<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             ____________________

                                   FORM 20-F

(Mark One)

             ( ) REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
                 OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
                                       or
             (XX)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended March 31, 2001

                        COMMISSION FILE NUMBER: 1-7239

                      KABUSHIKI KAISHA KOMATSU SEISAKUSHO
            (Exact name of registrant as specified in its charter)

                                 KOMATSU LTD.
                (Translation of registrant's name into English)

                                     JAPAN
                (Jurisdiction of incorporation or organization)

                2-3-6 Akasaka, Minato-ku, Tokyo 107-8414, Japan
                   (Address of principal executive offices)


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

                             Name of each exchange
Title of each class           on which registered
-------------------           -------------------

None                                  N/A
<PAGE>

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

                                     None

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

                                 Common Stock

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

                                  958,921,701

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

Yes   XX    ,   No ________
   ---------

     Indicate by check mark which financial statement item the registrant has
elected to follow.  Item 17____  Item 18  XX.
                                         ---

In this document, 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 Annual Report contains forward-looking statements that reflect
 management's views and assumptions in the light of information currently
 available with respect to certain future events, including expected financial
 position, operating results and business strategies. These statements can be
 identified by the use of terms such as "will," "believes," "should,"
 "projects," "plans," "expects" and similar terms and expressions that identify
 future events or expectations. Actual results may differ materially from those
 projected, and the events and results of such forward-looking assumptions
 cannot be assured. Any forward-looking statements speak only as of the date of
 this Annual Report, and 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

                                       2
<PAGE>

 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; and the impact of regulatory changes and
 accounting principles and practices.

                                    PART I

Item 1.   Identity of Directors, Senior Management and Advisers
          -----------------------------------------------------

     Not applicable

Item 2.   Offer Statistics and Expected Timetable
          ---------------------------------------

     Not applicable

Item 3.   Key Information
          ---------------

     A. Selected financial data

<TABLE>
<CAPTION>
                                                                      (Yen in millions. Yen per share amounts)
                                                           1997           1998           1999           2000           2001
<S>                                                    <C>            <C>            <C>            <C>            <C>
Income Statement Data:
     Net Sales                                           1.098.916      1.104.077      1.061.597      1.055.654      1.096.369
     Operating income                                       49.903         43.098          4.281         17.318         27.815
     Income before income taxes                             45.769         40.252         (9.604)        19.395         20.064
     Income  taxes                                          25.562         20.841          2.061          9.950         13.715
     Net income                                             18.160         19.241        (12.378)        13.395          6.913
Per Share Data:
     Net income
           _Basic                                            18.26          19.60         (12.77)         13.85           7.24
           _Diluted                                          18.02          19.32         (12.77)         13.76           7.24
     Cash dividends declared
                                                              8.00           8.00           7.00           6.00           6.00
           US$                                         (7.02 cents)   (5.90 cents)   (5.89 cents)   (5.77 cents)   (5.09 cents)
Depreciation and amortization                               42.348         48.629         52.150         61.500         63.915
Capital expenditures                                        70.931        123.026        114.874         57.728         79.310
Research and development expenses                           40.952         44.058         45.712         42.460         45.282
</TABLE>

                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                         (Yen in millions, Yen per share amounts)
                                                                       March 31
                                               1997           1998          1999          2000          2001
<S>                                         <C>           <C>            <C>            <C>           <C>
Balance Sheet Data:
     Net working capital                      228,404         212,096        256,039        221,517        203,233
     Long-term debt                           163,590         196,898        292,250        245,289        238,349
     Stockholders' equity                     541,933         524,201        495,643        490,454        474,257
     Total assets                           1,512,730       1,561,662      1,524,600      1,375,280      1,403,195
     Number of shares issued at year-end  983,921,701     969,842,701    968,921,701    968,921,701    958,921,701

     Stockholders' equity per share:           550.79          540.50         511.54         507.26         497.12
</TABLE>

<TABLE>
<CAPTION>
                                                                                       (Yen)
                                             Average*       High         Low        Period--End
<S>                                          <C>           <C>           <C>        <C>
Yen Exchange Rates per U.S. Dollar.
     Year ended March 31
               1997                            113.21       104.49       124.54          123.72
               1998                            123.57       111.42       133.99          133.29
               1999                             128.1       108.83       147.14          118.43
               2000                            110.02       101.53       124.45          102.73
               2001                            111.65       104.19       125.54          125.54
     2001
               January                                      114.26       118,35          116.39
               February                                     114.88       117.62          117.28
               March                                        117.33       125.54          125.54
               April                                        121.68       126.75          123.57
               May                                          118.13       123.67          118.88
               June                                         119.13       124.73          124.73
               July                                         122.85       125.85          125.00
</TABLE>

*    The average yen exchange rates represent average noon buying rates on the
     last business day of each month during the respective period.


     Attached hereto and incorporated in full by reference are pages 32 and 33
of the Company's 2001 Annual Report to Shareholders pertaining to the "Ten-year
Summary", which pages comprise part of the Consolidated Financial Statements
attached hereto.

     (The most recent practicable exchange rate into United States dollars of
     Japanese yen was (Yen)125.00=U.S.$1 as of July 31, 2001.)

     B. Capitalization and indebtedness

       Not applicable

     C. Reasons for the offer and use of proceeds

       Not applicable

                                       4
<PAGE>

     D. Risk factors

     Komatsu believes that, as an independent business entity, it has a
management strategy and the resources to win against the competition within a
foreseeable period based on available information.  The market conditions for
Komatsu's individual businesses differ by region and change widely depending
upon economic and competitive conditions.  The profitability of Komatsu's global
construction and mining equipment business, as its core operation, is affected
primarily by the following factors:

 . Further intensification of competition in the Japanese market, where demand
  has declined considerably since 1997.
 . Further reduction in demand in the North American market brought about by
  greater-than-expected economic deceleration.
 . A considerable decline in demand in the European market, owing to economic
  slowdown.
 . A delay in the recovery of demand for mining equipment.
 . Significant increases in R&D expenses for construction and mining equipment in
  order to meet more stringent environmental protection regulations.
 . Greater-than-expected fluctuation in foreign exchange rates (especially vis-a-
  vis the U.S. dollar and the Euro).

     With regard to the electronics business, Komatsu expects no financial
burden resulting from sizable investments for the time being. However, Komatsu
considers that the following factors could affect profitability: sharp changes
in the semiconductor market and declining sales prices due to unbalanced supply
and demand, along with intensified competition.

     Although the profitability of other businesses is also affected by changes
in their respective markets, this is not expected to have a significant impact
on Komatsu's overall performance.

