3 

Komatsu General Services Ltd. ¥160 100.0 

Komatsu Engineering Corp. ¥140 100.0 

Komatsu Electronics,Inc. (KELK) ¥390 100.0 

Komatsu America Corp. (KAC) US$1,027 100.0 

Komatsu Latin-America Corp.(KLC) US$18 (100.0) 100.0 

Komatsu do Brasil Ltda. (KDB) BRL55 (100.0) 100.0 

Subscribed 

capital 

in millions 

(except for* Participation 

Company in thousands) (%) 

Komatsu Cummins Chile Ltda. (KCC) US$13 (81.8) 81.8 

Komatsu Financial Limited Partnership (KFLP) — (100.0) 100.0 

Komatsu Equipment Company (KEC) US$1 (100.0) 100.0 

Modular Mining Systems,Inc.(MMS) US$16* (100.0) 100.0 

Hensley Industries,Inc. US$2* (100.0) 100.0 

Komatsu Europe International N.V. (KEISA) Euro45 100.0 

Komatsu Europe Coordination Center N.V. (KECC) 

Euro1,250* (100.0) 100.0 

Komatsu UK Ltd. (KUK) £23 ( 50.0) 100.0 

Komatsu Hanomag GmbH (KOHAG) Euro19 ( 49.3) 100.0 

Komatsu Mining Germany GmbH (KMG) Euro5 100.0 

Komatsu Deutschland GmbH (KDG) Euro6 (100.0) 100.0 

Komatsu France S.A. (KFSA) Euro5 (100.0) 100.0 

Komatsu Utility Europe S.p.A. (KUE) Euro6 ( 90.0) 100.0 

Komatsu Italia S.p.A. (KIT) Euro4 (100.0) 100.0 

Komatsu Forest AB SKR397 100.0 

Komatsu Southern Africa (Pty) Ltd. (KSAf) ZAR1* 80.0 

Komatsu Asia & Pacific Pte Ltd. (KAP) S$28 100.0 

PT Komatsu Indonesia (KI) RP192,780 94.9 

PT Komatsu Undercarriage Indonesia (KUI) US$10 (24.8) 100.0 

PT Komatsu Marketing & Support Indonesia (KMSI) US$5 (100.0) 100.0 

Bangkok Komatsu Co.,Ltd. (BKC) BHT620 (74.8) 74.8 

Komatsu Australia Pty.Ltd. (KAL) A$21 (40.0) 60.0 

Komatsu (China) Ltd. (KC) US$34 100.0 

Komatsu (Changzhou) Construction 

Machinery Corp. (KCCM) US$21 (10.0) 85.0 

Komatsu Shantui Construction 

Machinery Co.,Ltd. (KSC) US$21 (30.0) 60.0 

Komatsu Forklift U.S.A. Inc. (KFI) US$44 (100.0) 100.0 

Komatsu America Industries LLC. (KAILLC) — (100.0) 100.0 

Komatsu Finance America Inc. (KFA) US$140 (100.0) 100.0 

Komatsu Silicon America, LLC. (KSA) — (100.0) 100.0 


KOMATSU GROUP INVESTMENT HOLDINGS 

Subscribed 

capital 

in millions 

(except for* Participation 

Company in thousands) (%) 

Affiliated Companies Accounted for by the Equity Method 

Komatsu Yamagata Ltd. ¥45 33.3 

Komatsu Saitama Ltd. ¥635 40.0 

Komatsu Ibaraki Co.,Ltd. ¥74 25.0 

Sanuki Lease Ltd. ¥765 (1.0) 35.0 

Komatsu Cummins Engine Co.,Ltd. (KCEC) ¥1,400 50.0 

Industrial Power Alliance, Ltd. ¥500 50.0 

Qualica Ltd. ¥1,234 20.0 

Nippei Toyama Corporation ¥6,014 30.6 

Gigaphoton,Inc. ¥5,000 50.0 

L&T-Komatsu Limited (LTK) Rp1,200 (50.0) 50.0 

Cummins Komatsu Engine Company (CKEC) — (50.0) 50.0 

Notes: 1. In addition to the above list, there are 87 consolidated subsidiaries. 

