(Translation)

This document has been translated from the Japanese original for the convenience of overseas stakeholders. In the event of any discrepancy between this document and the Japanese original, the original shall prevail.

Quarterly Report

From April 1, 2020 to June 30, 2020

(First Quarter of the 152nd Fiscal Year)

KOMATSU LTD.

First Quarter of the 152nd Fiscal Year (from April 1, 2020 to June 30, 2020)

Quarterly Report

Certain References and Information:

  1. This is an English translation of the Quarterly Securities Report ("Shihanki Hokokusho") filed via the Electronic Disclosure for Investors' Network ("EDINET") system as set forth in Article 27-30-2 of the Financial Instruments and Exchange Act of Japan. Komatsu Ltd. filed its Quarterly Securities Report for the three months ended June 30, 2020 with the Director-General of the Kanto Local Finance Bureau on August 7, 2020. The Quarterly Securities Report contains, among other information, Quarterly Consolidated Financial Statements for the three months ended June 30, 2020. Material information in the Quarterly Securities Report, other than the Quarterly Consolidated Financial Statements, has already been reported by Komatsu Ltd. in its press release dated July 30, 2020. Attached is an English translation of Quarterly Consolidated Financial Statements for the three months ended June 30, 2020.
  2. In this report, Komatsu Ltd. is hereinafter referred to as the "Company" and together with its consolidated subsidiaries as "Komatsu."

Cautionary Statement with respect to forward-looking statements:

This report contains forward-looking statements that reflect managements' 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 report, and the Company 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 Komatsu's principal products, owing to changes in the economic conditions in Komatsu's principal markets; changes in exchange rates or the impact of increased competition; unanticipated costs or delays encountered in achieving Komatsu's objectives with respect to globalized product sourcing and new information technology tools; uncertainties as to the results of Komatsu'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.

Financial Information

1. Basis of preparation of the quarterly consolidated financial statements

The quarterly consolidated financial statements of the Company are prepared in accordance with the accounting principles generally accepted in the United States of America (hereinafter "U.S. GAAP"), pursuant to Article 4, Supplementary Provisions of the "Ordinance on Terminology, Forms and Preparation Methods of Quarterly Consolidated Financial Statements," the Ordinance of the Cabinet Office No. 64 of 2007.

2. Audit certification

Pursuant to Article 193-2, paragraph 1 of the Financial Instruments and Exchange Act of Japan, the quarterly consolidated financial statements for the three months ended June 30, 2020 were reviewed by KPMG AZSA LLC.

- 1 -

Quarterly Consolidated Financial Statements, etc.

Quarterly Consolidated Financial Statements

Consolidated Balance Sheets (Unaudited)

Komatsu Ltd. and Consolidated Subsidiaries as of June 30, 2020 and March 31, 2020

June 30, 2020

March 31, 2020

Assets

Millions of yen

Ratio (%)

Millions of yen

Ratio (%)

Current assets

Cash and cash equivalents (Note 15)

¥

255,102

¥

247,616

Time deposits (Note 15)

2,128

2,057

Trade notes and accounts receivable, net (Notes 3 and 9)

664,554

744,395

Inventories (Note 4)

866,723

805,309

Other current assets (Notes 14, 15 and 16)

148,826

147,413

Total current assets

1,937,333

52.9

1,946,790

53.3

Long-term trade receivables, net (Notes 3, 9, and 15)

435,937

11.9

420,918

11.5

Investments

Investments in and advances to affiliated companies

38,451

38,210

Investment securities (Note 5)

7,217

7,328

Other

2,475

2,436

Total investments

48,143

1.3

47,974

1.3

Property, plant and equipment

- less accumulated depreciation and amortization of ¥904,918

million at June 30, 2020 and ¥894,328 million at March 31, 2020

755,282

20.6

757,679

20.8

Operating lease right-of-use assets

53,478

1.5

53,454

1.5

Goodwill

160,403

4.4

157,521

4.3

Other intangible assets

164,122

4.5

162,062

4.4

- less accumulated amortization (Note 6)

Deferred income taxes and other assets (Notes 14, 15 and 16)

106,186

2.9

107,288

2.9

Total assets

¥

3,660,884

100.0

¥

3,653,686

100.0

June 30, 2020

March 31, 2020

Liabilities and Equity

Millions of yen

Ratio (%)

Millions of yen

Ratio (%)

Current liabilities

Short-term debt (Note 15)

¥

473,332

¥

483,658

Current maturities of long-term debt (Note 15)

135,186

118,880

Trade notes, bills and accounts payable

204,263

220,160

Income taxes payable

22,793

23,169

Current operating lease liabilities

14,778

14,933

Other current liabilities (Notes 9, 14, 15 and 16)

291,773

297,825

Total current liabilities

1,142,125

31.2

1,158,625

31.7

Long-term liabilities

Long-term debt (Note 15)

439,347

409,840

Liability for pension and retirement benefits

94,911

96,392

Long-term operating lease liabilities

38,659

38,624

Deferred income taxes and other liabilities (Notes 9, 14, 15 and 16)

92,666

93,980

Total long-term liabilities

665,583

18.2

638,836

17.5

Total liabilities

1,807,708

49.4

1,797,461

49.2

Commitments and contingent liabilities (Note 13)

Equity

Komatsu Ltd. shareholders' equity

Common stock:

Authorized 3,955,000,000 shares

Issued 972,581,230 shares

Outstanding 944,657,798 shares at June 30, 2020 and

944,621,957 shares at March 31, 2020

68,689

68,689

Capital surplus

136,381

136,459

Retained earnings:

Appropriated for legal reserve

47,178

46,813

Unappropriated

1,678,504

1,699,477

Accumulated other comprehensive income (loss) (Notes 8 and 14)

(118,141)

(130,666)

Treasury stock at cost,

27,923,432 shares at June 30, 2020 and 27,959,273 shares at March 31, 2020

(49,093)

(49,166)

Total Komatsu Ltd. shareholders' equity

1,763,518

48.2

1,771,606

48.5

Noncontrolling interests

89,658

2.4

84,619

2.3

Total equity

1,853,176

50.6

1,856,225

50.8

Total liabilities and equity

¥

3,660,884

100.0

¥

3,653,686

100.0

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

- 2 -

Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Unaudited)

Komatsu Ltd. and Consolidated Subsidiaries

Three months ended June 30, 2020 and 2019.

