Komatsu : Semi-annual Report FY2024

(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.

Semi-annual Report

From April 1, 2024 to September 30, 2024

(First Half of the 156th Fiscal Year)

KOMATSU LTD.

First Half of the 156th Fiscal Year (from April 1, 2024 to September 30, 2024)

Semi-annual Report

Certain References and Information:

1. This is an English translation of the Semi-annual Securities Report ("Hanki 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 Semi-annual Securities Report for the six months ended September 30, 2024 with the Director-General of the Kanto Local Finance Bureau on November 13, 2024. The Semi-annual Securities Report contains, among other information, Interim Consolidated Financial Statements for the six months ended September 30, 2024. Material information in the Semi-annual Securities Report, other than the Interim Consolidated Financial Statements, has already been reported by Komatsu Ltd. in its press release dated October 29, 2024. Attached is an English translation of Interim Consolidated Financial Statements for the six months ended September 30, 2024.
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 management's views and assumptions in the light of information currently available with respect to certain future events, including expected financial position, operating results and business strategies. These statements can be identified by the use of terms such as "will," "believes," "should," "projects," "plans," "expects" and similar terms and expressions that identify future events or expectations. Actual results may differ materially from those projected, and the events and results of such forward- looking assumptions cannot be assured. Any forward-looking statements speak only as of the date of this 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 interim consolidated financial statements

The interim consolidated financial statements of the Company are prepared in accordance with the accounting principles generally accepted in the United States of America, pursuant to Paragraph 6, Supplementary Provisions of the "Cabinet Office Ordinance for Partial Revision of the Ordinance on Terminology, Forms and Preparation Methods of Consolidated Financial Statements," the Ordinance of the Cabinet Office No. 11 of 2002.

In addition, the Company falls under the category of a company listed in the upper column of Item 1 of the table in Article 24-5, Paragraph 1 of the Financial Instruments and Exchange Act of Japan, and has prepared its Type 1 interim consolidated financial statements in accordance with the provisions of Part 1 and Part 3 of the "Regulations Concerning the Terminology, Forms and Preparation Method of Consolidated Financial Statements" the Ordinance of the Ministry of Finance No. 28 of 1976.

2. Audit certification

Pursuant to Article 193-2, paragraph 1 of the Financial Instruments and Exchange Act of Japan, the interim consolidated financial statements for the interim consolidated accounting period (from April 1, 2024 to September 30, 2024) were reviewed by KPMG AZSA LLC.

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Interim Consolidated Financial Statements

Consolidated Balance Sheets (Unaudited)

Komatsu Ltd. and Consolidated Subsidiaries as of September 30, 2024 and March 31, 2024

Assets

Current assets

Cash and cash equivalents (Note 17)

Trade notes and accounts receivable, net (Notes 4, 11 and 17) Inventories (Note 5)

Other current assets (Notes 16, 17 and 18)

Total current assets

Long-term trade receivables, net (Notes 4, 11 and 17)

Investments

Investments in and advances to affiliated companies

Investment securities (Note 6)

Other

Total investments

Property, plant and equipment

- less accumulated depreciation of ¥1,075,461

million at September 30, 2024 and ¥1,090,769 million at March 31, 2024

Operating lease right-of-use assets

Goodwill (Note 3)

Other intangible assets

• less accumulated amortization (Notes 3 and 7) Deferred income taxes and other assets (Notes 16, 17 and 18)
  Total assets

		September 30, 2024			March 31, 2024
	Millions of yen		Ratio (%)		Millions of yen		Ratio (%)
	¥	409,535				¥	403,178
		1,159,038					1,263,542
		1,456,704					1,438,695
		232,809					208,773
		3,258,086	58.6			3,314,188	58.8
		705,039		12.7			688,260		12.2
		65,544					67,325
		9,939					10,267
		4,521					3,975
		80,004	1.4			81,567	1.5
		889,648		16.0			908,055		16.1
		67,729		1.2			69,236		1.2
		241,670		4.4			248,393		4.4
		167,648	3.0			180,403	3.2
		148,792		2.7			146,554		2.6
	¥	5,558,616		100.0		¥	5,636,656		100.0

