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MarketScreener Homepage  >  Equities  >  Tokyo Stock Exchange  >  Komatsu Ltd.    6301   JP3304200003

KOMATSU LTD.

(6301)
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Komatsu : 2nd Quarter Report FY2020(377 KB)

11/12/2020 | 06:51am EST

(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 July 1, 2020 to September 30, 2020

(Second Quarter of the 152nd Fiscal Year)

KOMATSU LTD.

Second Quarter of the 152nd Fiscal Year (from July 1, 2020 to September 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 September 30, 2020 with the Director-General of the Kanto Local Finance Bureau on November 11, 2020. The Quarterly Securities Report contains, among other information, Quarterly Consolidated Financial Statements for the three months and six months ended September 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 October 28, 2020. Attached is an English translation of Quarterly Consolidated Financial Statements for the three months and six months ended September 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 September 30, 2020 and for the six months ended September 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 September 30, 2020 and March 31, 2020

September 30, 2020

March 31, 2020

Assets

Millions of yen

Ratio (%)

Millions of yen

Ratio (%)

Current assets

Cash and cash equivalents (Note 15)

¥

234,454

¥

247,616

Time deposits (Note 15)

1,399

2,057

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

669,907

744,395

Inventories (Note 4)

838,901

805,309

Other current assets (Notes 14, 15 and 16)

131,429

147,413

Total current assets

1,876,090

52.2

1,946,790

53.3

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

426,638

11.9

420,918

11.5

Investments

Investments in and advances to affiliated companies

38,014

38,210

Investment securities (Note 5)

7,698

7,328

Other

2,538

2,436

Total investments

48,250

1.3

47,974

1.3

Property, plant and equipment

- less accumulated depreciation and amortization of ¥914,739

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

757,463

21.1

757,679

20.8

Operating lease right-of-use assets

54,487

1.5

53,454

1.5

Goodwill

158,834

4.4

157,521

4.3

Other intangible assets

162,840

4.5

162,062

4.4

- less accumulated amortization (Note 6)

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

109,874

3.1

107,288

2.9

Total assets

¥

3,594,476

100.0

¥

3,653,686

100.0

September 30, 2020

March 31, 2020

Liabilities and Equity

Millions of yen

Ratio (%)

Millions of yen

Ratio (%)

Current liabilities

Short-term debt (Note 15)

¥

380,289

¥

483,658

Current maturities of long-term debt (Note 15)

57,339

118,880

Trade notes, bills and accounts payable

194,054

220,160

Income taxes payable

22,317

23,169

Current operating lease liabilities

14,662

14,933

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

301,336

297,825

Total current liabilities

969,997

27.0

1,158,625

31.7

Long-term liabilities

Long-term debt (Note 15)

528,427

409,840

Liability for pension and retirement benefits

95,476

96,392

Long-term operating lease liabilities

39,752

38,624

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

94,114

93,980

Total long-term liabilities

757,769

21.1

638,836

17.5

Total liabilities

1,727,766

48.1

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 972,887,610 shares

Outstanding 945,032,303 shares at September 30, 2020 and

944,621,957 shares at March 31, 2020

69,037

68,689

Capital surplus

136,587

136,459

Retained earnings:

Appropriated for legal reserve

47,258

46,813

Unappropriated

1,699,110

1,699,477

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

(125,409)

(130,666)

Treasury stock at cost,

27,855,307 shares at September 30, 2020 and 27,959,273 shares at March 31, 2020

(48,985)

(49,166)

Total Komatsu Ltd. shareholders' equity

1,777,598

49.5

1,771,606

48.5

Noncontrolling interests

89,112

2.4

84,619

2.3

Total equity

1,866,710

51.9

1,856,225

50.8

Total liabilities and equity

¥

3,594,476

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

Six months ended September 30, 2020 and 2019

Consolidated Statements of Income

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Millions of yen

Ratio(%)

Millions of yen

Ratio(%)

Net sales (Notes 9, 11 and 14)

¥

957,717

100.0

¥

1,213,485

100.0

Cost of sales (Notes 6, 7 and 14)

699,812

73.1

855,318

70.5

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

197,148

20.6

217,478

17.9

Other operating income (expenses), net

(415)

(0.0)

1,293

0.1

Operating income

60,342

6.3

141,982

11.7

Other income (expenses), net

Interest and dividend income

2,414

0.3

3,732

0.3

Interest expense

(7,406)

(0.8)

(13,108)

(1.1)

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

3,180

0.3

(4,394)

(0.4)

Total

(1,812)

(0.2)

(13,770)

(1.1)

Income before income taxes and equity in

58,530

6.1

128,212

10.6

earnings of affiliated companies

Income taxes (Note 8)

Current

19,787

35,948

Deferred

(2,689)

(330)

Total

17,098

1.8

35,618

2.9

Income before equity in earnings of affiliated companies

41,432

4.3

92,594

7.6

Equity in earnings of affiliated companies

1,189

0.1

1,730

0.1

Net income

42,621

4.5

94,324

7.8

Less: Net income attributable to noncontrolling interests

5,327

0.6

4,262

0.4

Net income attributable to Komatsu Ltd.