Consolidated Statements of Income

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Millions of yen

Ratio(%)

Millions of yen

Ratio(%)

Net sales (Notes 9, 11 and 14)

¥

458,731

100.0

¥

609,767

100.0

Cost of sales (Notes 6, 7 and 14)

334,720

73.0

427,357

70.1

Selling, general and administrative expenses (Notes 6, 7 and 10)

97,373

21.2

109,667

18.0

Other operating income, net

281

0.1

2,017

0.3

Operating income

26,919

5.9

74,760

12.3

Other income (expenses), net

Interest and dividend income

1,185

0.3

1,746

0.3

Interest expense

(3,841)

(0.8)

(6,650)

(1.1)

Other, net (Notes 5, 7, 8 and 14)

4,234

0.9

(2,946)

(0.5)

Total

1,578

0.4

(7,850)

(1.3)

Income before income taxes and equity in

28,497

6.2

66,910

11.0

earnings of affiliated companies

Income taxes (Note 8)

Current

10,076

13,082

Deferred

(258)

4,749

Total

9,818

2.1

17,831

2.9

Income before equity in earnings of affiliated companies

18,679

4.1

49,079

8.0

Equity in earnings of affiliated companies

551

0.1

668

0.1

Net income

19,230

4.2

49,747

8.2

Less: Net income attributable to noncontrolling interests

2,979

0.6

2,271

0.4

Net income attributable to Komatsu Ltd.

¥

16,251

3.5

¥

47,476

7.8

Yen

Per share data (Note 12):

Net income attributable to Komatsu Ltd.:

Basic

¥

17.20

¥

50.30

Diluted

¥

17.20

¥

50.25

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

- 3 -

Consolidated Statements of Comprehensive Income

Millions of yen

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Net income

¥

19,230

¥

49,747

Other comprehensive income (loss), for the period, net of tax

Foreign currency translation adjustments (Note 8)

14,654

(33,311)

Pension liability adjustments (Notes 7 and 8)

264

328

Net unrealized holding gains (losses) on derivative instruments (Notes 8 and 14)

(237)

(714)

Total

14,681

(33,697)

Comprehensive income

33,911

16,050

Less: Comprehensive income (loss) attributable to noncontrolling interests

5,135

(447)

Comprehensive income attributable to Komatsu Ltd.

¥

28,776

¥

16,497

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

- 4 -

Consolidated Statements of Equity (Unaudited)

Komatsu Ltd. and Consolidated Subsidiaries

Three months ended June 30, 2020

Millions of yen

Retained earnings

Appropriated

Accumulated

Total

Non-

Common

Capital

Un-

other

Treasury

Komatsu Ltd.

Total

for legal

controlling

stock

surplus

appropriated

comprehensive

stock

shareholders'

equity

reserve

interests

income (loss)

equity

Balance at March 31, 2020

¥

68,689

¥

136,459

¥

46,813

¥

1,699,477

¥

(130,666)

¥

(49,166)

¥

1,771,606

¥

84,619

¥

1,856,225

Cash dividends (Note 18)

(36,859)

(36,859)

(1,096)

(37,955)

Transfer to retained earnings appropriated

365

(365)

for legal reserve

Other changes

1,000

1,000

Net income

16,251

16,251

2,979

19,230

Other comprehensive income (loss),

12,525

12,525

2,156

14,681

for the period, net of tax (Note 8)

Issuance and exercise of stock acquisition

(82)

(82)

(82)

rights (Note 10)

Purchase of treasury stock

(5)

(5)

(5)

Sales of treasury stock

4

78

82

82

Restricted stock compensation (Note 10)

Balance at June 30, 2020

¥

68,689

¥

136,381

¥

47,178

¥

1,678,504

¥

(118,141)

¥

(49,093)

¥

1,763,518

¥

89,658

¥

1,853,176

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

Three months ended June 30, 2019

Millions of yen

Retained earnings

Appropriated

Accumulated

Total

Non-

Common

Capital

Un-

other

Treasury

Komatsu Ltd.

Total

for legal

controlling

stock

surplus

appropriated

comprehensive

stock

shareholders'

equity

reserve

interests

income (loss)

equity

Balance at March 31, 2019

¥

68,311

¥

136,798

¥

46,028

¥

1,654,105

¥

(39,792)

¥

(49,868)

¥

1,815,582

¥

87,286

¥

1,902,868

Cash dividends (Note 18)

(55,719)

(55,719)

(3,037)

(58,756)

Transfer to retained earnings appropriated

537

(537)

for legal reserve

Net income

47,476

47,476

2,271

49,747

Other comprehensive income (loss),

(30,979)

(30,979)

(2,718)

(33,697)

for the period, net of tax (Note 8)

Issuance and exercise of stock acquisition

(120)

(120)

(120)

rights (Note 10)

Purchase of treasury stock

(6)

(6)

(6)

Sales of treasury stock

9

111

120

120

Restricted stock compensation (Note 10)

(34)

(34)

(68)

(68)

Balance at June 30, 2019

¥

68,277

¥

136,653

¥

46,565

¥

1,645,325

¥

(70,771)

¥

(49,763)

¥

1,776,286

¥

83,802

¥

1,860,088

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

- 5 -

Consolidated Statements of Cash Flows (Unaudited)

Komatsu Ltd. and Consolidated Subsidiaries

Three months ended June 30, 2020 and 2019

Millions of yen

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Operating activities

Net income

¥

19,230

¥

49,747

Adjustments to reconcile net income to net cash provided by (used in) operating

activities:

Depreciation and amortization

31,822

32,677

Deferred income taxes

(258)

4,749

Impairment loss and net loss (gain) on valuation of investment securities

88

(18)

Net loss (gain) on sale of fixed assets

(56)

(444)

Loss on disposal of fixed assets

353

694

Pension and retirement benefits, net

(1,110)

(1,554)

Changes in assets and liabilities:

Decrease (increase) in trade receivables

80,129

35,377

Decrease (increase) in inventories

(52,889)

(56,019)

Increase (decrease) in trade payables

(16,319)

(7,657)