			September 30, 2024			March 31, 2024
Liabilities and Equity	Millions of yen		Ratio (%)		Millions of yen		Ratio (%)
Current liabilities
Short-term debt (Note 17)		¥	483,512				¥	440,619
Current maturities of long-term debt (Note 17)			234,203					140,359
Trade notes, bills and accounts payable (Notes 8 and 17)			314,869					320,312
Income taxes payable			62,368					69,638
Current operating lease liabilities			19,389					19,603
Other current liabilities (Notes 11, 16, 17 and 18)			521,596					535,668
Total current liabilities		1,635,937	29.4			1,526,199	27.1
Long-term liabilities
Long-term debt (Note 17)			536,765					618,392
Liability for pension and retirement benefits			77,882					87,933
Long-term operating lease liabilities			50,700					51,441
Deferred income taxes and other liabilities (Notes 11, 16, 17 and 18)			156,480					154,239
Total long-term liabilities		821,827	14.8			912,005	16.2
Total liabilities			2,457,764		44.2			2,438,204		43.3
Commitments and contingent liabilities (Note 15)
Equity
Komatsu Ltd. shareholders' equity
Common stock:
Authorized 3,955,000,000 shares
Issued 973,810,620 shares
Outstanding 922,843,493 shares at September 30, 2024 and
945,981,168 shares at March 31, 2024		70,336					70,336
Capital surplus			137,525					136,500
Retained earnings:
Appropriated for legal reserve			49,254					48,979
Unappropriated			2,478,566					2,367,020
Accumulated other comprehensive income (loss) (Notes 10 and 16)			350,166					459,865
Treasury stock at cost,
50,967,127 shares at September 30, 2024 and 27,829,452 shares at March 31, 2024		(150,303)					(49,131)
Total Komatsu Ltd. shareholders' equity			2,935,544	52.8			3,033,569	53.8
Noncontrolling interests		165,308		3.0			164,883		2.9
Total equity			3,100,852		55.8			3,198,452		56.7
Total liabilities and equity	¥	5,558,616		100.0		¥	5,636,656		100.0

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

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

Komatsu Ltd. and Consolidated Subsidiaries

Six months ended September 30, 2024 and 2023

Consolidated Statements of Income

		Six months ended		Six months ended
		September 30, 2024		September 30, 2023
	Millions of yen	Ratio(%)			Millions of yen		Ratio(%)
Net sales (Notes 10, 11, 13, 16 and 21)	¥	1,968,066		100.0			¥	1,822,994		100.0
Cost of sales (Notes 7, 9, 10 and 16)		1,338,392		68.0				1,237,198		67.9
Selling, general and administrative expenses (Notes 3, 7, 9 and 12)		325,764		16.6				287,853	15.8
Other operating income (expenses), net		(483)		(0.0)				(967)	(0.1)
Operating income		303,427		15.4				296,976		16.3
Other income (expenses), net
Interest and dividend income		14,175		0.7				9,187	0.5
Interest expense		(30,436)		(1.5)				(25,003)	(1.4)
Other, net (Notes 6, 9, 10 and 16)		(8,512)		(0.4)				6,860	0.4
Total		(24,773)		(1.3)				(8,956)		(0.5)
Income before income taxes and equity in
earnings of affiliated companies		278,654		14.2				288,020	15.8
Income taxes (Note 10)
Current		79,034						86,957
Deferred		(11,618)						(12,318)
Total		67,416		3.4				74,639	4.1
Income before equity in earnings of affiliated companies		211,238		10.7				213,381		11.7
Equity in earnings of affiliated companies		4,688		0.2				3,833	0.2
Net income		215,926		11.0				217,214		11.9
Less: Net income attributable to noncontrolling interests		14,197		0.7				11,666		0.6
Net income attributable to Komatsu Ltd.	¥	201,729		10.3			¥	205,548		11.3
				Yen
Per share data (Note 14):
Net income attributable to Komatsu Ltd.:
Basic	¥	215.93					¥	217.36
Diluted	¥	215.92					¥	217.34