Item 4.  Information on the Company
         --------------------------

     A. History and development of the Company

     The Company is a corporation (kabushiki kaisha) under the laws of Japan.
Its registered office is located at 2-3-6 Akasaka, Minato-ku, Tokyo 107-8414,
Japan, and its telephone number is +81-3-5561-2687 (Corporate Communications
Department).

     The Company was incorporated in 1921 under the laws of Japan. Shortly after
its formation, the Company commenced the production and marketing of sheet-
forming presses and, in the 1940's, the Company began producing and marketing
bulldozers.

The following are important events in the development of Komatsu's business
during recent years.

                                       5
<PAGE>

In December 1998, the Company completed a take-over bid for Komatsu Zenoah Co.
("Komatsu Zenoah") on the Japanese stock market by successfully increasing its
equity share from 30.4% to 51.7%, giving it the status of a subsidiary.

In April 1999, Komatsu MEC Corp., a wholly-owned subsidiary of the Company and
an unlisted manufacturer of wheel loaders and other construction machines, and
Komatsu EST Corp., a majority-owned manufacturer of motor graders, were merged
with the Company.

In April 2000, Komatsu transferred 65% of the outstanding shares of Komatsu Soft
Ltd. to Toyo Information Systems.

In June 2000, Komatsu Ltd. acquired the shares of Komatsu Forklift Co.,Ltd.
("Komatsu Forklift"), and converted Komatsu Forklift into its subsidiary.

In October 2000, Komatsu sold its equity holdings in Komatsu Construction Co.,
Ltd. ("Komatsu Construction"), with 69.15% of the shares of common stock
outstanding, to TAKAMATSU CORPORATION.

Principal capital expenditures

Komatsu's capital expenditures in the fiscal years ended March 31, 1999, 2000,
and 2001, were (Yen)114,874 million, (Yen)57,728 million, and (Yen)79,310
million, respectively.
Capital expenditures in fiscal year ended March 31, 2001 ("fiscal 2001")
increased 37.4% over the previous year, primarily because of the conversion of
Komatsu Forklift to a consolidated subsidiary, and the capital expenditures made
for rental equipment to meet growing demand.


     B. Business Overview

      Komatsu is a worldwide, integrated manufacturing and sales organization
engaged in the manufacture, development, marketing and sale of industrial
equipment and products.  For fiscal 2001, Komatsu recorded worldwide net sales
of (Yen)1,096,369 million (US$8,701 million) and a net income of (Yen)6,913
million (US$55 million).

      For the purposes of this report, Komatsu's business activities are divided
into three categories: construction and mining equipment, electronics, and other
operations.

                                       6
<PAGE>

     Construction and Mining Equipment Segment
     -----------------------------------------

     The construction and mining equipment segment is Komatsu's largest
operating segment. Net sales of construction and mining equipment totaled
(Yen)718,147 million (US$5,700 million) for fiscal 2001, a 3.9% decrease from
the previous year, and represented 65.5% of Komatsu's total net sales.

     While sales to customers in Japan increased 4.7% to (Yen)305,593 million
(US$2,425 million), sales to customers outside Japan decreased by 9.5% to
(Yen)412,554 million (US$3,274 million) in fiscal 2001. Sales to customers in
Japan represented 42.6% of total sales of construction and mining equipment, up
3.6% from the previous year, while the proportion of sales to customers outside
Japan decreased by 3.6% to 57.4% of total sales of construction and mining
equipment.

     Komatsu has been working to achieve new growth in the mainstay business of
construction and mining equipment under the "G" to the 21st strategy launched in
April 2000. There are concerns about the decline in demand within the important
U.S. market, the continued decrease of Japanese demand, and the delayed recovery
of the Southeast Asian market. However, Komatsu has the advantages of global
networks of sales, service and production, brand strength based on quality and
reliability, and in-house production of engines, transmissions and other key
components. By adding IT applications to these advantages, Komatsu has been
doubling efforts to improve earnings by expanding its business domain to include
businesses spanning the lifecycle of construction and mining equipment.

     Komatsu's line of construction and mining equipment includes hydraulic
excavators, backhoe loaders, wheel loaders, skid steer loaders, bulldozers,
motor graders, vibratory rollers, dump trucks, crawler carriers, shield
machines, tunnel-boring machines, small-diameter pipe jacking machines, mobile
debris crushers, mobile soil stabilizers, mobile tub grinders, rough-terrain
cranes, reach tower cranes, railroad maintenance equipment, diesel engines,
diesel generator sets, hydraulic equipment, steel castings and iron castings.
The construction and mining equipment product line also includes a variety of
"utility" equipment - mini to small machines (e.g., mini hydraulic excavators,
mini wheel loaders, backhoe loaders, skid steer loaders, and other similar
products) for landscaping and general construction.

     In 1993, Komatsu formed a joint venture company in each of Japan and the
United States with Cummins Engine Co., Inc. ("Cummins") to produce engines for
use in construction equipment.  Cummins also sells the engines produced by these
joint venture companies to third parties as loose engines.  In 1998 Komatsu and
Cummins formed a third alliance, the 50/50 joint venture Industrial Power
Alliance, Ltd., in order to perform research and development of industrial
engines.

                                       7
<PAGE>

     JAPAN.  Japanese construction investments for the year under review
declined from the previous year, reflecting reduced construction investment by
the Japanese government and slowing private-sector housing investments. As a
result, in this environment, total demand for construction equipment during the
year decreased slightly. Demand for hydraulic excavators, the major product
category in the Japanese market, was on a recovery track supported by strong
demand from the rental equipment industry in the first half of the year.
However, this trend turned down again in the second half of the year.

Komatsu teamed up with its distributors and affiliated rental companies across
the country and worked to expand earnings by effectively using information
networks for sales, rental and service. The Company concentrated its efforts on
stepping up sales of major products, such as minimal rear-swing radius hydraulic
excavators, large machines and equipment for environmental conservation, such as
the mobile crusher/recycler series. The Company also focused on delivering value
to customers by holding the Komatsu Management Strategy Seminar. Furthermore,
through offices in key regions that replaced the previous nationwide branch
network, the Company implemented locally-tailored sales strategies while working
to expand support to distributors and affiliated rental companies.

With respect to production, Komatsu Zenoah Co. closed down its Tachikawa and
Saitama plants and consolidated production at the Kawagoe Plant (formerly the
Kawagoe Plant of Komatsu). While Japanese demand for construction equipment
remained at about half the peak, Komatsu completed the restructuring program for
Japanese production initiated in 1998, rebuilding the foundation to support the
earnings of its construction equipment business in Japan.