Increase (decrease) in income taxes payable

(652)

(16,858)

Other, net

(5,310)

17,215

Net cash provided by (used in) operating activities

55,028

57,909

Investing activities

Capital expenditures

(37,267)

(43,998)

Proceeds from sale of fixed assets

3,127

4,390

Proceeds from sale of investment securities

7

415

Purchases of investment securities

(34)

(218)

Acquisition of subsidiaries and equity investees, net of cash acquired

(1,717)

(7,459)

Other, net

439

(757)

Net cash provided by (used in) investing activities

(35,445)

(47,627)

Financing activities

Proceeds from debt issued (Original maturities greater than three months)

193,557

138,093

Payment on debt (Original maturities greater than three months)

(148,444)

(115,411)

Short-term debt, net (Original maturities three months or less)

(18,955)

70,053

Dividends paid

(36,859)

(55,719)

Other, net *1

(1,343)

(3,685)

Net cash provided by (used in) financing activities

(12,044)

33,331

Effect of exchange rate change on cash and cash equivalents

(53)

1,395

Net increase (decrease) in cash and cash equivalents

7,486

45,008

Cash and cash equivalents, beginning of year

247,616

148,479

Cash and cash equivalents, end of period

¥

255,102

¥

193,487

The accompanying Notes are an integral part of these Quarterly Consolidated Financial Statements.

*1 In the three months ended June 30, 2020, Komatsu (the Company and its consolidated subsidiaries) has classified "Repayments of finance lease obligations" and "Sale (purchase) of treasury stock, net" as "Other, net" in the financing activities. Accordingly, the figures for the three months ended June 30, 2019 were reclassified to conform to the presentation for the three months ended June 30, 2020.

- 6 -

Komatsu Ltd. and Consolidated Subsidiaries

Three months ended June 30, 2020 and 2019

Notes to Quarterly Consolidated Financial Statements (Unaudited)

1. Basis of Quarterly Financial Statement Presentation and Summary of Significant Accounting Policies

Basis of Quarterly Financial Statement Presentation

The Company prepares and presents the accompanying quarterly consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (hereinafter "U.S. GAAP").

The accompanying quarterly consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and principally operates.

Some adjustments without booked on each subsidiaries' and affiliates' quarterly financial statements are added to the accompanying quarterly consolidated financial statements. These adjustments are mainly due to the gaps of accounting principle between Japan and the United States of America. See Note 21 "Terminology, Forms and Preparation Methods of Quarterly Consolidated Financial Statements".

Preparation of Financial Statements and Registration with the U.S. Securities and Exchange Commission

The Company has been preparing its consolidated financial statements in accordance with U.S. GAAP since 1963, because the Company issued foreign currency convertible bonds at European market in 1964. The Company registered its convertible bonds issued in the United States in 1967 and its common shares issued for U.S. shareholders as well as Japanese shareholders in 1970 with the U.S. Securities and Exchange Commission (hereinafter "SEC"). Since then, the Company, as a non-U. S. issuer, had been having the reporting obligations, such as filing annual report with its consolidated financial statements in accordance with U.S. GAAP, under the Securities Exchange Act of 1934. The Company's registration with SEC was terminated on June 30, 2014.

Summary of Significant Accounting Policies

There is no material change for summary of significant accounting policies stated in annual report for the fiscal year ended March 31, 2020.

Regarding the impact of the novel coronavirus (COVID-19) pandemic on Komatsu's financial position and results of operations, just how COVID-19 will spread from this point forward, or when it will be contained, is still unclear. Nevertheless, under the assumptions that the COVID-19-related impacts will continue for a length of time in the fiscal year ending March 31, 2021, Komatsu has calculated the projections for this fiscal year based on the information which is available at present and our predictions. Komatsu is making its best estimates based on the projections to assess the likelihood of recovery of deferred tax assets and the impairment losses on long-lived assets and goodwill given these items are relatively material among the accounting estimates. However, if actual future trends deviate from those assumptions included in the projections, Komatsu's financial position and results of operations may be adversely affected.

- 7 -

2. Supplemental Cash Flow Information

Additional cash flow information for the three months ended June 30, 2020 and 2019 are as follows:

Millions of yen

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Additional cash flow information:

Interest paid

¥

4,350

¥

6,656

Income taxes paid

8,685

29,725

3. Allowance for Doubtful Receivables

At June 30, 2020 and at March 31, 2020, allowances for doubtful receivables deducted from trade notes and accounts receivable, net and long-term trade receivables, net are ¥16,843 million and ¥16,822 million, respectively.

4. Inventories

At June 30, 2020 and at March 31, 2020, inventories comprise the following:

Millions of yen

June 30, 2020

March 31, 2020

Finished products, including finished parts held for sale

¥

634,485

¥

586,468

Work in process

165,059

153,082

Materials and supplies

67,179

65,759

Total

¥

866,723

¥

805,309

5. Investment Securities

The realized gains and losses and gross unrealized holding gains and losses for such equity securities which are recorded in other income (expenses), net in the accompanying consolidated statements of income, respectively, for the three months ended June 30, 2020 and 2019 are as follows:

Millions of yen

Net gains and losses recognized during the period on equity securities Less: net gains and losses recognized during the period on equity securities sold during the period

Unrealized gains and losses recognized during the period on equity securities still held as of June 30, 2020 and 2019

Three months ended

June 30, 2020

  • (88)
    (1)
  • (87)

Three months ended

June 30, 2019

  • 18
    16
  • 2

Komatsu measures equity securities without readily determinable fair values at the carrying amount after the write- down due to impairment, except for investments which are measured at net asset value per share. If Komatsu identifies observable price changes in orderly transactions for identical or similar investments issued by the same issuer, Komatsu measures the equity security at fair value as of the date that the observable transaction occurred. As of June 30, 2020 and as of March 31, 2020, the carrying amounts of these investments were ¥7,217 million and ¥7,328 million, respectively. Any impairment or other adjustments relating to observable price changes recorded until June 30, 2020 and until March 31, 2020 were not material.