¥

37,294

3.9

¥

90,062

7.4

Yen

Per share data (Note 12):

Net income attributable to Komatsu Ltd.:

Basic

¥

39.48

¥

95.40

Diluted

¥

39.46

¥

95.32

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

Consolidated Statements of Comprehensive Income

Millions of yen

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Net income

¥

42,621

¥

94,324

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

Foreign currency translation adjustments (Note 8)

6,506

(66,214)

Pension liability adjustments (Notes 7 and 8)

487

145

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

252

(1,231)

Total

7,245

(67,300)

Comprehensive income

49,866

27,024

Less: Comprehensive income (loss) attributable to noncontrolling interests

7,315

(361)

Comprehensive income attributable to Komatsu Ltd.

¥

42,551

¥

27,385

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

- 3 -

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

Komatsu Ltd. and Consolidated Subsidiaries

Three months ended September 30, 2020 and 2019

Consolidated Statements of Income

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Millions of yen

Ratio(%)

Millions of yen

Ratio(%)

Net sales (Notes 9, 11 and 14)

¥

498,986

100.0

¥

603,718

100.0

Cost of sales (Notes 6, 7 and 14)

365,092

73.2

427,961

70.9

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

99,775

20.0

107,811

17.9

Other operating income (expenses), net

(696)

(0.1)

(724)

(0.1)

Operating income

33,423

6.7

67,222

11.1

Other income (expenses), net

Interest and dividend income

1,229

0.2

1,986

0.3

Interest expense

(3,565)

(0.7)

(6,458)

(1.1)

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

(1,054)

(0.2)

(1,448)

(0.2)

Total

(3,390)

(0.7)

(5,920)

(1.0)

Income before income taxes and equity in

30,033

6.0

61,302

10.2

earnings of affiliated companies

Income taxes (Note 8)

Current

9,711

22,866

Deferred

(2,431)

(5,079)

Total

7,280

1.5

17,787

2.9

Income before equity in earnings of affiliated companies

22,753

4.6

43,515

7.2

Equity in earnings of affiliated companies

638

0.1

1,062

0.2

Net income

23,391

4.7

44,577

7.4

Less: Net income attributable to noncontrolling interests

2,348

0.5

1,991

0.3

Net income attributable to Komatsu Ltd.

¥

21,043

4.2

¥

42,586

7.1

Yen

Per share data (Note 12):

Net income attributable to Komatsu Ltd.:

Basic

¥

22.27

¥

45.11

Diluted

¥

22.26

¥

45.07

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

Consolidated Statements of Comprehensive Income

Millions of yen

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Net income

¥

23,391

¥

44,577

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

Foreign currency translation adjustments (Note 8)

(8,148)

(32,903)

Pension liability adjustments (Notes 7 and 8)

223

(183)

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

489

(517)

Total

(7,436)

(33,603)

Comprehensive income

15,955

10,974

Less: Comprehensive income attributable to noncontrolling interests

2,180

86

Comprehensive income attributable to Komatsu Ltd.

¥

13,775

¥

10,888

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

- 4 -

Consolidated Statements of Equity (Unaudited)

Komatsu Ltd. and Consolidated Subsidiaries

Six months ended September 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)

(4,498)

(41,357)

Transfer to retained earnings appropriated

445

(445)

for legal reserve

Other changes

(357)

(357)

1,676

1,319

Net income

37,294

37,294

5,327

42,621

Other comprehensive income (loss),

5,257

5,257

1,988

7,245

for the period, net of tax (Note 8)

Issuance and exercise of stock acquisition

(275)

(275)

(275)

rights (Note 10)

Purchase of treasury stock

(38)

(38)

(38)

Sales of treasury stock

57

219

276

276

Restricted stock compensation (Note 10)

348

346

694

694

Balance at September 30, 2020

¥

69,037

¥

136,587

¥

47,258

¥

1,699,110

¥

(125,409)

¥

(48,985)

¥

1,777,598

¥

89,112

¥

1,866,710

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

Six months ended September 30, 2019

Millions of yen

Retained earnings

Appropriated

Accumulated

Total

Non-

Common

Capital

Un-

other

Treasury

Komatsu Ltd.

for legal

controlling

stock

surplus

appropriated

comprehensive

stock

shareholders'

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

Cash dividends (Note 18)

(55,719)

(55,719)

(4,614)

Transfer to retained earnings appropriated

552

(552)

for legal reserve

Other changes

10

(29)

(19)

106

Net income

90,062

90,062

4,262

Other comprehensive income (loss),

(62,677)

(62,677)

(4,623)

for the period, net of tax (Note 8)

Issuance and exercise of stock acquisition

(325)

(325)

rights (Note 10)

Purchase of treasury stock

(22)

(22)

Sales of treasury stock

14

312

326

Total equity

  • 1,902,868
    (60,333)

87

94,324

(67,300)

(325)

(22)

326

Restricted stock compensation (Note 10)

378

375

753

753

Balance at September 30, 2019

¥

68,689

¥

136,872

¥

46,580 ¥ 1,687,896 ¥

(102,498) ¥

(49,578)

¥ 1,787,961

¥

82,417 ¥ 1,870,378

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

Six months ended September 30, 2020 and 2019

Millions of yen

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Operating activities

Net income

¥

42,621

¥

94,324

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

activities:

Depreciation and amortization

64,713

64,683

Deferred income taxes

(2,689)

(330)

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

63

(101)

Net loss (gain) on sale of fixed assets

(99)

(620)