Komatsu has consistently advocated recycling using the on-site recycling
construction method for waste generated from construction since 1992, when it
introduced its original mobile debris crusher/recycler BR60. In an effort to
proliferate this method, the Company has expanded the series with mobile soil
recycler/stabilizers and tub grinders to promote recycling of excavated soil
after treatment and the reuse of chips ground from the stumps and roots of
felled trees. Furthermore, to ensure the best possible operations for specific
job sites, Komatsu has also introduced mobile screens, conveyers and other
peripheral equipment for systems use. As a result, sales of this construction
equipment series for environmental conservation continued to expand for the year
under review.

The on-site recycling construction method not only reduces the amount of waste
but also contributes to energy savings for transportation and to environmental
conservation. For customers, it enables reductions of expenditures for waste
disposal, new materials and transportation. As a result, they can reduce the
total costs for construction projects.

                                       8
<PAGE>

The mobile crusher/recycler series features outstanding levels of crushing
power, mobility and transportability, also helping the quarry industry to
improve productivity onsite.

During the year, Komatsu launched e-KOMATSU Net, a B-to-B service for members of
the Japanese construction industry. It offers a full range of services,
including sales, rental of construction equipment, construction method support
for different types of job site and tender information. In Japan, along with the
recent reviews of public works, the Japanese Ministry of Land, Infrastructure
and Transport is promoting the introduction of a new tender system and CALS/EC
digitized construction. As a result, it is becoming urgent for construction
equipment customers to efficiently respond to IT requirements and to reinforce
their financial strength.

Against this backdrop, Komatsu formed a comprehensive joint service with Ricoh
Co., Ltd., a leading Japanese manufacturer of office automation equipment. By
sharing application services providing for vertical software and the contents of
NetRICOH, a membership site, this service is designed to take advantage of both
firms' respective strengths.

Also during the year under review, Komatsu launched a web site (www.anahori.com)
dedicated to the sale of mini excavators, and a membership site (www.e-
garapagos.com) for the real-time display of maps with transaction information to
promote the recycling of crushed stones, wood chips and excavated soil after
treatment. Komatsu will continue to develop original business models in order to
expand its business domain by assertively supporting its customers' work.

     THE AMERICAS.  In North America, the major market for construction and
mining equipment, new construction investments continued to grow in 2000.
Although new housing starts in the private sector declined from the previous
year, they nevertheless remained at a high level compared to the mid-'90s level.
However, demand for construction equipment decreased for the second consecutive
year, reflecting, in part, adjustments for expanded demand for rental equipment.
In this environment, Komatsu America International Company focused its efforts
on improving both production and sales. In production, the company accomplished
a reduction of the lead-time between the receipt of orders and factory shipment
to four weeks and one day, thus advancing its own inventory reduction and that
of its distributors. In October 2000, the company opened a new parts depot in
Las Vegas, to support distributors in the western U.S. region and improve
customer service. With this facility, the company is now able to ensure better
parts availability without increasing parts inventory on the part of
distributors. Sales of the company declined from the previous year, adversely
affected by slowed demand and inventory cutbacks on a short-term basis resulting
from shortened lead-times. As a result of these efforts, however, Komatsu
America International is better positioned to improve earnings in the future.

                                       9
<PAGE>

Komatsu is now able to offer "one-stop-shopping" to customers, which includes
rental, parts, service and fleet management systems in addition to product
variety. In 2001, Komatsu is planning aggressive new product launches worldwide
in order to sharpen its market presence. In North America, following the
introduction of three models of motor graders, Komatsu launched the D39PX/EX
KOMSTAT small bulldozer, equipped with the Company's proprietary Hydro-Static
Transmission (HST), and its original HM400 articulated dump truck, in May 2001.

Because the three-speed HST motor offers a choice of optimal speeds according to
the type of work, the D39PX/EX achieves very high ground-leveling performance.
In addition to its environment-friendly engine, which meets the Tier II
standards of the United States, Europe and Japan, this small bulldozer features
enhanced comfort, maintenance and reliability. North America is the world's
largest bulldozer market, with our new bulldozer class accounting for about one-
fourth of the current demand. North America and Europe are also major markets
for articulated dump trucks. Komatsu is running sales expansion programs
tailored by product, region and market segment to recover earnings.

In the mining equipment segment, the copper price improved, generating some
signs of returning higher demand for large dump trucks. Nevertheless, the market
fell short of a full-fledged recovery for demand, and Komatsu Mining Systems,
Inc. continued to face difficulties. In this environment, the company promoted
its "one-face" operation as the center of Komatsu's mining equipment business to
meet the diverse needs of customers worldwide.

     EUROPE. European demand for construction equipment continued to expand,
registering a record-high level in 2000. Against this backdrop, Komatsu in
Europe carried out aggressive marketing and promoted further reorganization and
reinforcement of their distributors. As a result, they continued to expand sales
on a local currency basis. Due to the drastic depreciation of the euro, however,
Komatsu's European sales, after conversion to Japanese yen, resulted in a
decline from the previous year. Komatsu UK Ltd., Komatsu Hanomag AG and Komatsu
Utility Europe S.p.A. worked to secure earnings through further cost reductions,
by expanding local procurement of parts and components and streamlining
production. They also increased the product range being locally manufactured
while expanding exports outside of the EU.

In April 2001, BAUMA2001, the world's largest construction equipment trade show,
was held in Munich, Germany, with over 2,300 firms from 42 countries
participating. During the seven days of the event, this 26th BAUMA show
attracted over 390,000 visitors. Under the slogan Smart Solutions, the Komatsu
Group displayed a total of 35 machines for different applications, such as road
building, demolition, recycling, landscaping and mining. These included the
super-large,

                                      10
<PAGE>

renewed PC4000 hydraulic excavator that was introduced by Komatsu Mining Germany
GmbH in June 2000. Komatsu emphasized not only the hardware but also a wide
range of services designed to meet the diversified needs of customers as a
solutions provider.

     ASIA.  In Southeast Asia, while demand for equipment began to improve,
centering on the mining and forestry industries, overall demand did not fully
recover. As a result, Komatsu's sales of construction and mining equipment
remained at about the same level as the previous year.

PT Komatsu Indonesia Tbk focused on capitalizing on the rebounding demand in the
mining and forestry industries. As part of its efforts, the company worked to
reinforce product competitiveness in the forestry industry, including the
introduction of the hydraulic excavator-based PC100F, equipped with locally-
tailored attachments to the forestry industry. Also during the year, the company
was certified for ISO 14001, meeting the international standards for
environmental management systems at its assembly plant in June 2000.