- 8 -

6. Other Intangible Assets

Intangible assets at June 30, 2020 and at March 31, 2020 are as follows:

Millions of yen

June 30, 2020

March 31, 2020

Gross

Net

Gross

Net

carrying

Accumulated

carrying

carrying

Accumulated

carrying

amount

amortization

amount

amount

amortization

amount

Other intangible assets subject to

amortization:

Software

¥

55,131

¥

(22,554)

¥

32,577

¥

52,813

¥

(21,678) ¥

31,135

Leasehold

6,910

(1,692)

5,218

6,959

(1,675)

5,284

Trademarks

52,930

(11,726)

41,204

52,444

(10,866)

41,578

Customer relationships

73,697

(25,188)

48,509

73,505

(25,197)

48,308

Technology assets

37,819

(11,930)

25,889

37,423

(11,950)

25,473

Other

6,841

(4,238)

2,603

7,292

(4,635)

2,657

Total

233,328

(77,328)

156,000

230,436

(76,001)

154,435

Other intangible assets not subject

8,122

7,627

to amortization

Total other intangible assets

¥

164,122

¥

162,062

The aggregate amortization expense of other intangible assets subject to amortization during the three months ended June 30, 2020 and 2019 were ¥4,699 million and ¥4,483 million, respectively.

7. Cost of Retirement Benefits

Net periodic cost of Komatsu's defined benefit plans for the three months ended June 30, 2020 and 2019, consisted of the following components:

Millions of yen

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Service cost

¥

2,419

¥

2,315

Interest cost on projected benefit obligations

1,471

1,732

Expected return on plan assets

(2,442)

(2,753)

Amortization of actuarial loss or gain

337

293

Amortization of prior service cost

89

72

Net periodic cost

¥

1,874

¥

1,659

Net periodic cost of the postretirement benefit plans for the three months ended June 30, 2020 and 2019 included the following components:

Millions of yen

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Service cost

¥

130

¥

141

Interest cost on projected benefit obligations

104

140

Expected return on plan assets

(125)

(148)

Amortization of actuarial loss or gain

19

12

Amortization of prior service cost

(30)

1

Net periodic cost

¥

98

¥

146

Net periodic cost components other than the service cost of Komatsu's defined benefit plans and the postretirement benefit plans are recorded in other income (expenses), net in the accompanying consolidated statements of income.

- 9 -

8. Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) for the three months ended June 30, 2020 and 2019 are as follows:

Millions of yen

Three months ended June 30, 2020

Balance, beginning of the year

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive income (loss)

Net other comprehensive income (loss)

Net unrealized

Foreign

holding gains

currency

Pension

(losses)

translation

liability

on derivative

adjustments

adjustments

instruments

Total

¥(103,975)

¥ (26,976)

¥

285

¥(130,666)

14,654

(16)

359

14,997

280

(596)

(316)

14,654

264

(237)

14,681

Less: other comprehensive income (loss)

2,151

5

2,156

attributable to noncotrolling interests

Other comprehensive income (loss) attributable

12,503

264

(242)

12,525

to Komatsu Ltd.

Balance, end of the period

¥ (91,472)

¥ (26,712)

¥

43

¥(118,141)

All amounts are net of tax.

Balance, beginning of the year

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive income (loss)

Net other comprehensive income (loss)

Millions of yen

Three months ended June 30, 2019

Net unrealized

Foreign

holding gains

currency

Pension

(losses)

translation

liability

on derivative

adjustments

adjustments

instruments

Total

¥ (15,438)

¥ (25,890)

¥

1,536

¥ (39,792)

(33,311)

72

72

(33,167)

256

(786)

(530)

(33,311)

328

(714)

(33,697)

Less: other comprehensive income (loss)

(2,625)

(93)

(2,718)

attributable to noncotrolling interests

Other comprehensive income (loss) attributable

(30,686)

328

(621)

(30,979)

to Komatsu Ltd.

Balance, end of the period

¥ (46,124)

¥ (25,562)

¥

915

¥ (70,771)

All amounts are net of tax.

- 10 -

Reclassification out of accumulated other comprehensive income (loss) for the three months ended June 30, 2020 and 2019 are as follows:

Millions of yen

Three months ended

Affected line items in

June 30, 2020

consolidated statements of income

Pension liability adjustments

Amortization of actuarial loss or gain and prior ¥ (415) service cost

(415)

135

(280) Net unrealized holding gains (losses) on derivative

instruments

Forwards contracts711 (249)

Other income (expenses), net: Other, net

Total before tax

Income taxes

Net of tax

Net sales

Cost of sales

350

Other income (expenses), net: Other,

net

812

Total before tax

(216)

Income taxes

596

Net of tax

Total reclassification for the period

¥

316

Net of tax

Millions of yen

Three months ended

Affected line items in

June 30, 2019

consolidated statements of income

Pension liability adjustments

Amortization of actuarial loss or gain and prior

¥

(378)

Other income (expenses), net: Other,

service cost

net

(378)

Total before tax

122

Income taxes

(256)

Net of tax

Net unrealized holding gains (losses) on derivative

instruments

Forwards contracts

192

Net sales

121

Cost of sales

1,267

Other income (expenses), net: Other,

net

1,580

Total before tax

(794)

Income taxes

786

Net of tax

Total reclassification for the period

¥

530

Net of tax

- 11 -

Tax effects allocated to each component of other comprehensive income (loss) for the three months ended June 30,

2020 and 2019 are as follows:

Millions of yen

Three months ended June 30, 2020

Before tax

Tax (expense)

Net of tax

amount

or benefit

amount

Foreign currency translation adjustments

Foreign currency translation adjustments arising during the period

Less: reclassification adjustment for gains included in net income

Net foreign currency translation adjustments Pension liability adjustments

Pension liability adjustments arising during the period Less: reclassification adjustment for losses included in net income

Net pension liability adjustments

Net unrealized holding gains (losses) on derivative instruments Unrealized holding gains arising during the period

¥ 14,613

¥

41

¥ 14,654

14,613

41

14,654

(34)

18

(16)

415

(135)

280

381

(117)

264

669

(310)

359

Less: reclassification adjustment for gains included in net

(812)

216

(596)

income

Net unrealized holding losses

(143)

(94)

(237)

Other comprehensive income (loss)

¥

14,851

¥

(170)

¥

14,681

Millions of yen

Three months ended June 30, 2019

Before tax

Tax (expense)