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

Consolidated Statements of Comprehensive Income

		Millions of yen
	Six months ended		Six months ended
	September 30, 2024		September 30, 2023
Net income	¥	215,926		¥	217,214
Other comprehensive income (loss), for the period, net of tax
Foreign currency translation adjustments (Note 10)		(116,381)			203,687
Pension liability adjustments (Notes 9 and 10)		561			393
Net unrealized holding gains (losses) on derivative instruments (Notes 10 and 16)		1,339			(765)
Total		(114,481)			203,315
Comprehensive income		101,445			420,529
Less: Comprehensive income attributable to noncontrolling interests		9,415			23,661
Comprehensive income attributable to Komatsu Ltd.	¥	92,030		¥	396,868

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

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Consolidated Statements of Equity (Unaudited)

Komatsu Ltd. and Consolidated Subsidiaries

Six months ended September 30, 2024

														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, 2024	¥	70,336		¥	136,500		¥	48,979		¥	2,367,020		¥	459,865		¥	(49,131)		¥	3,033,569		¥	164,883		¥	3,198,452
Cash dividends (Note 20)											(89,908)								(89,908)		(8,504)			(98,412)
Transfer to retained earnings appropriated								275			(275)									－						－
for legal reserve
Other changes					484															484			(486)			(2)
Net income											201,729									201,729			14,197			215,926
Other comprehensive income (loss),														(109,699)					(109,699)		(4,782)			(114,481)
for the period, net of tax (Note 10)
Exercise of stock acquisition					(72)															(72)						(72)
rights (Note 12)
Purchase of treasury stock																	(101,255)		(101,255)					(101,255)
Sales of treasury stock					(9)												83			74						74
Share-based payment (Note 12)					622															622						622
Balance at September 30, 2024	¥	70,336		¥	137,525		¥	49,254		¥	2,478,566		¥	350,166		¥	(150,303)		¥	2,935,544		¥	165,308		¥	3,100,852

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

Six months ended September 30, 2023

														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, 2023	¥	69,660		¥	135,886		¥	48,508		¥	2,114,789		¥	219,951		¥	(49,153)		¥	2,539,641		¥	138,314		¥	2,677,955
Cumulative effects of Accounting Standards
Update-adoption of ASU 2016-13, net of tax											(1,634)								(1,634)		(126)			(1,760)
(Note 4)
Cash dividends (Note 20)											(70,950)									(70,950)			(10,283)			(81,233)
Transfer to retained earnings appropriated								162			(162)								－					－
for legal reserve
Other changes					4															4			(6)			(2)
Net income											205,548									205,548			11,666			217,214
Other comprehensive income (loss),														191,320						191,320			11,995			203,315
for the period, net of tax (Note 10)
Exercise of stock acquisition					(54)															(54)					(54)
rights (Note 12)
Purchase of treasury stock																	(25)			(25)						(25)
Sales of treasury stock					8												46			54						54
Share-based payment (Note 12)		676			672															1,348						1,348
Balance at September 30, 2023	¥	70,336	¥	136,516		¥	48,670	¥	2,247,591		¥	411,271		¥	(49,132)	¥	2,865,252		¥	151,560	¥	3,016,812

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

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Consolidated Statements of Cash Flows (Unaudited)