In Thailand, Bangkok Komatsu Co., Ltd., which is engaged in production and sales
of the PC200 hydraulic excavator, recorded cumulative production of 1,000 units
in July 2000. Established in 1996 as the first plant for construction equipment
in Thailand, Bangkok Komatsu started production and sales activities. However,
the company faced a devastating drop in domestic demand resulting from the
currency crisis in 1997. It quickly shifted to export-oriented production and
has exported over 600 units to 27 countries in the four years since then.

Meanwhile, Komatsu made steady gains in sales in the infrastructure investment-
driven Chinese market. In February 2001, Komatsu established Komatsu (China)
Ltd. in Shanghai as a regional headquarters to coordinate operations in China
with a promising market for growth. With this headquarters, Komatsu is now
better positioned to more effectively use the functions of its production, sales
and service foundations built over the years and quickly respond to customers'
needs.

     Utility Equipment.  Demand for utility equipment continued to grow in the
major markets of North America and Europe. In response to this growth, Komatsu
Utility Europe, our European production base in Italy for utility equipment,
expanded its production capacity, boosted exports outside of the EU by taking
advantage of the depreciated euro, and implemented companywide quality
improvement programs. As a result, the company made substantial gains in both
sales and profits.

In the North American market, with total demand reaching over 100,000 units, or
45% of global demand, Komatsu Utility Corporation stepped up sales centering on
backhoe loaders, mini

                                      11
<PAGE>

excavators and mini wheel loaders. The company also launched Komatsu-original
crawler carriers that feature 360-degree turn capabilities for the upper
structure, and tight-tail swing mini excavators. Komatsu supplies machines to
the North American market from Komatsu Utility Europe, Komatsu Hanomag in
Germany, the Awazu Plant and Komatsu Zenoah Co. in Japan. Anticipating further
growth of the market, Komatsu has determined that it will be advantageous to
engage in local production at a new plant in New Berry, South Carolina, as the
third plant of Komatsu America International. The new plant is scheduled to
commence production in 2002. With this addition, Komatsu will be well prepared
to propel the utility equipment business.

     Ground Engaging Tools (GET) Business  In the "G" to the 21st strategy,
Komatsu is readdressing its attention to the parts and service area, and
reinforcing its construction and mining equipment business, which is a key
earnings generator.

In December 2000, Komatsu acquired Hensley Industries, Inc., a leading
manufacturer of buckets, teeth, edges and other products for construction and
mining equipment in the international GET market. In the construction and mining
equipment market, the percentage of hydraulic excavators, wheel loaders and
other types of machines that use buckets is growing. With Hensley Industries in
the Komatsu Group, Komatsu is ready to widen its parts lineup and supply price-
competitive parts, particularly in North America.

     Electronics Segment
     -------------------

     The core business of Komatsu's electronics segment consists of its
semiconductor materials operations, which includes the production of silicon
wafers for the semiconductor industry; polycrystalline silicon, the raw material
used in the production of silicon wafers; and silane gas, which is used in the
manufacture of polycrystalline silicon.  The electronics segment also produces
LCD manufacturing equipment, excimer lasers and various electronic equipment and
devices. Komatsu's electronics segment accounted for (Yen)117,745 million
(US$934 million), or 10.7%, of total net sales for fiscal 2001, representing a
30.3% increase in these sales over the prior fiscal year. Sales in Japan rose
19.1% to (Yen)74,455 million (US$591 million) while sales outside Japan climbed
55.7% to 43,290 million (US$344 million).

   Silicon Wafers  The semiconductor industry enjoyed worldwide growth in
demand, driven by IT products such as PC's and mobile phones, and major players
made large-scale investments in equipment. However, manufacturers of IT products
implemented production adjustments due to the effects of the slowing U.S.
economy, and the semiconductor market downturned in 2001.

Although the silicon wafer industry experienced a decline in demand resulting
from the slack semiconductor market at the beginning of 2001, it closed the year
with a record sales volume,

                                      12
<PAGE>

centering on 200mm wafers, on the back of the burgeoning semiconductor industry
in 2000. Komatsu Electronic Metals Co., Ltd. worked to improve the quality and
technology development of 200mm silicon wafers in both Japan and Taiwan, while
undertaking aggressive sales operations in Japan and overseas. The company also
accelerated the pace of structural reform, including reinforcement of its
discrete wafer business, and strove to reduce total costs and expand sales in
order to improve cost competitiveness and ensure profits.

As a result, the company increased sales by 23.0% over the previous year to
(Yen)78,525 million (US$623 million) for the year ended March 31, 2001. With
respect to earnings, the company posted ordinary profits of (Yen)3,478 million
(US$28 million) supported by improved production efficiency, higher yields,
reduced material costs and other variable expenses in addition to expanded
sales, which offset a loss associated with the startup of Formosa Komatsu
Silicon Corporation, a joint venture operation with a local partner in Taiwan.
To solidify their market position in Taiwan, both Komatsu Electronic Metals and
Formosa Komatsu Silicon completed facilities expansions to accommodate mass
production and worked to expand sales.

     Polycrystalline Silicon   Near-capacity production of the silicon wafer
industry from the middle to the end of 2000 expanded demand for polycrystalline
silicon, increasing worldwide sales to the semiconductor industry by 16% for
2000. Worldwide sales of monosilane gas also made a significant gain of almost
30% for 2000, supported by brisk demand from the semiconductor and LCD (liquid
crystal display) industries.

Advanced Silicon Materials LLC. expanded sales over the previous year by
focusing on unique monosilane gas-based products against the backdrop of market
growth, while also expanding its shares of both the polycrystalline silicon and
monosilane gas markets. However, the company continued to experience
difficulties in terms of earnings due to such factors as the expanded
amortization of the Butte Plant as it entered a full-scale production phase.

     Electronic Equipment and Devices  Demand for micromodules, for use in the
temperature control of semiconductor lasers as the light source and laser diodes
for optical amplification, continued to expand on the back of global
telecommunications network infrastructure development, especially in the United
States. The Wavelength Division Multiplexing (WDM) method for massive data
transmission volume also called for the use of such modules. Capitalizing on
this growth, Komatsu Electronics, Inc. registered a significant gain in sales
over the previous year.

Komatsu Electronics' thermoelectric modules, which reflect the accumulated
technological expertise of its joint R&D activities with Komatsu over the years,
deliver high performance and reliability. The company enjoys the world's top
market share for micromodules for use in fiber-optic

                                      13

<PAGE>

communication networks. To meet the rapid growth in demand more flexibly, the
company expanded production capacity with new facilities and reached an alliance
agreement for the production of micromodules with Ferrotec Corporation, a
competitive manufacturer of thermoelectric modules. In May 2001, Hangzhou Dahe
Precise Parts Co., Ltd., Ferrotec's subsidiary in China, embarked on part of the
consigned assembly of thermoelectric modules of Komatsu Electronics.