Net of tax

amount

or benefit

amount

Foreign currency translation adjustments

Foreign currency translation adjustments arising during the period

Less: reclassification adjustment for gains included in net income

Net foreign currency translation adjustments Pension liability adjustments

Pension liability adjustments arising during the period Less: reclassification adjustment for losses included in net income

Net pension liability adjustments

Net unrealized holding gains (losses) on derivative instruments Unrealized holding gains arising during the period

¥ (33,318) ¥

7

¥ (33,311)

(33,318)

7

(33,311)

109

(37)

72

378

(122)

256

487

(159)

328

725

(653)

72

Less: reclassification adjustment for gains included in net

(1,580)

794

(786)

income

Net unrealized holding losses

(855)

141

(714)

Other comprehensive income (loss)

¥ (33,686)

¥

(11)

¥ (33,697)

- 12 -

9. Revenue

(1) Disaggregation of revenue

The disaggregation of revenue by operating and geographic segment are described in Note 19.

(2) Contract balances

Contract balances arising from contracts with customers at June 30, 2020 and at March 31, 2020 are as follows:

Millions of yen

June 30, 2020

March 31, 2020

Receivables *1

¥

899,301

¥

980,371

Contract assets *2

2,065

3,483

Contract liabilities *3

102,688

100,472

*1 Receivables are included in trade notes and accounts receivable, net and long-term trade receivables, net in the accompanying consolidated balance sheets. These amounts are before deducting allowance for doubtful trade receivables.

*2 Contract assets are included in trade notes and accounts receivable, net in the accompanying consolidated balance sheets. These amounts are before deducting allowance for doubtful trade receivables.

*3 Contract liabilities are included in other current liabilities and deferred income taxes and other liabilities in the accompanying consolidated balance sheets.

Revenue recognized for the three months ended June 30, 2020 that was included in the contract liability balance as of March 31, 2020 was ¥19,292 million. Revenue recognized for the three months ended June 30, 2019 that was included in the contract liability balance as of March 31, 2019 was ¥24,423 million.

In addition, the amounts of revenue recognized during the three months ended June 30, 2020 and 2019 from performance obligations satisfied or partially satisfied in previous periods were immaterial.

(3) Transaction price allocated to the remaining performance obligations

As of June 30, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligations that have original expected durations greater than one year was ¥172,333 million, of which ¥82,444 million is expected to be recognized as revenue in the twelve months following June 30, 2020.

10. Stock-Based Remuneration

The Company had a stock option plan which transfers the Company's shares to directors and certain employees and certain representative directors of major subsidiaries under an agreement granting the right for them to request such transfers at a predetermined price until the fiscal year ended March 31, 2018.

From the fiscal year ended March 31, 2019, the Company has introduced a new compensation plan, i. e. , the restricted stock compensation system for the purpose of providing directors (other than outside directors) and employees of the Company and directors and employees of major subsidiaries with medium- to long-term incentives and advancing the sharing of value between the directors and shareholders of the company. Compensation expenses during the three months ended June 30, 2020 and 2019 were recorded in selling, general and administrative expenses, and were not material to Komatsu's financial position and results of operations. The Company recognizes compensation expense using the fair value method.

- 13 -

11. Leases

Revenues from sales-type and operating leases as a lessor, included in net sales on the consolidated statement of income, for the three months ended June 30, 2020 and 2019 are as follows:

Millions of yen

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Sales-type lease revenue

Revenue recognized at the commencement date *

¥

30,140

¥

31,101

Interest income

1,843

2,589

Total sales-type lease revenue

31,983

33,690

Operating lease revenue

18,782

22,093

Total

¥

50,765

¥

55,783

  • The revenue recognized at the commencement date is included in net sales of the Construction, Mining and Utility Equipment operating segment.

- 14 -

12. Net Income Attributable to Komatsu Ltd. per Share

The Company has the restricted stock compensation system (hereinafter, the "System") for directors (other than outside directors) and employees of the Company and directors and employees of major subsidiaries. Among the new shares issued under the System, those transfer restrictions which have not been cancelled are distinguished as participating securities from common shares. Each common share and restricted stock has the same rights to net income attributable to Komatsu Ltd.

A reconciliation of the numerators and denominators of the basic net income attributable to Komatsu Ltd. per share computations is as follows:

Millions of yen

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Net income attributable to Komatsu Ltd.

¥

16,251

¥

47,476

Net income attributable to participating securities (restricted stocks)

10

14

Net income attributable to common shareholders

¥

16,241

¥

47,462

Number of shares

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Weighted average number of common shares outstanding, less treasury

stock

944,646,801

943,935,658

Weighted average number of participating securities (restricted stocks)

588,014

281,660

Weighted average number of common shares

944,058,787

943,653,998

Yen

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Basic net income attributable to Komatsu Ltd. per share

¥

17.20

¥

50.30

A reconciliation of the numerators and denominators of the diluted net income attributable to Komatsu Ltd. per share computations is as follows:

Millions of yen

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Net income attributable to Komatsu Ltd.

¥

16,251

¥

47,476

Net income attributable to participating securities (restricted stocks)

10

14

Net income attributable to common shareholders

¥

16,241

¥

47,462

Number of shares

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Weighted average number of common shares outstanding, less treasury

stock

944,646,801

943,935,658

Dilutive effect of:

Stock options

452,195

864,319

Weighted average number of participating securities (restricted stocks)

588,014

281,660

Weighted average number of diluted common shares

944,510,982

944,518,317

Yen

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Diluted net income attributable to Komatsu Ltd. per share

¥

17.20

¥

50.25

- 15 -

13. Contingent Liabilities

Komatsu provides guarantees to third parties of loans of the employees, affiliated companies, customers and other companies. The guarantees of loans relating to the employees are mainly made for their housing loans. The guarantees of loans relating to the affiliated companies, customers 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 7 years in the case of loans relating to the affiliated companies, customers and other companies. The maximum amount of undiscounted payments Komatsu would have had to make in the event of default at June 30, 2020 and at March 31, 2020 were ¥11,969 million and ¥12,142 million, respectively. The fair value of the liabilities recognized for Komatsu's obligations as guarantors under those guarantees at June 30, 2020 were insignificant. Certain of those guarantees were secured by collateral and insurance issued to Komatsu.