2. Similarly, there are 28 additional affiliated companies accounted for by the 

equity method. 

3. Participation represents the percentage of voting stock concerning 

consolidated subsidiaries. The figures contained in parentheses represent 

the percentage of indirect ownership by other Komatsu Group companies 

and are included in the overall participation percentage. 

4. Komatsu Financial Limited Partnership is a limited partnership in compliance 

with the regulations of the U.S. state of Delaware. Net assets equivalent of 

common stock in the company totals US$327 million. Investment was 

made through our subsidiary Komatsu America Corp. 

5. Komatsu America Industries LLC is a limited liability company in compliance 


common stock in the company totals US$37 million. Investment was made 

through our subsidiary Komatsu America Corp. 

6. Komatsu Silicon America, Inc. is a limited liability company in compliance 


common stock in the company totals US$36 million. Investment was made 

through our subsidiary Komatsu America Corp. 

7. Cummins Komatsu Engine Company is a general partnership in compliance 

with the regulations of the U.S. state of Indiana. Our cumulative investment 

in the company totals US$2 million through our subsidiary Komatsu 

America Corp. 

8. PT Komatsu Marketing & Support Indonesia became consolidated 

subsidiaries in the year ended March 31, 2007. 

9. Komatsu Zenoah Co. was merged with Komatsu Forklift Co.,Ltd. and 

Komatsu Forklift Co.,Ltd. was renamed Komatsu Utility Co.,Ltd. in April 

2007. 


Corporate Information 

(As of March 31, 2007) 

Head Office.......................................................... 2-3-6 Akasaka, Minato-ku, Tokyo 107-8414, Japan 

Corporate Communications Department 

Tel: 81-3-5561-2687 

Fax: 81-3-3505-9662 

E-mail: ir@komatsu.co.jp 

Corporate Controlling Department 

Tel: 81-3-5561-2604 

Fax: 81-3-3586-0374 

Date of Establishment ........................................ May 13, 1921 

Common Stock Outstanding .............................. ¥67,870 million (US$575 million) 

Shares of Common Stock Issued 

and Outstanding ................................................. 998,744,060 shares 

Number of Shareholders .................................... 129,640 

Stock Listings....................................................... Tokyo, Osaka 

Transfer Agent for Common Stock .................... Mitsubishi UFJ Trust and Banking Corporation 

4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8212, Japan 

Depositaries......................................................... ADRs: Depositary Receipts Services, Citibank, N.A., 388 Greenwich Street, 14th Floor, 

New York, NY 10013, U.S.A. 

Stock Price Range in Fiscal 2006......................... High: ¥2,870 (February 26, 2007); Low: ¥1,857 (June 14, 2006) 

Number of Employees (Consolidated)............... 33,863 

Tokyo Stock Price Range 

As of May 31, 2007 

High 

High 

Yen 

3,500 

Stock Prices on the Tokyo Stock Exchange 

Yen 

40,000 

Opening 

Closing 

Closing 

Opening 

3,000 

35,000 

Low 

Low 

Black: opening price > closing price 

2,500 

30,000 

White: closing price > opening price 

2,000 

Komatsu stock price (left scale) 

25,000 

1,500 

20,000 

1,000 

15,000 

500 

Nikkei 225 (right scale) 

10,000 

0 

5,000 

Million shares 

10.0 

Average Daily Volume of Stock Traded, by Month 

8.0 

6.0 

4.0 

2.0 

0 

2002 2003 2004 2005 2006 2007 

Note : Calendar years (January–December) 


2-3-6 Akasaka, Minato-ku 

Tokyo 107-8414, Japan 

http://www.komatsu.com/ 

Corporate Communications Department 

Tel: 81-3-5561-2687 

Fax: 81-3-3505-9662 

E-mail: ir@komatsu.co.jp 

Corporate Controlling Department 

Tel: 81-3-5561-2604 

Fax: 81-3-3586-0374 

This report is printed with soybean ink certified as being environment-friendly by the American Soybean Association. 

Printed in Japan on recycled paper with a 100% post-consumer content 

Form No.AEN00001-02 

HEAR070707

Annual Report 2007 - Komatsu

Create successful ePaper yourself

Delete template?

Save as template?