Ferrotec has overwhelming shares of the global markets for magnetic fluid seals
for computer hard-disk drives and semiconductor manufacturing equipment.
Ferrotec is also aggressively pursuing sales of general-purpose thermoelectric
modules for ordinary temperature control use.

Through this alliance, Komatsu is prepared to further expand the thermoelectric
module business. Because the modules have large potential in a wide range of
applications, Ferrotec and Komatsu are considering a joint development project
to produce thermoelectric modules for power generation.

     Excimer Lasers  In August 2000, the Company and USHIO INC., a top
manufacturer of industrial lamps, jointly established GIGAPHOTON INC., an
affiliated company accounted for  by the equity method, for Excimer lasers used
in lithography tools for semiconductor manufacturing. The joint venture engages
in the overall Excimer laser business, from R&D and production to sales and
service. GIGAPHOTON is strategically positioned to integrate the competitive
advantages of the twoparent companies: USHIO's credibility and track record in
the semiconductor industry along with its strong sales and service networks in
Japan and abroad, as well as the Company's leading-edge technologies and state-
of-the-art Excimer laser production system.

For its first fiscal year, ended March 31, 2001, GIGAPHOTON capitalized on brisk
market conditions driven by aggressive facilities investment among semiconductor
manufacturers, and recorded higher shipments than the market growth average,
with more sales than initially planned. In addition to the delivery of many G20K
models of the KrF (Krypton Fluorine) Excimer laser, for 180nm use, to additional
lines of semiconductor manufacturers, the launching of full-scale shipments of
the G21K model, with improved optical performance for 130nm use, greatly
contributed to a good start. The company also significantly reduced startup
costs, achieving a considerable improvement in earnings compared with initial
forecasts. This joint venture has particularly reinforced development and sales
operations. Some promising outcomes have already emerged in the development of
new products, such as ArF (Argon Fluorine) and F2 Excimer lasers, as well as in
global business operations.

                                      14
<PAGE>

     Other Operations Segment
     ------------------------

     This segment includes a variety of other activities conducted within
Komatsu, consisting primarily of the manufacture and sale of a wide range of
products and services, including metal forging and stamping presses, machine
tools, sheet-metal machines, industrial robots, ammunition, logistics, computer
software, diesel engines, metal casting, hydraulic equipment, armored vehicles,
compressors and diesel generators.  Komatsu engages in the design of
manufacturing and distribution logistics solutions as well as the production of
business systems and software packages through separate subsidiaries and
affiliates.

Sales from other operations increased 19.7% over the previous year to
(Yen)260,477 million (US$2,067 million). Of this total, sales in Japan increased
3.7% to (Yen)206,817 million (US$1,641 million), while sales outside of Japan
climbed 195.1% to (Yen)53,660 million (US$426 million). During the year under
review, Komatsu sold its equity shares in Komatsu Construction and excluded it
from consolidation during the second half. Meanwhile, the Company increased its
equity holdings in Komatsu Forklift and converted it in to a subsidiary during
the year, which also contributed to an increase in sales. The Company also sold
its equity shares in Komatsu Soft Ltd. to Toyo Information Systems Co., Ltd.
(currently, TIS Inc.). As a result, Komatsu Soft became a company accounted for
by the equity method, from a consolidated subsidiary.

     Industrial Machinery Business  Komatsu Industries Corporation, in charge of
sheet metalforming machinery and small and medium-sized presses, has implemented
an extensive restructuring program since July 1999. In fiscal 2001, the company
worked to expand sales and improve earnings, posting profits for the year as
initially planned. During the year, in addition to the major line of CBS
presses, the company stepped up sales of strategic products such as the E2W
series of solid frame presses and the TFP series of twister fine plasma-cutting
machines. The company has further reinforced its sales alliance with TRUMPF GmbH
+ Co. KG of Germany, effective since 1995, and expanded sales of TRUMPF's laser-
cutting machines and punching presses in Japan, while also embarking on the
supply of its PAS series of AC servomotor-driven press brake models to the
German partner for European and U.S. sales.

In the large press business, sales of the WS-3TR series standard transfer
presses to manufacturers of automotive body components remained robust, and the
engineering business, including sales to major foreign automobile manufacturers
for retrofitting of equipment, also contributed to improved sales.

During the year, Komatsu, Hitachi Zosen Corporation and Hitachi Zosen Fukui Co.
agreed to begin joint sourcing of materials and parts for large and medium-sized
presses in order to further reduce procurement costs. In the press-building
industry in the United States and Europe, competition is intensifying. In
addition, European press builders are becoming increasingly competitive due to
the depreciated euro. In this environment, the companies have embarked on joint
sourcing in order to

                                      15
<PAGE>

enhance their competitiveness.

     Environmental Business  Under the "G" to the 21st mid-range management
strategy, Komatsu is working to expand its environmental business. Komatsu
believes that the delivery of solutions through its technologies and systems to
environmental problems faced by customers should lead to lucrative business
opportunities.

As part of its commitment to the environmental business, Komatsu has delivered
construction equipment expressly designed for environmental conservation, such
as the mobile crusher/recycler series, and innovative technologies as
represented by the on-site recycling method.

In addition, Komatsu has also been working to deliver recycling facilities by
converging Komatsu's integrated engineering expertise, in order to promote more
efficient reuse of growing construction waste. During the year under review,
Komatsu developed a new business domain by delivering three recycling plants in
Japan, including a comprehensive recycling plant for construction waste. Komatsu
is determined to foster the growth of such recycling plants into a major
business for the Company, thereby making contributions to the development of a
recycling-oriented society.

     Komatsu Forklift  Komatsu Forklift posted sales of (Yen)104,649 million
(US$831 million) for fiscal year ended March 31, 2001, registering an increase
of 18.5% over the previous year. In Japan, the company reorganized its domestic
dealership and reinforced its sales force. It also implemented aggressive sales
activities, including launches of the small engine-powered LEO Plus series and
revamped models of the battery-powered reach-type AR series. As a result, the
company expanded Japanese sales during the year.

Outside of Japan, the company also boosted sales of forklift trucks in the three
key regions of the United States, Europe and Asia. In the United States, the
company continued to strengthen its dealer networks, undertook aggressive sales
to such large-scale customers as rental companies, and expanded its market
share.

To strengthen the competitiveness of its forklift truck business, the Company
and Komatsu Forklift have been forging an alliance with Linde of Germany in
production and sales. As part of this arrangement, Komatsu Forklift embarked on
Japanese sales of 33 models of Linde's forklift trucks in October 2000. Fiat OM
Carrelli Elevatori S.p.A., an Italian subsidiary of Linde, launched production
and sales of Komatsu Forklift's models in Europe. Future plans call for joint
production with Linde in China, and supplying products made by Komatsu Forklift
Inc. to Linde in the U.S. market on an OEM basis.