Loss on disposal of fixed assets

1,099

1,618

Pension and retirement benefits, net

(237)

(796)

Changes in assets and liabilities:

Decrease (increase) in trade receivables

72,882

56,322

Decrease (increase) in inventories

(32,499)

(88,414)

Increase (decrease) in trade payables

(25,801)

(12,440)

Increase (decrease) in income taxes payable

(1,406)

(17,030)

Other, net

33,889

38,540

Net cash provided by (used in) operating activities

152,536

135,756

Investing activities

Capital expenditures

(85,278)

(91,837)

Proceeds from sale of fixed assets

6,010

6,979

Proceeds from sale of investment securities

21

525

Purchases of investment securities

(537)

(492)

Acquisition of subsidiaries and equity investees, net of cash acquired

(1,717)

(21,606)

Other, net

1,477

(267)

Net cash provided by (used in) investing activities

(80,024)

(106,698)

Financing activities

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

407,541

230,299

Payment on debt (Original maturities greater than three months)

(418,930)

(228,337)

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

(33,828)

45,511

Dividends paid

(36,859)

(55,719)

Other, net

(4,938)

(5,417)

Net cash provided by (used in) financing activities

(87,014)

(13,663)

Effect of exchange rate change on cash and cash equivalents

1,340

(872)

Net increase (decrease) in cash and cash equivalents

(13,162)

14,523

Cash and cash equivalents, beginning of year

247,616

148,479

Cash and cash equivalents, end of period

¥

234,454

¥

163,002

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

- 6 -

Komatsu Ltd. and Consolidated Subsidiaries

Three months and six months ended September 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 the financial position and results of operations of Komatsu (the Company and its consolidated subsidiaries), 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.

2. Supplemental Cash Flow Information

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

Millions of yen

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Additional cash flow information:

Interest paid

¥

7,533

¥

12,963

Income taxes paid, net

9,906

48,217

- 7 -

3. Allowance for Doubtful Receivables

At September 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 ¥16,663 million and ¥16,822 million, respectively.

4. Inventories

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

Millions of yen

September 30, 2020

March 31, 2020

Finished products, including finished parts held for sale

¥

613,894

¥

586,468

Work in process

159,814

153,082

Materials and supplies

65,193

65,759

Total

¥

838,901

¥

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 six months ended September 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 September 30, 2020 and 2019

Six months ended September 30, 2020

  • (63)
    6
  • (69)

Six months Ended September 30, 2019

  • 101
    (9)
  • 110

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 September 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 September 30, 2020 and 2019

Three months ended September 30, 2020

  • 25
    7
  • 18

Three months ended September 30, 2019

  • 83
    (25)
  • 108

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 September 30, 2020 and as of March 31, 2020, the carrying amounts of these investments were ¥7,698 million and ¥7,328 million, respectively. Any impairment or any adjustment relating to observable price changes recorded until September 30, 2020 and until March 31, 2020 were not material.

- 8 -

6. Other Intangible Assets

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

Millions of yen

September 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

¥

57,173

¥

(22,443)

¥

34,730

¥

52,813

¥

(21,678) ¥

31,135

Leasehold

7,059

(1,758)

5,301

6,959

(1,675)

5,284

Trademarks

52,489

(12,496)

39,993

52,444

(10,866)

41,578

Customer relationships

73,061

(26,063)

46,998

73,505

(25,197)

48,308

Technology assets

37,725

(12,378)

25,347

37,423

(11,950)

25,473

Other

6,877

(4,390)

2,487

7,292

(4,635)

2,657

Total

234,384

(79,528)

154,856

230,436

(76,001)

154,435

Other intangible assets not subject

7,984

7,627

to amortization

Total other intangible assets

¥

162,840

¥

162,062

The aggregate amortization expense of other intangible assets subject to amortization during the six months ended September 30, 2020 and 2019 were ¥9,793 million and ¥9,099 million, respectively. The aggregate amortization expense of other intangible assets subject to amortization during the three months ended September 30, 2020 and 2019 were ¥5,094 million and ¥4,616 million, respectively.

- 9 -

7. Cost of Retirement Benefits

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

Millions of yen

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Service cost

¥

4,755

¥

4,556

Interest cost on projected benefit obligations

2,949

3,393

Expected return on plan assets

(4,892)

(5,395)

Amortization of actuarial loss or gain

673

585

Amortization of prior service cost

163

142

Net periodic cost

¥

3,648

¥

3,281

Net periodic cost of the postretirement benefit plans for the six months ended September 30, 2020 and 2019

included the following components:

Millions of yen

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Service cost

¥

259

¥

279

Interest cost on projected benefit obligations

207

277

Expected return on plan assets

(249)

(293)

Amortization of actuarial loss or gain

38

23

Amortization of prior service cost

(60)

2

Net periodic cost

¥

195

¥

288

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

Millions of yen

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Service cost

¥

2,336

¥

2,241

Interest cost on projected benefit obligations

1,478

1,661

Expected return on plan assets

(2,450)

(2,642)

Amortization of actuarial loss or gain

336

292

Amortization of prior service cost

74

70

Net periodic cost

¥

1,774

¥

1,622

Net periodic cost of the postretirement benefit plans for the three months ended September 30, 2020 and 2019

included the following components:

Millions of yen

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Service cost

¥

129

¥

138

Interest cost on projected benefit obligations

103

137

Expected return on plan assets

(124)

(145)

Amortization of actuarial loss or gain

19

11

Amortization of prior service cost

(30)

1

Net periodic cost

¥

97

¥

142

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.