Komatsu Ltd. and Consolidated Subsidiaries

Six months ended September 30, 2024 and 2023

		Millions of yen
	Six months ended	Six months ended
	September 30, 2024	September 30, 2023
Operating activities
Net income	¥	215,926		¥	217,214
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		81,094			76,444
Deferred income taxes		(11,618)			(12,318)
Impairment loss and net loss on valuation of investment securities, net		645			28
Net gain on sale of fixed assets		(318)			(600)
Loss on disposal of fixed assets		1,494			1,169
Pension and retirement benefits, net		(8,803)			(276)
Changes in assets and liabilities:
Decrease in trade receivables		5,199			52,112
Increase in inventories		(69,788)			(141,238)
Increase (decrease) in trade payables		1,325			(34,006)
Increase (decrease) in income taxes payable		(6,967)			1,215
Other, net		9,484			27,569
Net cash provided by operating activities		217,673			187,313
Investing activities
Capital expenditures		(99,760)			(88,717)
Proceeds from sale of fixed assets		7,416			7,510
Purchases of investment securities		(626)			(165)
Acquisition of subsidiaries and equity investees, net of cash acquired		(13,500)			－
Other, net		2,147			(34)
Net cash used in investing activities		(104,323)			(81,406)
Financing activities
Proceeds from debt issued (Original maturities greater than three months)		328,478			230,902
Payment on debt (Original maturities greater than three months)		(264,202)			(273,270)
Short-term debt, net (Original maturities three months or less)		39,466			43,815
Sale (purchase) of treasury stock, net		(101,240)			(12)
Dividends paid		(89,908)			(70,950)
Other, net		(9,002)			(10,094)
Net cash used in financing activities		(96,408)			(79,609)
Effect of exchange rate change on cash and cash equivalents		(10,585)			1,014
Net increase in cash and cash equivalents		6,357			27,312
Cash and cash equivalents, beginning of year		403,178			289,975
Cash and cash equivalents, end of period	¥	409,535		¥	317,287

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

The figure for the six months ended September 30, 2023 was reclassified to conform to the presentation for the six months ended September 30, 2024.

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Komatsu Ltd. and Consolidated Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

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

Basis of Interim Consolidated Financial Statement Presentation

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

The accompanying interim 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 subsidiary's and affiliate's interim financial statements are added to the accompanying interim consolidated financial statements. These adjustments are mainly due to the gaps of accounting principle between Japan and the United States of America. See Note 23 "Terminology, Forms and Preparation Methods of Interim 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, 2024.

Regarding the impact of the disruption and so forth in the supply chain, financial sector, and world economy caused by the Ukraine situation on Komatsu's financial position and results of operations, there is uncertainty regarding when such conditions will improve, among other factors. Nevertheless, Komatsu has assumed that a certain level of impact from the Ukraine situation will continue in the future, based on the information which is available at present and our predictions. Komatsu is making its best estimates taking in the assumption to assess the calculation of the estimated credit losses, 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 the assumption, 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, 2024 and 2023 is as follows:

		Millions of yen
	Six months ended		Six months ended
	September 30, 2024		September 30, 2023
Additional cash flow information:
Interest paid	¥	31,001		¥	24,215
Income taxes paid, net		88,131			96,394

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3. Business Combination American Battery Solutions, Inc.

On December 1, 2023, the Company acquired American Battery Solutions, Inc. (hereinafter "ABS"), a battery manufacturer, through Komatsu America Corp., a wholly owned subsidiary of the Company in the U.S., by purchasing all of the outstanding shares of ABS.

ABS is a battery manufacturer that develops and manufactures a wide variety of battery packs, including lithium- ion batteries for commercial and industrial vehicles, and provides battery systems optimized to each customer's needs. ABS has talented employees with advanced product development knowledge and expertise in addition to their technology to develop and manufacture battery packs with superior performance.

The acquisition of ABS will enable Komatsu to develop and manufacture its own battery optimized to its products which are used under various environments and conditions, through the integration of ABS' battery technology with Komatsu's knowledge and network. After the acquisition, ABS will continue its current business for commercial vehicles as a stand-alone business entity and will aim to become one of the world's leading providers of battery systems in both commercial vehicle and construction & mining equipment markets by acquiring new business opportunities through Komatsu.

Komatsu will accelerate the development of battery-powered electric vehicles with the aim of achieving carbon neutrality by utilizing the newly acquired ABS' battery-related technology.