     Komatsu Zenoah  Komatsu Zenoah expanded sales of outdoor power equipment
over the previous year. In Japan, where total demand remained sluggish, the
company increased sales of its main product line by introducing new products,
such as the world's lightest brushcutters, the BC200 series. During the year
under review, the company continued to expand exports to the United States

                                      16
<PAGE>

and Europe. In addition to selling a wider range of products equipped with
environment-friendly strato-charged engines, the company boosted sales of
popular hobby engines. Radio-controlled model cars powered by the new G230RC
engine introduced in February 2001 have scored sweeping victories in major hobby
car races since March 2001, including the International Friendship Race in
Germany, the European Championships in Spain and the Australian Championships,
demonstrating the high performance, quality and reliability of Komatsu Zenoah
engines.

   Komatsu Construction  In October 2000, Komatsu sold its equity holdings in
Komatsu Construction, with 69.15% of the shares of common stock outstanding, to
TAKAMATSU CORPORATION. This action represents Komatsu's basic strategy of
enhancing corporate value by concentrating management resources on the
businesses where the Company can demonstrate a competitive advantage in the
relevant technology or industry. Given such a consideration, Komatsu chose to
entrust the management of Komatsu Construction to TAKAMATSU, which has original
business strategies and a solid track record.

Net Sales Information
---------------------

     Financial information (other than net sales figures by geographic segment)
is produced and discussed in this report as presented in Komatsu's audited
consolidated financial statements.  Net sales figures by geographic region
presented and discussed herein reflect sales of Komatsu's products according to
the geographic location of purchasers, rather than the geographic location of
the Komatsu entity generating such sales. Net sales data by the geographic
location of the Komatsu entity generating the sale is set forth in Note 20 to
Komatsu's audited consolidated financial statements, included elsewhere in this
report. Operating income by business segment is presented before corporate
overhead and inter-segment eliminations.

     The following table sets forth Komatsu's net sales by category of activity
for the years ended March 31, 2001, 2000, and 1999, respectively:

                       Net Sales by Category of Activity
                       ---------------------------------

<TABLE>
<CAPTION>
==============================================================================================
                             Fiscal Year              Fiscal Year            Fiscal Year
                           Ended 3/31/2001         Ended 3/31/2000        Ended 3/31/1999
                           ---------------         ---------------        ---------------
----------------------------------------------------------------------------------------------
                                                  (Millions of Yen)
----------------------------------------------------------------------------------------------
<S>                   <C>              <C>      <C>             <C>     <C>             <C>
Construction and
Mining
Equipment             (Yen)718,147     65.5%    (Yen)747,647    70.8%   (Yen)765,802    72.1%
----------------------------------------------------------------------------------------------
Electronics                117,745     10.7%          90,335     8.6%         86,608     8.2%
----------------------------------------------------------------------------------------------
</TABLE>

                                      17
<PAGE>

<TABLE>
<S>          <C>                 <C>         <C>                <C>         <C>                <C>
---------------------------------------------------------------------------------------------------------
Other            260,477            23.8%         217,672          20.6%         209,187           19.7%
---------------------------------------------------------------------------------------------------------
Total         (Yen)1,096,369       100.0%      (Yen)1,055,654     100.0%     (Yen)1,061,597       100.0%
=========================================================================================================
</TABLE>


          The following table sets forth Komatsu's net sales by geographic
     markets for the years ended March 31, 2001, 2000, and 1999, respectively:

                        Net Sales by Geographic Markets
                        -------------------------------
<TABLE>
<CAPTION>
======================================================================================================================
                                Fiscal Year                     Fiscal Year                       Fiscal Year
                              Ended 3/31/2001                 Ended 3/31/2000                   ended 3/31/1999
                              ---------------                 ---------------                   ---------------
----------------------------------------------------------------------------------------------------------------------
                                                             (Millions of Yen)
----------------------------------------------------------------------------------------------------------------------
<S>                  <C>                   <C>          <C>                   <C>         <C>                  <C>
Japan                (Yen)586,865            53.5%       (Yen)553,822          52.5%      (Yen)523,946           49.4%
----------------------------------------------------------------------------------------------------------------------
Americas                  241,091            22.0%            242,609          23.0%           272,091           25.6%
----------------------------------------------------------------------------------------------------------------------
Europe                    126,479            11.5%            123,633          11.7%           119,270           11.2%
----------------------------------------------------------------------------------------------------------------------
Asia                      117,136            10.7%             99,558           9.4%            96,853            9.1%
(excluding
Japan) & Oceania
----------------------------------------------------------------------------------------------------------------------
Middle East                24,798             2.3%             36,032           3.4%            49,437            4.7%
& Africa
----------------------------------------------------------------------------------------------------------------------
Total              (Yen)1,096,369           100.0%     (Yen)1,055,654         100.0%    (Yen)1,061,597          100.0%
======================================================================================================================
</TABLE>

     Sales and Distribution
     ----------------------

          Komatsu's domestic and international sales and distribution functions
     in its construction and mining equipment segment, its principal and largest
     business segment, are conducted primarily through a network of
     subsidiaries, affiliates and independent distributors, and to a lesser
     extent by joint venture partners. While Komatsu's construction and mining
     equipment sales and distribution operations in Japan focus principally on
     retail sales to customers, Komatsu uses its extensive Japanese sales
     distributor network to offer rental programs to its customers, especially
     within its construction and utility equipment businesses.

          Domestic Market:

          Komatsu used to sell construction and mining equipment throughout
     Japan with its direct sales system. Komatsu has, however, shifted away from
     a direct sales system to an indirect system of authorized distributors. At
     the beginning of fiscal year 1999, Komatsu established a sales

                                      18
<PAGE>

     network of authorized distributors for its construction and mining
     equipment throughout Japan, and substantially all of Komatsu's sales are
     now made by such distributors. Distributors perform comprehensive sales and
     service functions mainly at each prefecture. Five of the 43 companies that
     compose Komatsu's authorized distributor network in Japan are independent
     companies, 19 are affiliates of the Company and 19 are consolidated
     subsidiaries of the Company.

          In response to strong rental needs from customers, Komatsu has also
     committed to enhancing customer satisfaction through rental companies of
     distributors and dealers as part of the Komatsu Group.

          The Komatsu service network covers 500,000 units of equipment sold in
     Japan. One hundred and thirty five distributors and dealers form the core
     of a service network that provides total customer-support service involving
     before-and after-sales service.