- 10 -

8. Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) for the six months ended September 30, 2020 and

2019 are as follows:

Millions of yen

Six months ended September 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)

6,506

(39)

1,421

7,888

526

(1,169)

(643)

6,506

487

252

7,245

Less: other comprehensive income (loss)

1,963

25

1,988

attributable to noncontrolling interests

Other comprehensive income (loss) attributable

4,543

487

227

5,257

to Komatsu Ltd.

Balance, end of the period

¥ (99,432)

¥ (26,489)

¥

512

¥ (125,409)

All amounts are net of tax.

Millions of yen

Six months ended September 30, 2019

Balance, beginning of the year

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive income (loss)

Net other comprehensive income (loss) Less: other comprehensive income (loss) attributable to noncontrolling interests

Other comprehensive income (loss) attributable to Komatsu Ltd.

Net unrealized

Foreign

holding gains

currency

Pension

(losses)

translation

liability

on derivative

adjustments

adjustments

instruments

Total

  • (15,438) ¥ (25,890) ¥ 1,536 ¥ (39,792)

(66,214)

(368)

527

(66,055)

513

(1,758)

(1,245)

(66,214)

145

(1,231)

(67,300)

(4,502)

(121)

(4,623)

(61,712)

145

(1,110)

(62,677)

Equity transactions with noncontrolling

(29)

(29)

interests

Balance, end of the period

¥ (77,179)

¥ (25,745)

¥

426

¥ (102,498)

All amounts are net of tax.

- 11 -

Changes in accumulated other comprehensive income (loss) for the three months ended September 30, 2020 and

2019 are as follows:

Millions of yen

Three months ended September 30, 2020

Net unrealized

Foreign

holding gains

currency

Pension

(losses)

translation

liability

on derivative

adjustments

adjustments

instruments

Total

Balance, beginning of the period

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive income (loss)

Net other comprehensive income (loss)

¥ (91,472)

¥ (26,712)

¥

43

¥ (118,141)

(8,148)

(23)

1,062

(7,109)

246

(573)

(327)

(8,148)

223

489

(7,436)

Less: other comprehensive income (loss)

(188)

20

(168)

attributable to noncontrolling interests

Other comprehensive income (loss) attributable

(7,960)

223

469

(7,268)

to Komatsu Ltd.

Balance, end of the period

¥ (99,432)

¥ (26,489)

¥

512

¥

(125,409)

All amounts are net of tax.

Millions of yen

Three months ended September 30, 2019

Net unrealized

Foreign

holding gains

currency

Pension

(losses)

translation

liability

on derivative

adjustments

adjustments

instruments

Total

Balance, beginning of the period

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive income (loss)

Net other comprehensive income (loss) Less: other comprehensive income (loss) attributable to noncontrolling interests

Other comprehensive income (loss) attributable to Komatsu Ltd.

¥ (46,124)

¥ (25,562) ¥

915

¥ (70,771)

(32,903)

(440)

455

(32,888)

257

(972)

(715)

(32,903)

(183)

(517)

(33,603)

(1,877)

(28)

(1,905)

(31,026)

(183)

(489)

(31,698)

Equity transactions with noncontrolling

(29)

(29)

interests

Balance, end of the period

¥ (77,179)

¥ (25,745)

¥

426

¥ (102,498)

All amounts are net of tax.

- 12 -

Reclassification out of accumulated other comprehensive income (loss) for the six months ended September 30,

2020 and 2019 are as follows:

Millions of yen

Six months ended

Affected line items in

September 30, 2020

consolidated statements of income

Pension liability adjustments

Amortization of actuarial loss or gain and prior ¥ (814) service cost

(814)

288

(526)

Net unrealized holding gains (losses) on derivative instruments

Forwards contracts1,282 (289)

Other income (expenses), net: Other, net

Total before tax

Income taxes

Net of tax

Net sales

Cost of sales

707

Other income (expenses), net: Other,

net

1,700

Total before tax

(531)

Income taxes

1,169

Net of tax

Total reclassification for the period

¥

643

Net of tax

Millions of yen

Six months ended

Affected line items in

September 30, 2019

consolidated statements of income

Pension liability adjustments

Amortization of actuarial loss or gain and prior

¥

(752)

Other income (expenses), net: Other,

service cost

net

(752)

Total before tax

239

Income taxes

(513)

Net of tax

Net unrealized holding gains (losses) on derivative

instruments

Forwards contracts

847

Net sales

(11)

Cost of sales

1,971

Other income (expenses), net: Other,

net

2,807

Total before tax

(1,049)

Income taxes

1,758

Net of tax

Total reclassification for the period

¥

1,245

Net of tax

- 13 -

Reclassification out of accumulated other comprehensive income (loss) for the three months ended September 30,

2020 and 2019 are as follows:

Millions of yen

Three months ended

Affected line items in

September 30, 2020

consolidated statements of income

Pension liability adjustments

Amortization of actuarial loss or gain and prior ¥ (399) service cost

(399)

153

(246)

Net unrealized holding gains (losses) on derivative instruments

Forwards contracts571 (40)