The fair value measurement of the acquired assets and assumed liabilities under Financial Accounting Standards Board Accounting Standards CodificationTM (hereinafter "ASC") 805, "Business Combinations" was completed as of the filing date of the semi-annual securities report of the fiscal year ended March 31, 2025. The following table presents the summary of the acquired assets and assumed liabilities after the allocation of acquisition cost on the acquisition date (December 1, 2023). Based on the completion of the allocation of acquisition cost for the six months ended September 30, 2024, the amounts of goodwill and part of acquired assets and assumed liabilities were adjusted from the provisional amounts at June 18, 2024, the filing date of Annual Securities Report for the year ended March 31, 2024.

Although these adjustments were reflected to the interim consolidated financial statements for the period, the amount of adjustment was not material to the interim consolidated financial statements for the period.

		Millions of yen
Consideration
Cash and cash equivalents	¥	37,102
Fair value of total consideration transferred		37,102
Recognized amounts of identifiable acquired assets and assumed liabilities
Current assets		5,952
Property, plant and equipment		6,645
Intangible assets		12,437
Other non-current assets		7,224
Total acquired assets		32,258
Current liabilities		(2,762)
Long-term liabilities		(4,494)
Total assumed liabilities		(7,256)
Net acquired assets		25,002
Goodwill		12,100
	¥	37,102

Intangible assets of ¥12,437 million are all intangible assets subject to amortization and primarily consist of the following.

	Millions of yen
	Gross carrying amount		Amortization period
Trademarks	¥	3,002		10	years
Customer relationships		2,662		10	years
Technology assets		6,714		15	years

The goodwill of ¥12,100 million was assigned to the Construction, Mining and Utility Equipment operating

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segment. The goodwill is not deductible for tax purposes.

Acquisition-related costs for the fiscal year ended March 31, 2024 were ¥1,264 million and included in selling, general and administrative expenses in the consolidated statements of income for the fiscal year ended March 31, 2024.

ABS' results of operations included in the consolidated statements of income for the fiscal year ended March 31, 2024 since the date of acquisition were immaterial.

Assuming this acquisition had been completed as of April 1, 2022, the impact on Net Sales and Net income attributable to Komatsu Ltd. for the fiscal year ended March 31, 2024 and 2023 would also have been immaterial.

4. Receivables and Allowance for Credit Losses

(1) Portfolio segments

Since Komatsu manages its receivables and allowance for credit losses by operating segments, the portfolio segments are classified in the same way as the operating segments: 1) Construction, Mining and Utility Equipment, 2) Retail Finance, and 3) Industrial Machinery and Others.

In the Construction, Mining and Utility Equipment segment and the Industrial Machinery and Others segment, Komatsu mainly holds accounts receivable and notes receivable recorded as consideration for sales of products, parts, services, and others to customers. Komatsu believes that the possibility of losses due to uncollectible is low as these receivables are generally collected within three months.

In the Retail Finance segment, Komatsu provides installment sales and sales-type leases as a lessor for leveling cash payments of its customers when customers purchase primarily Komatsu's construction and mining equipment. Receivables of retail finance business (hereinafter "retail finance receivables") are secured by collateral, in the form of financed equipment. If Komatsu's collection efforts fail to recover the defaulted situation, Komatsu generally can repossess the financed equipment, after satisfying local legal requirements, and sell it to a third party through Komatsu's dealer network. The collection spans an extended period of time and there is a degree of uncertainty that accompanies the calculation of the estimated credit losses and the calculation of an expected amount recoverable from the collateral. Komatsu recognizes the allowance for credit losses on retail finance receivables utilizing the expected credit loss rates that are calculated based on the average historical loss rates adjusted to reflect forecasted changes in relevant economic indicators such as housing starts. For periods beyond which Komatsu is able to make or obtain reasonable and supportable forecasts of future economic indicators of the entire life of the retail finance receivables, expected credit losses are estimated for the remaining life mainly using an appropriate approach that immediately revert to historical credit loss experiences. For those retail finance receivables with a collectability risk due to deterioration of customer's financial condition or prolonged payment delays, Komatsu individually increases the allowance for credit losses based on the available information at hand such as credit ratings of the customer, status of outstanding receivables, and current market price of the equipment used as collateral. There were no significant changes in methodologies used to estimate the allowance for credit losses during the six months ended September 30, 2024.

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