          Overseas Markets:

          Komatsu's construction and mining equipment are sold worldwide in
     approximately 160 countries. Komatsu believes that the global marketing and
     sales of its products are important to its continued growth.

          Komatsu's overseas sales of construction and mining equipment are made
     through a sales and service network consisting of approximately 200
     distributors. The distributors are supplied through trading companies and
     the Company's subsidiaries and affiliated companies, supported by Komatsu's
     liaison offices in major cities around the world. The subsidiaries and
     affiliated companies are located in Australia, Belgium, Brazil, Chile,
     France, the Federal Republic of Germany, Hong Kong, India, Indonesia,
     Italy, Mexico, Norway, Poland, the Republic of China, the Republic of South
     Africa, Russian Federation, Singapore, Spain, Thailand, United Arab
     Emirates, United Kingdom, the United States of America, and Vietnam. The
     subsidiaries and affiliated companies provide additional inventory and
     technical assistance to the distributors whilefacilitating the delivery of
     emergency spare parts.

          Komatsu launched the SMAP network system in 1998, directly linking
     distributors and plants in Japan with product quality information. In 1999,
     Komatsu launched a system known as G-SMAP globally. With this network
     system, Komatsu is able to promptly transmit information on its
     construction and mining equipment to distributors and production bases
     around the world. All such information is simultaneously stored in the main
     database of G-SMAP and it is available to all users of the network,
     including distributors. Komatsu's development, production, sales and
     service personnel around the world can utilize the G-SMAP system to reduce
     the time needed for troubleshooting, to keep abreast of quality issues, and
     incorporate relevant information in new

                                      19
<PAGE>

     product development. In this way, G-SMAP improves product quality and helps
     customers reduce costs. In addition, G-SMAP is designed to improve total
     customer support through processing, using and mutually sharing all
     information concerning sales, service and parts supply.

     Patents and Licenses
     --------------------

          Komatsu owns a substantial number of patents and utility model
     registrations, as well as applications for patents and utility model
     registrations, in Japan. It also owns a substantial number of patents and
     applications for patents in other countries where its products are
     marketed.

          Moreover, Komatsu manufactures a variety of products under licensing
     agreements with other companies.

          While Komatsu considers its patents and licenses, collectively, to be
     important for the operation of its business, it does not consider any one
     of its patents or licenses or any related group of them to be so important
     that its expiration or termination would materially affect the Company's
     business as a whole, nor does it believe that any category of its
     activities is materially dependent upon patents or upon licenses, or patent
     or license protection. Komatsu also owns and maintains a substantial number
     of trademarks and trade names that are registered or otherwise protected
     under the laws of various jurisdictions.

     Competition
     -----------

          Substantially all of the products manufactured by Komatsu face highly
     competitive conditions both in domestic and overseas markets. Competitors
     include a large number of companies in and outside Japan, which vary in
     size, area of distribution and range of products. To address such intense
     competition, Komatsu places great emphasis on the high quality and
     performance of its products and related services.

          While industry sales statistics for many of Komatsu's products are not
     available, either for Japan alone or on a worldwide basis, Komatsu believes
     that on the basis of both sales and production it is the largest
     manufacturer of construction and mining equipment in Japan and the second
     largest in the world after Caterpillar Inc., a United States corporation.
     Further, Komatsu believes that it is the largest manufacturer of large-
     sized presses in Japan.

     Regulation
     ----------

                                      20
<PAGE>

          Komatsu's business segments are subject to various regulations
     throughout the world, which include restrictions on noise and emissions
     from construction and mining equipment, as well as various environmental
     controls regulating the manufacturing processes. Komatsu's operations and
     products are designed to comply with all applicable environmental
     regulations currently in effect for the relevant jurisdictions.

          Komatsu believes that it remains in substantial compliance with
     existing applicable environmental control regulations and does not expect
     that the cost of complying with foreseeable requirements will have a
     material effect upon its financial position and the results of the
     operations. In 1992, Komatsu issued the Earth Environment Charter, a
     comprehensive corporate policy statement representing Komatsu's commitment
     to comply with all applicable regulations and industry standards for the
     protection of the environment. Komatsu annually reviews its compliance with
     the applicable environmental regulations that govern its operations.

     Sources of Supply
     -----------------

     The construction equipment and industrial machinery produced by Komatsu are
     composed of various types of parts and as it is not necessarily efficient
     in production to manufacture all of such component parts inside the
     Company, the Company only produces the major components internally and
     purchases other parts such as electrical components, tires, hoses, and
     batteries, etc. from the manufactures who specialize in manufacturing
     these, and the Company procures the rest of the parts from the Company's
     business partners materials such as metal forgings, machine components,
     sheet metal parts and various accessories.

          C. Organizational Structure

     The following list shows the principal subsidiaries:

     Name of Company                Country of              Ownership
                                  Incorporation                (%)
     Komatsu Electronic Metals         Japan                  63.4
     Co., Ltd.
     Komatsu Forklift                  Japan                  51.9
     Komatsu Zenoah Co.                Japan                  55.3
     Komatsu Castex Ltd.               Japan                 100.0
     Komatsu House, Ltd                Japan                  88.5
     Komatsu Logistics Corp.           Japan                  96.9
     Komatsu Industries                Japan                 100.0
     Corporation

                                      21

<PAGE>

     Name of Company                Country of              Ownership
                                  Incorporation                (%)
     Komatsu Machinery                  Japan                  100.0
     Corporation
     Komatsu Electronics, Inc.          Japan                  100.0
     Komatsu Tokyo Ltd.                 Japan                  100.0
     Komatsu Hokkaido Ltd.              Japan                  100.0
     Komatsu America Corp.              U.S.A.                 100.0
     Komatsu America                    U.S.A.                 100.0
     International Company
     Komatsu Mining Systems,           Germany                 100.0
     Inc.
     Komatsu do Brasil Ltda.            Brazil                 100.0
     Advanced Silicon Materials         U.S.A.                 100.0
     LLC.
     Komatsu Europe                    Belgium                 100.0
     International N.V.
     Komatsu UK Ltd.                      UK                   100.0
     Komatsu Hanomag AG                Germany                  98.4
     Komatsu Mining Germany GmbH       Germany                 100.0
     Komatsu Utility Europe              Italy                 100.0
     S.p.A.
     Komatsu Asia & Pacific            Singapore               100.0
     Pte Ltd
     P T Komatsu Indonesia Tbk         Indonesia                55.1
     Bangkok Komatsu Co., Ltd.         Thailand                 74.8
     Komatsu (China) Ltd.            Republic of China         100.0
     Komatsu (Changzhou)             Republic of China          85.0
     Construction Machinery Corp.