Other income (expenses), net: Other, net

Total before tax

Income taxes

Net of tax

Net sales

Cost of sales

357

Other income (expenses), net: Other,

net

888

Total before tax

(315)

Income taxes

573

Net of tax

Total reclassification for the period

¥

327

Net of tax

Millions of yen

Three months ended

Affected line items in

September 30, 2019

consolidated statements of income

Pension liability adjustments

Amortization of actuarial loss or gain and prior

¥

(374)

Other income (expenses), net: Other,

service cost

net

(374)

Total before tax

117

Income taxes

(257)

Net of tax

Net unrealized holding gains (losses) on derivative

instruments

Forwards contracts

655

Net sales

(132)

Cost of sales

704

Other income (expenses), net: Other,

net

1,227

Total before tax

(255)

Income taxes

972

Net of tax

Total reclassification for the period

¥

715

Net of tax

- 14 -

Tax effects allocated to each component of other comprehensive income (loss) for the six months ended September 30, 2020 and 2019 are as follows:

Millions of yen

Six months ended September 30, 2020

Before tax

Tax (expense)

Net of tax

amount

or benefit

amount

Foreign currency translation adjustments

Foreign currency translation adjustments arising during the

¥

6,411

¥

95

¥

6,506

period

Less: reclassification adjustment for gains included in net

income

Net foreign currency translation adjustments

6,411

95

6,506

Pension liability adjustments

Pension liability adjustments arising during the period

(55)

16

(39)

Less: reclassification adjustment for losses included in net

814

(288)

526

income

Net pension liability adjustments

759

(272)

487

Net unrealized holding gains (losses) on derivative instruments

Unrealized holding gains arising during the period

2,033

(612)

1,421

Less: reclassification adjustment for gains included in net

(1,700)

531

(1,169)

income

Net unrealized holding gains

333

(81)

252

Other comprehensive income (loss)

¥

7,503

¥

(258)

¥

7,245

Millions of yen

Six months ended September 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

¥ (66,291) ¥

77

¥ (66,214)

(66,291)

77

(66,214)

(527)

159

(368)

752

(239)

513

225

(80)

145

1,204

(677)

527

Less: reclassification adjustment for gains included in net

(2,807)

1,049

(1,758)

income

Net unrealized holding losses

(1,603)

372

(1,231)

Other comprehensive income (loss)

¥ (67,669)

¥

369

¥ (67,300)

- 15 -

Tax effects allocated to each component of other comprehensive income (loss) for the three months ended September 30, 2020 and 2019 are as follows:

Millions of yen

Three months ended September 30, 2020

Before tax

Tax (expense)

Net of tax

amount

or benefit

amount

Foreign currency translation adjustments

Foreign currency translation adjustments arising during the

¥

(8,202)

¥

54

¥

(8,148)

period

Less: reclassification adjustment for gains included in net

income

Net foreign currency translation adjustments

(8,202)

54

(8,148)

Pension liability adjustments

Pension liability adjustments arising during the period

(21)

(2)

(23)

Less: reclassification adjustment for losses included in net

399

(153)

246

income

Net pension liability adjustments

378

(155)

223

Net unrealized holding gains (losses) on derivative instruments

Unrealized holding gains arising during the period

1,364

(302)

1,062

Less: reclassification adjustment for gains included in net

(888)

315

(573)

income

Net unrealized holding gains

476

13

489

Other comprehensive income (loss)

¥

(7,348)

¥

(88)

¥

(7,436)

Millions of yen

Three months ended September 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

¥ (32,973) ¥

70

¥ (32,903)

(32,973)

70

(32,903)

(636)

196

(440)

374

(117)

257

(262)

79

(183)

479

(24)

455

Less: reclassification adjustment for gains included in net

(1,227)

255

(972)

income

Net unrealized holding losses

(748)

231

(517)

Other comprehensive income (loss)

¥ (33,983)

¥

380

¥ (33,603)

- 16 -

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 September 30, 2020 and at March 31, 2020 are as follows:

Millions of yen

September 30, 2020

March 31, 2020

Receivables *1

¥

889,458

¥

980,371

Contract assets *2

2,141

3,483

Contract liabilities *3

114,017

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 and long-term trade receivables, 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 six months ended September 30, 2020, that was included in the contract liability balance as of March 31, 2020 was ¥31,214 million. Revenue recognized for the six months ended September 30, 2019, that was included in the contract liability balance as of March 31, 2019 was ¥36,659 million.

Revenue recognized for the three months ended September 30, 2020, that was included in the contract liability balance as of March 31, 2020 was ¥11,922 million. Revenue recognized for the three months ended September 30, 2019, that was included in the contract liability balance as of March 31, 2019 was ¥12,236 million.

The amount of revenue recognized during the six months and three months ended September 30, 2020 and 2019, from performance obligations satisfied or partially satisfied in previous periods was immaterial.

(3) Transaction price allocated to the remaining performance obligations

As of September 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 ¥159,894 million, of which ¥72,752 million is expected to be recognized as revenue in the twelve months following September 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 six months ended September 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. Compensation expenses during the three months ended September 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.