Komatsu provides guarantees that subsidiaries of the Company perform the obligations of the terms and conditions of contracts by standby letters of credit issued by banks. Komatsu would have to pay the liabilities incurred to banks if the subsidiaries don't perform the obligations of the terms and conditions of contracts. The maximum amount of undiscounted payments Komatsu would have had to make in the event of defaults of the contracts at June 30, 2020 and at March 31, 2020 were ¥14,250 million and ¥15,590 million, respectively.

Management of the Company believes that losses from those contingent liabilities, if any, would not have a material effect on the quarterly consolidated financial statements.

Komatsu is involved in certain legal actions and claims arising mainly 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 and the guarantees for them are well diversified to minimize concentrations of credit risks. Management does not anticipate incurring losses on its trade receivables in excess of established allowances.

- 16 -

14. Derivative Financial Instruments

Notional principal amounts of derivative financial instruments outstanding at June 30, 2020 and at March 31, 2020 are as follows:

Millions of yen

June 30, 2020

March 31, 2020

Forwards contracts:

Sale of foreign currencies

¥

130,133

¥

147,655

Purchase of foreign currencies

118,120

101,835

Interest rate swaps and cross-currency swap agreements

90,995

83,088

Fair value of derivative instruments at June 30, 2020 and at March 31, 2020 on the consolidated balance sheets are as follows:

Millions of yen

June 30, 2020

Derivative Assets

Derivative Liabilities

Derivative instruments designated as

Location on the consolidated

Estimated

Location on the consolidated

Estimated

hedging instruments

Balance Sheets

fair value

Balance Sheets

fair value

Forwards contracts

Other current assets

¥

908

Other current liabilities

¥ 1,736

Deferred income taxes and

Deferred income taxes and

270

other assets

other liabilities

Interest rate swaps and

Other current assets

Other current liabilities

9

cross-currency swap

Deferred income taxes and

Deferred income taxes and

944

agreements

other assets

other liabilities

Total

¥

908

¥ 2,959

Derivative Assets

Derivative Liabilities

Location on the consolidated

Estimated

Location on the consolidated

Estimated

Undesignated derivative instruments

Balance Sheets

fair value

Balance Sheets

fair value

Forwards contracts

Other current assets

¥ 2,866

Other current liabilities

¥ 1,663

Deferred income taxes and

2

Deferred income taxes and

2

other assets

other assets

Interest rate swaps and cross-currency swap agreements

Other current assets

310

Other current liabilities

213

Deferred income taxes and

97

Deferred income taxes and

other assets

other liabilities

Total

¥ 3,275

¥ 1,878

Total Derivative Instruments

¥ 4,183

¥ 4,837

- 17 -

Millions of yen

March 31, 2020

Derivative Assets

Derivative Liabilities

Derivative instruments designated as

Location on the consolidated

Estimated

Location on the consolidated

Estimated

hedging instruments

Balance Sheets

fair value

Balance Sheets

fair value

Forwards contracts

Other current assets

¥ 1,567

Other current liabilities

¥ 1,836

Deferred income taxes and

9

Deferred income taxes and

318

other assets

other liabilities

Interest rate swaps and

Other current assets

Other current liabilities

4

cross-currency swap

Deferred income taxes and

Deferred income taxes and

866

agreements

other assets

other liabilities

Total

¥ 1,576

¥ 3,024

Derivative Assets

Derivative Liabilities

Location on the consolidated

Estimated

Location on the consolidated

Estimated

Undesignated derivative instruments

Balance Sheets

fair value

Balance Sheets

fair value

Forwards contracts

Other current assets

¥ 7,511

Other current liabilities

¥ 1,673

Deferred income taxes and

2

Deferred income taxes and

2

other assets

other liabilities

Interest rate swaps and cross-currency swap agreements

Other current assets

546

Other current liabilities

196

Deferred income taxes and

207

Deferred income taxes and

other assets

other liabilities

Total

¥ 8,266

¥ 1,871

Total Derivative Instruments

¥ 9,842

¥ 4,895

- 18 -

The effects of derivative instruments on the consolidated statements of income and the consolidated statements of comprehensive income for the three months ended June 30, 2020 and 2019 are as follows:

Derivative instruments designated as cash flow hedging relationships

Millions of yen

Three months ended June 30, 2020

Amount of

Gains (losses) reclassified from

gains (losses)

recognized

accumulated OCI on derivatives

in OCI

Location of

on derivatives

consolidated statements of income

Amount

Forwards contracts

¥

652

Net sales

¥

711

Cost of sales

(249)

Other income (expenses),

350

net Other, net

Interest rate swaps and

17

cross-currency swap agreements

Total

¥

669

¥

812

Millions of yen

Three months ended June 30, 2019

Amount of

Gains (losses) reclassified from

gains (losses)

recognized

accumulated OCI on derivatives

in OCI

Location of

on derivatives

consolidated statements of income

Amount

Forwards contracts

¥

1,058

Net sales

¥

192

Cost of sales

121

Other income (expenses),

1,267

net Other, net

Interest rate swaps and

(333)

cross-currency swap agreements

Total

¥

725

¥

1,580

* OCI stands for other comprehensive income (loss).

Derivative instruments not designated as hedging instruments relationships

Forwards contracts Interest rate swaps and cross-currency swap agreements

Total

Forwards contracts Interest rate swaps and cross-currency swap agreements

Total

Millions of yen

Three months ended June 30, 2020

Location of gains (losses) recognized

Amount of gains (losses) recognized

in income on derivatives

in income on derivatives

Other income (expenses), net: Other, net

¥

(2,522)

Cost of sales

(5)

Other income (expenses), net: Other, net

(21)

¥

(2,548)

Millions of yen

Three months ended June 30, 2019

Location of gains (losses) recognized

Amount of gains (losses) recognized

in income on derivatives

in income on derivatives

Other income (expenses), net: Other, net

¥

(178)

Cost of sales

(123)

Other income (expenses), net: Other, net

(8)

¥

(309)

- 19 -

15. Fair Values of Financial Instruments

(1) Cash and cash equivalents, Time deposits, Short-term debt

The carrying amounts approximate fair value because of the short maturity of these instruments.