- 17 -

11. Leases

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

Millions of yen

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Sales-type lease revenue

Revenue recognized at the commencement date *1

¥

54,521

¥

52,917

Interest income

4,135

5,084

Total sales-type lease revenue

58,656

58,001

Operating lease revenue

38,835

45,708

Total

¥

97,491

¥

103,709

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

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 September 30, 2020 and 2019 are as follows:

Millions of yen

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Sales-type lease revenue

Revenue recognized at the commencement date *2

¥

24,381

¥

21,816

Interest income

2,292

2,495

Total sales-type lease revenue

26,673

24,311

Operating lease revenue

20,053

23,615

Total

¥

46,726

¥

47,926

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

- 18 -

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

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Net income attributable to Komatsu Ltd.

¥

37,294

¥

90,062

Net income attributable to participating securities (restricted stocks)

25

31

Net income attributable to common shareholders

¥

37,269

¥

90,031

Number of shares

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Weighted average number of common shares outstanding, less treasury

stock

944,719,831

944,025,303

Weighted average number of participating securities (restricted stocks)

635,174

329,917

Weighted average number of common shares

944,084,657

943,695,386

Yen

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Basic net income attributable to Komatsu Ltd. per share

¥

39.48

¥

95.40

Millions of yen

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Net income attributable to Komatsu Ltd.

¥

21,043

¥

42,586

Net income attributable to participating securities (restricted stocks)

15

17

Net income attributable to common shareholders

¥

21,028

¥

42,569

Number of shares

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Weighted average number of common shares outstanding, less treasury

stock

944,793,459

944,114,481

Weighted average number of participating securities (restricted stocks)

682,914

377,649

Weighted average number of common shares

944,110,545

943,736,832

Yen

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Basic net income attributable to Komatsu Ltd. per share

¥

22.27

¥

45.11

- 19 -

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

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Net income attributable to Komatsu Ltd.

¥

37,294

¥

90,062

Net income attributable to participating securities (restricted stocks)

25

31

Net income attributable to common shareholders

¥

37,269

¥

90,031

Number of shares

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Weighted average number of common shares outstanding, less treasury

stock

944,719,831

944,025,303

Dilutive effect of:

Stock options

422,423

820,742

Weighted average number of participating securities (restricted stocks)

635,174

329,917

Weighted average number of diluted common shares

944,507,080

944,516,128

Yen

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Diluted net income attributable to Komatsu Ltd. per share

¥

39.46

¥

95.32

Millions of yen

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Net income attributable to Komatsu Ltd.

¥

21,043

¥

42,586

Net income attributable to participating securities (restricted stocks)

15

17

Net income attributable to common shareholders

¥

21,028

¥

42,569

Number of shares

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Weighted average number of common shares outstanding, less treasury

stock

944,793,459

944,114,481

Dilutive effect of:

Stock options

392,975

777,632

Weighted average number of participating securities (restricted stocks)

682,914

377,649

Weighted average number of diluted common shares

944,503,520

944,514,464

Yen

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Diluted net income attributable to Komatsu Ltd. per share

¥

22.26

¥

45.07

- 20 -

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 September 30, 2020 and at March 31, 2020 were ¥11,313 million and ¥12,142 million, respectively. The fair value of the liabilities recognized for Komatsu's obligations as guarantors under those guarantees at September 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 September 30, 2020 and at March 31, 2020 were ¥13,110 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.

- 21 -

14. Derivative Financial Instruments

Notional principal amounts of derivative financial instruments outstanding at September 30, 2020 and at March 31,

2020 are as follows:

Millions of yen

September 30, 2020

March 31, 2020

Forwards contracts:

Sale of foreign currencies

¥

128,954

¥

147,655

Purchase of foreign currencies

107,848

101,835

Interest rate swaps and cross-currency swap agreements

90,675

83,088

Fair value of derivative instruments at September 30, 2020 and at March 31, 2020 on the consolidated balance

sheets are as follows:

Millions of yen

September 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

¥

709

Other current liabilities

¥

685

Deferred income taxes and

3 Deferred income taxes and

191

other assets

other liabilities

Interest rate swaps and

Other current assets

Other current liabilities

13

cross-currency swap

Deferred income taxes and

Deferred income taxes and

891

agreements

other assets

other liabilities

Total

¥

712

¥ 1,780

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

¥ 2,541

Other current liabilities

¥

905

Deferred income taxes and

18 Deferred income taxes and

2

other assets

other assets

Interest rate swaps and cross-currency swap agreements

Other current assets

180

Other current liabilities

234

Deferred income taxes and

132

Deferred income taxes and

other assets

other liabilities

Total

¥ 2,871

¥ 1,141

Total Derivative Instruments

¥ 3,583

¥ 2,921

- 22 -

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

- 23 -

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

Derivative instruments designated as cash flow hedging relationships

Millions of yen

Six months ended September 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

¥

1,945

Net sales

¥

1,282

Cost of sales

(289)

Other income (expenses),

707

net: Other, net

Interest rate swaps and

88

cross-currency swap agreements

Total

¥

2,033

¥

1,700

Millions of yen

Six months ended September 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

¥

1,637

Net sales

¥

847

Cost of sales

(11)

Other income (expenses),

1,971

net: Other, net

Interest rate swaps and

(433)

cross-currency swap agreements

Total

¥

1,204

¥

2,807

* OCI stands for other comprehensive income (loss).

Derivative instruments not designated as hedging instruments relationships

Millions of yen

Six months ended September 30, 2020

Forwards contracts Interest rate swaps and cross-currency swap agreements

Total

Location of gains (losses) recognized

Amount of gains (losses) recognized

in income on derivatives

in income on derivatives

Other income (expenses), net: Other, net

¥

(2,038)

Cost of sales

(11)

Other income (expenses), net: Other, net

(41)

¥

(2,090)

Millions of yen

Six months ended September 30, 2019

Location of gains (losses) recognized

Amount of gains (losses) recognized

in income on derivatives

in income on derivatives

Forwards contracts

Other income (expenses), net: Other, net

¥

40

Interest rate swaps and

Cost of sales

(20)

cross-currency swap agreements

Other income (expenses), net: Other, net

(164)

Total

¥

(144)

- 24 -

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

Derivative instruments designated as cash flow hedging relationships

Millions of yen

Three months ended September 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

¥

1,293

Net sales

¥

571

Cost of sales

(40)

Other income (expenses),

357

net: Other, net

Interest rate swaps and

71

cross-currency swap agreements

Total

¥

1,364

¥

888

Millions of yen

Three months ended September 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

¥

579

Net sales

¥

655

Cost of sales

(132)

Other income (expenses),

704

net: Other, net

Interest rate swaps and

(100)

cross-currency swap agreements

Total

¥

479

¥

1,227

* OCI stands for other comprehensive income (loss).

Derivative instruments not designated as hedging instruments relationships

Millions of yen

Three months ended September 30, 2020

Forwards contracts Interest rate swaps and cross-currency swap agreements

Total

Location of gains (losses) recognized

Amount of gains (losses) recognized

in income on derivatives

in income on derivatives

Other income (expenses), net: Other, net

¥

484

Cost of sales

(6)

Other income (expenses), net: Other, net

(20)

¥

458

Millions of yen

Three months ended September 30, 2019

Location of gains (losses) recognized

Amount of gains (losses) recognized

in income on derivatives

in income on derivatives

Forwards contracts

Other income (expenses), net: Other, net

¥

218

Interest rate swaps and

Cost of sales

103

cross-currency swap agreements

Other income (expenses), net: Other, net

(156)

Total

¥

165

- 25 -

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 September 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

September 30, 2020

March 31, 2020

Carrying

Estimated

Carrying

Estimated

Fair Value

amount

fair value

amount

fair value

Levels

¥ 234,454

¥ 234,454

¥ 247,616

¥ 247,616

Level 1

1,399

1,399

2,057

2,057

Level 2

307,761

307,761

314,592

314,592

Level 2

380,289

380,289

483,658

483,658

Level 2

585,766

588,368

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.

- 26 -

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 September 30, 2020 and at March 31, 2020 are as follows:

Millions of yen

At September 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

Level 1

Level 2

Level 3

Total

¥

¥

3,271

¥

¥

3,271

312

312

¥

¥

3,583

¥

¥

3,583

¥

¥

1,783

¥

¥

1,783

1,138

1,138

¥

¥

2,921

¥

¥

2,921

Millions of yen

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

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

- 27 -

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 six months ended September 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 September 30, 2020 and at March 31, 2020 were ¥563,530 million and ¥133,945 million, respectively. These total amounts of unused committed credit lines available for full and immediate borrowings at September 30, 2020 and at March 31, 2020 were ¥543,148 million and ¥112,135 million, respectively.

- 28 -

18. Dividends

Six months ended September 30, 2020

(1) Payment amount of dividends

Type of

Aggregate amount of

Resource of

Dividend

Record

Effective

Resolution

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 on

stock

earnings

2020

2020

June 18, 2020

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

  1. Dividends to be paid for the six months ended September 30, 2020, of which effective date is after September 30, 2020

Type of

Aggregate amount of

Resource of

Dividend

Record

Effective

Resolution

dividends

per share

stock

dividends

date

date

(Millions of yen)

(Yen)

Board of Directors

Common

Retained

September

December

held on October 28,

17,019

18

stock

earnings

30, 2020

1, 2020

2020

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

Six months ended September 30, 2019

(1) Payment amount of dividends

Type of

Aggregate amount of

Resource of

Dividend

Record

Effective

Resolution

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 on

stock

earnings

2019

2019

June 18, 2019

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

  1. Dividends to be paid for the six months ended September 30, 2019, of which effective date is after September 30, 2019

Type of

Aggregate amount of

Resource of

Dividend

Record

Effective

Resolution

dividends

per share

stock

dividends

date

date

(Millions of yen)

(Yen)

Board of Directors

Common

Retained

September

December

held on October 30,

51,967

55

stock

earnings

30, 2019

2, 2019

2019

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

- 29 -

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 six months ended September 30, 2020 and 2019 is as follows:

Millions of yen

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Net sales:

Construction, Mining and Utility Equipment -

External customers

¥

864,314

¥

1,109,313

Intersegment

12,236

2,361

Total

876,550

1,111,674

Retail Finance -

External customers

28,928

31,144

Intersegment

3,824

3,639

Total

32,752

34,783

Industrial Machinery and Others -

External customers

64,475

73,028

Intersegment

463

701

Total

64,938

73,729

Elimination

(16,523)

(6,701)

Consolidated

¥

957,717

¥

1,213,485

Segment profit:

Construction, Mining and Utility Equipment

¥

52,217

¥

129,833

Retail Finance

4,682

6,810

Industrial Machinery and Others

4,102

4,039

Total segment profit

61,001

140,682

Corporate expenses and elimination

(244)