(2) Long-term trade receivables, net, excluding lease receivables

The fair values of long-term trade receivables are based on the present value of future cash flows through maturity, discounted using the current interest rates for similar receivables of comparable maturity.

(3) Long-term debt, including current portion

The fair values of each of the long-term debt 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 market borrowing rate for similar debt of comparable maturity.

  1. Derivatives (Notes 14 and 16)

The fair values of derivative financial instruments are stated in Note 16 and therefore are not included in the table below.

The carrying amounts and the estimated fair values of the financial instruments as of June 30, 2020 and as of March 31, 2020, and fair value levels are summarized as follows:

Cash and cash equivalents

Time deposits

Long-term trade receivables, net, excluding lease receivables

Short-term debt

Long-term debt, including current portion

Millions of yen

June 30, 2020

March 31, 2020

Carrying

Estimated

Carrying

Estimated

Fair Value

amount

fair value

amount

fair value

Levels

¥ 255,102

¥ 255,102

¥ 247,616

¥ 247,616

Level 1

2,128

2,128

2,057

2,057

Level 2

315,250

315,250

314,592

314,592

Level 2

473,332

473,332

483,658

483,658

Level 2

574,533

576,785

528,720

528,460

Level 2

Notes:

  1. 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.
  2. The fair value levels are stated in Note 16.

- 20 -

16. Fair Value Measurements

Financial Accounting Standards Board Accounting Standards CodificationTM (hereinafter "ASC") 820, "Fair Value Measurements" defines that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:

Level 1

-

Quoted prices in active markets for identical assets or liabilities

Level 2

-

Inputs other than quoted prices included within Level 1 that are observable for the assets or

liabilities, either directly or indirectly

Level 3

-

Unobservable inputs for the assets or liabilities

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

The fair value hierarchy levels of assets and liabilities that are measured at fair value on a recurring basis at June 30, 2020 and at March 31, 2020 are as follows:

At June 30, 2020

Assets

Derivatives

Forward contracts

Interest rate swaps and cross-currency swap agreements

Total

Liabilities

Derivatives

Forward contracts

Interest rate swaps and cross-currency swap agreements

Total

At March 31, 2020

Assets

Derivatives

Forward contracts

Interest rate swaps and cross-currency swap agreements

Total

Liabilities

Derivatives

Forward contracts

Interest rate swaps and cross-currency swap agreements

Total

Millions of yen

Level 1

Level 2

Level 3

Total

¥

¥

3,776

¥

¥

3,776

407

407

¥

¥

4,183

¥

¥

4,183

¥

¥

3,671

¥

¥

3,671

1,166

1,166

¥

¥

4,837

¥

¥

4,837

Millions of yen

Level 1

Level 2

Level 3

Total

¥

¥

9,089

¥

¥

9,089

753

753

¥

¥

9,842

¥

¥

9,842

¥

¥

3,829

¥

¥

3,829

1,066

1,066

¥

¥

4,895

¥

¥

4,895

- 21 -

Derivatives (Notes 14 and 15)

Derivatives primarily represent foreign exchange contracts and interest rate swap agreements. The fair value of foreign exchange contracts is based on a valuation model that discounts cash flows resulting from the differential between contract rate and the market-based forward rate and is classified in Level 2 in the fair value hierarchy. The fair value of interest rate swap agreements is based on a valuation model that discounts cash flows based on the terms of the contract and the swap curves and is classified in Level 2 in the fair value hierarchy.

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

During three months ended June 30, 2020 and 2019 assets and liabilities that were measured at fair value on a non- recurring basis were not material.

17. Committed Credit Lines

The Company and certain consolidated subsidiaries have entered into contracts with certain financial institutions for committed credit lines. These total amounts of committed credit lines at June 30, 2020 and at March 31, 2020 were ¥567,404 million and ¥133,945 million, respectively. These total amounts of unused committed credit lines available for full and immediate borrowings at June 30, 2020 and at March 31, 2020 were ¥547,456 million and ¥112,135 million, respectively.

18. Dividends

Payment amount of dividends

Three months ended June 30, 2020

Resolution

Type of

Aggregate amount of

Resource of

Dividend

Record

Effective

dividends

per share

stock

dividends

date

date

(Millions of yen)

(Yen)

Ordinary general

meeting of

Common

36,858

Retained

39

March 31,

June 19,

shareholders held

stock

earnings

2020

2020

on June 18, 2020

Note : The amount is rounded down to nearest million yen.

Payment amount of dividends

Three months ended June 30, 2019

Resolution

Type of

Aggregate amount of

Resource of

Dividend

Record

Effective

dividends

per share

stock

dividends

date

date

(Millions of yen)

(Yen)

Ordinary general

meeting of

Common

55,718

Retained

59

March 31,

June 19,

shareholders held

stock

earnings

2019

2019

on June 18, 2019

Note : The amount is rounded down to nearest million yen.

- 22 -

19. Business Segment and Geographic Information

Komatsu has three operating segments: 1) Construction, Mining and Utility Equipment, 2) Retail Finance, and 3) Industrial Machinery and Others. Those operating segments which have separate financial information are available for allocating resources and assessing its performance by management.

The accounting policies employed for the preparation of segment information are identical to those employed for the preparation of the quarterly consolidated financial statements of the Company.

Segment profit available for allocating resources and assessing its performance by management is determined by subtracting the cost of sales and selling, general and administrative expenses from net sales attributed to the operating segment. Segment profit excludes certain general corporate administration and finance expenses, such as costs of executive management, corporate development, corporate finance, human resources, internal audit, investor relations, legal and public relations. Segment profit also excludes certain charges which may otherwise relate to operating segments, including impairments of long-lived assets and goodwill.

Operating segments:

Information about operating segments for the three months ended June 30, 2020 and 2019 is as follows:

Millions of yen

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Net sales:

Construction, Mining and Utility Equipment -

External customers

¥

420,005

¥

560,598

Intersegment

5,806

879

Total

425,811

561,477

Retail Finance -

External customers

13,948

15,466

Intersegment

1,973

1,813

Total

15,921

17,279

Industrial Machinery and Others -

External customers

24,778

33,703

Intersegment

244

318

Total

25,022

34,021

Elimination

(8,023)

(3,010)

Consolidated

¥

458,731

¥

609,767

Segment profit:

Construction, Mining and Utility Equipment

¥

23,200

¥

68,689

Retail Finance

1,895

3,404

Industrial Machinery and Others

1,707

554

Total segment profit

26,802

72,647

Corporate expenses and elimination

(164)

96

Consolidated

¥

26,638

¥

72,743

- 23 -

Reconciliation of total segment profit to consolidated income before income taxes and equity in earnings of affiliated companies for the three months ended June 30, 2020 and 2019 is as follows:

Millions of yen

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Total segment profit

¥

26,802

¥

72,647

Corporate expenses and elimination

(164)

96

Total

26,638

72,743

Other operating income

281

2,017

Operating income

26,919

74,760

Interest and dividend income

1,185

1,746

Interest expense

(3,841)

(6,650)

Other, net

4,234

(2,946)

Consolidated income before income taxes and equity in earnings of

¥

28,497

¥

66,910

affiliated companies

Business categories and principal products and services included in each operating segment are as follows:

a) Construction, Mining and Utility Equipment operating segment:

Excavating equipment, loading equipment, grading and roadbed preparation equipment, hauling equipment, forestry equipment, tunneling machines, underground mining equipment, recycling equipment, industrial vehicles, other equipment, engines and components, casting products and logistics

  1. Retail Finance: Financing
  2. Industrial Machinery and Others operating segment:

Metal forging and stamping presses, sheet-metal machines, machine tools, defense systems, temperature-control equipment and optical machinery

Transfers between segments are made at estimated arm's length prices.

Geographic information:

Net sales determined by customer location for the three months ended June 30, 2020 and 2019 are as follows:

Millions of yen

Three months ended

June 30, 2020

Construction, Mining

Industrial Machinery

and Utility Equipment

Retail Finance

and Others

Total

Japan

¥

61,407

¥

441

¥

12,395

¥

74,243

The Americas

160,643

10,834

1,672

173,149

Europe and CIS

60,146

662

1,474

62,282

China

43,172

760

2,768

46,700

Asia (excluding Japan and China)

and Oceania

73,933

1,213

6,447

81,593

Middle East and Africa

20,704

38

22

20,764

Total

¥

420,005

¥

13,948

¥

24,778

¥

458,731

- 24 -

Millions of yen

Three months ended

June 30, 2019

Construction, Mining

Industrial Machinery

and Utility Equipment

Retail Finance

and Others

Total

Japan

¥

63,777

¥

445

¥

13,854

¥

78,076

The Americas

217,962

11,991

3,229

233,182

Europe and CIS

93,197

675

1,099

94,971

China

36,237

836

6,217

43,290

Asia (excluding Japan and China)

and Oceania

118,518

1,501

9,289

129,308

Middle East and Africa

30,907

18

15

30,940

Total

¥

560,598

¥

15,466

¥

33,703

¥

609,767

Net sales determined by geographic origin for the three months ended June 30, 2020 and 2019 are as follows:

Millions of yen

Three months ended

Three months ended

June 30, 2020

June 30, 2019

Japan

¥

90,958

¥

115,233

The Americas

161,873

217,378

Europe and CIS

62,733

97,970

China

44,623

39,163

Others

98,544

140,023

Total

¥

458,731

¥

609,767

There were no sales to a single major external customer for the three months ended June 30, 2020 and 2019

- 25 -

  1. Material Subsequent Events Not applicable.
    Komatsu evaluated subsequent events through August 7, 2020, the issue date of its quarterly consolidated financial statements.
  2. Terminology, Forms and Preparation Methods of Quarterly Consolidated Financial Statements

The terminology, forms and preparation methods of the Company's quarterly consolidated financial statements are in accordance with U.S. GAAP.

The main differences between quarterly consolidated financial statements prepared in accordance with U.S. GAAP and those prepared in accordance with the Accounting Standards for Quarterly Consolidated Financial Statements and the Ordinance on Terminology, Forms and Preparation Methods of Quarterly Consolidated Financial Statements of Japan (hereinafter "J. GAAP") are as follows.

(1) Scope of consolidation

For quarterly consolidated financial statements in accordance with J. GAAP, the scope of consolidation is determined on an effective control and influence basis. For quarterly consolidated financial statements in accordance with U.S. GAAP, the scope of consolidation is determined on the shareholding basis on which the determination is based on voting rights and on a consolidation basis of variable interest entities.

(2) Accounting policies

a. Deferred income on installment sales

Although deferral of income on installment sales is permitted in accordance with J. GAAP, the Company recognizes income at the time of sales without deferring income on installment sales in its quarterly consolidated financial statements in accordance with U.S. GAAP.

b. Share issuance cost

Although in accordance with J. GAAP, share issuance cost is permitted to be recognized in profit or loss when incurred, the Company treats such cost in a deduction item from capital surplus as expenses incidental to capital transactions in its quarterly consolidated financial statements in accordance with U.S. GAAP.

c. Accounting for retirement benefits

Although in accordance with J. GAAP, net actuarial gains or losses are required to be amortized over certain periods that are shorter than the average remaining years of service, the Company has adopted the corridor approach in its quarterly consolidated financial statements in accordance with U.S. GAAP.

d. Business combination and goodwill

Goodwill is required to be amortized over certain periods in accordance with J. GAAP, while U.S. GAAP requires companies to implement impairment test at least once annually without goodwill being amortized. For intangible fixed assets with indefinite useful lives, U.S. GAAP also requires companies to implement impairment test without such assets being amortized.

  1. Presentation methods and other matters a. Presentation of legal retained earnings
    Although in accordance with J. GAAP, legal retained earnings is recorded as retained earnings together with other surplus, the Company separately presents as appropriated legal reserve in its quarterly consolidated financial statements in accordance with U.S. GAAP.

b. Extraordinary income and loss

In accordance with J. GAAP, gain or loss on certain sales of non-current assets, such as gain or loss from the sale of fixed assets, is presented as extraordinary income or loss. However, since there is no concept of extraordinary items in U.S. GAAP, extraordinary income or loss is not presented in the Company's quarterly consolidated financial statements.

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Komatsu Ltd. published this content on 06 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 07 August 2020 10:33:16 UTC