7

Consolidated

¥

60,757

¥

140,689

- 30 -

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

Millions of yen

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Net sales:

Construction, Mining and Utility Equipment -

External customers

¥

444,309

¥

548,715

Intersegment

6,430

1,482

Total

450,739

550,197

Retail Finance -

External customers

14,980

15,678

Intersegment

1,851

1,826

Total

16,831

17,504

Industrial Machinery and Others -

External customers

39,697

39,325

Intersegment

219

383

Total

39,916

39,708

Elimination

(8,500)

(3,691)

Consolidated

¥

498,986

¥

603,718

Segment profit:

Construction, Mining and Utility Equipment

¥

29,017

¥

61,144

Retail Finance

2,787

3,406

Industrial Machinery and Others

2,395

3,485

Total segment profit

34,199

68,035

Corporate expenses and elimination

(80)

(89)

Consolidated

¥

34,119

¥

67,946

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

Millions of yen

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Total segment profit

¥

61,001

¥

140,682

Corporate expenses and elimination

(244)

7

Total

60,757

140,689

Other operating income (expenses), net

(415)

1,293

Operating income

60,342

141,982

Interest and dividend income

2,414

3,732

Interest expense

(7,406)

(13,108)

Other, net

3,180

(4,394)

Consolidated income before income taxes and equity in earnings of

¥

58,530

¥

128,212

affiliated companies

- 31 -

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

Millions of yen

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Total segment profit

¥

34,199

¥

68,035

Corporate expenses and elimination

(80)

(89)

Total

34,119

67,946

Other operating income (expenses), net

(696)

(724)

Operating income

33,423

67,222

Interest and dividend income

1,229

1,986

Interest expense

(3,565)

(6,458)

Other, net

(1,054)

(1,448)

Consolidated income before income taxes and equity in earnings of

¥

30,033

¥

61,302

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 six months ended September 30, 2020 and 2019 are as follows:

Millions of yen

Six months ended

September 30, 2020

Construction, Mining

Industrial Machinery

and Utility Equipment

Retail Finance

and Others

Total

Japan

¥

132,208

¥

894

¥

35,610

¥

168,712

The Americas

329,436

21,792

7,052

358,280

Europe and CIS

127,556

1,758

2,911

132,225

China

71,887

1,534

5,583

79,004

Asia (excluding Japan and China)

and Oceania

154,579

2,867

13,274

170,720

Middle East and Africa

48,648

83

45

48,776

Total

¥

864,314

¥

28,928

¥

64,475

¥

957,717

- 32 -

Millions of yen

Six months ended

September 30, 2019

Construction, Mining

Industrial Machinery

and Utility Equipment

Retail Finance

and Others

Total

Japan

¥

148,738

¥

1,003

¥

34,094

¥

183,835

The Americas

440,065

24,140

7,438

471,643

Europe and CIS

178,580

1,364

3,429

183,373

China

61,444

1,644

11,057

74,145

Asia (excluding Japan and China)

and Oceania

218,525

2,960

16,820

238,305

Middle East and Africa

61,961

33

190

62,184

Total

¥

1,109,313

¥

31,144

¥

73,028

¥

1,213,485

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

Millions of yen

Three months ended

September 30, 2020

Construction, Mining

Industrial Machinery

and Utility Equipment

Retail Finance

and Others

Total

Japan

¥

70,801

¥

453

¥

23,215

¥

94,469

The Americas

168,793

10,958

5,380

185,131

Europe and CIS

67,410

1,096

1,437

69,943

China

28,715

774

2,815

32,304

Asia (excluding Japan and China)

and Oceania

80,646

1,654

6,827

89,127

Middle East and Africa

27,944

45

23

28,012

Total

¥

444,309

¥

14,980

¥

39,697

¥

498,986

Millions of yen

Three months ended

September 30, 2019

Construction, Mining

Industrial Machinery

and Utility Equipment

Retail Finance

and Others

Total

Japan

¥

84,961

¥

558

¥

20,240

¥

105,759

The Americas

222,103

12,149

4,209

238,461

Europe and CIS

85,383

689

2,330

88,402

China

25,207

808

4,840

30,855

Asia (excluding Japan and China)

and Oceania

100,007

1,459

7,531

108,997

Middle East and Africa

31,054

15

175

31,244

Total

¥

548,715

¥

15,678

¥

39,325

¥

603,718

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

Millions of yen

Six months ended

Six months ended

September 30, 2020

September 30, 2019

Japan

¥

207,249

¥

253,075

The Americas

329,658

441,105

Europe and CIS

135,153

187,061

China

75,964

66,426

Others

209,693

265,818

Total

¥

957,717

¥

1,213,485

- 33 -

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

Millions of yen

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Japan

¥

116,291

¥

137,842

The Americas

167,785

223,727

Europe and CIS

72,420

89,091

China

31,341

27,263

Others

111,149

125,795

Total

¥

498,986

¥

603,718

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

- 34 -

  1. Material Subsequent Events Not applicable.
    Komatsu evaluated subsequent events through November 11, 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.

- 35 -

Disclaimer

Komatsu Ltd. published this content on 09 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 November 2020 11:50:01 UTC


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Takeshi Horikoshi Chief Financial Officer & Executive Officer
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