          D. Property, Plants and Equipments

          Komatsu's manufacturing operations are conducted in 30 principal
     plants, 12 of which are located in Japan. As of March 31, 2001, the 30
     plants had an aggregate manufacturing floor space of 1,485 thousand square
     meters (15,985 thousand square feet). In addition, Komatsu uses additional
     floor space at such plants and elsewhere for laboratories, office
     buildings, and employee housing and welfare facilities. Komatsu's plants
     are currently operating regularly, on a year-round basis, based upon at
     least one full shift per plant. Komatsu could increase its production by,
     among other

                                      22
<PAGE>

methods, requesting that its employees work overtime or by increasing the number
of shifts working at its plants.

     Almost all of Komatsu's manufacturing facilities and the land on which they
are located are owned by Komatsu.  A portion of the property owned by Komatsu is
subject to mortgages or other types of liens which have been established on
separate items of property.  At March 31, 2001, the net book value of the
property owned by Komatsu was (Yen)438,795 million, of which (Yen)32,879 million
was subject to encumbrances.

     The name and location of Komatsu's principal plants, their approximate
aggregate floor space, and the principal products manufactured therein as of
March 31, 2001, are as follows:


<TABLE>
<CAPTION>
           Name and Location               Floor Space                          Principal products
                                       Square    thousand sq ft
                                       meter
<S>                                    <C>       <C>              <C>
In Japan
Awazu Plant                             245,000       2,637       Small and medium-sized bulldozers (under 20 tons),
Komatsu                                                           Small hydraulic excavators (under 8 tons), Minimal
                                                                  Rearswing radius hydraulic excavator (10 tons),
                                                                  Mini hydraulic excavators, Mini wheel loaders
                                                                  (under 4 tons), Small and medium-sized wheel
                                                                  loaders, Crawler carriers, Transmissions, Torque
                                                                  converters, Armored vehicles, Ammunition

Komatsu Plant                            40,000         431       Large presses, Underground machinery
Komatsu

Osaka Plant                             138,000       1,485       Large bulldozers (20 tons and over), Medium-sized
Hirakata                                                          and large hydraulic excavators (over 10 tons),
                                                                  Mobile crushers, Mobile soil-improvers, Mobile tub
                                                                  grinders

Oyama Plant                             193,000       2,078       Engines for construction machinery and industrial
Oyama                                                             vehicles, Diesel generators, Marine engines,
                                                                  Rolling stock engines, Low-pollution methanol
                                                                  engines, Hydraulic equipment

Mooka Plant                              65,000         700       Rough-terrain cranes, Dump trucks, large wheel
Mooka                                                             loaders, Motor graders, Road construction
                                                                  machinery, Towing tractors

Komatsu Castex Ltd.                      57,000         614       Steel casting, Iron castings, Pattern for casting
Himi

Komatsu Zenoah Co.                       44,200         476       Mini-sized hydraulic excavators, Skid steer
Kawagoe and Koriyama                                              loaders, Mini-sized agricultural and forestry
                                                                  equipment, General purpose engines, Hydraulic
                                                                  equipment

Komatsu Forklift Co., Ltd.               47,750         514       Lift trucks, Automated conveyance systems,
Oyama                                                             Automated warehouses, Refrigerated warehouses,
                                                                  Freezer warehouses

Komatsu Electronic Metals Co., Ltd.      57,000         613       High-purity silicon wafers
Nagasaki and Miyazaki

Komatsu Electronics, Inc.                 1,000          11       Thermoelectric modules, Temperature control
Hiratsuka                                                         equipment

Overseas
</TABLE>

                                      23
<PAGE>

<TABLE>
<S>                                          <C>                <C>       <C>
Komatsu America International Company        38,010             409       Hydraulic excavators, Wheel loaders, Motor
Tennessee, USA and Quebec, Canada                                         graders, Cranes

Komatsu Mining Systems, Inc.                 78,000             840       Large wheel loaders, Large dump trucks
Illinois, USA

Hensley Industries, Inc.                     20,000             215       Buckets, Teeth, Adapters
Texas, USA
Komatsu Mexicana S.A. de C.V.                22,000             237       Small-sized presses, Attachments for construction
Sahagun, Mexico                                                           equipment, and others

Komatsu do Brasil Ltda.                      57,000             614       Hydraulic excavators, Bulldozers, Wheel loaders
Suzano, Sao Paulo, Brasil

Advanced Silicon Materials LLC.              62,927             678       Polycrystalline silicon products, Silane gas
Washington and Montana, USA

Komatsu UK Ltd.                              60,000             646       Hydraulic excavators
Birtley, UK

Komatsu Hanomag AG                           62,335             671       Wheel loaders, Compactors
Hannover, Germany

Komatsu Utility Europe S.p.A.                34,000             366       Mini and small hydraulic excavators, Backhoe
Este, Italy                                                               loaders, Skidsteer loaders

Komatsu Mining Germany GmbH                  23,269             250       Super-large hydraulic excavators
Dusseldorf, Germany

P.T. Komatsu Indonesia Tbk                   45,546             490       Hydraulic excavators, Bulldozers, Wheel loaders,
Jakarta, Indonesia                                                        Motor graders, Dump trucks

Komatsu (Changzhou) Construction             14,300             154       Wheel loaders, Motor graders, Hydraulic excavators
Machinery Corporation
Jiangsu, China

Komatsu (Changzhou) Foundry Corporation      16,000             172       Iron castings and parts for construction equipment
Jiangsu, China                                                            and industrial vehicles, Foundry molds
Bangkok Komatsu Co. Ltd.                     13,464             145       Hydraulic excavators
Chonburi, Thailand

Formosa Komatsu Silicon Corporation          12,080             130       Silicon wafers
Mailiao, Yunlin, Taiwan
</TABLE>


The head office of the Company is located in a ten-story office building in
Tokyo, which is leased from Komatsu Building Co., Ltd., a 100%-owned
consolidated subsidiary of the Company.

Item 5.   Operating and Financial Review and Prospects
          --------------------------------------------

   A. Operating results

Overview

  The statements contained in this Overview section are based on management's
current expectations.  With the exception of the historical information
contained herein, the statements

                                      24
<PAGE>

presented in this Overview section are forward-looking statements involving
numerous risks and uncertainties that could significantly affect expected
results. Actual results may differ materially.

Construction and Mining Equipment. In the recent past, the highest priority for
Komatsu's Japanese construction equipment business has been to restructure the
production system. The Company launched measures for this purpose in the fall of
1998, and completed all the plans for the subject fiscal year on schedule. The
entire restructuring program was completed in August 2000 with the consolidation
of the Tachikawa and Saitama plants of Komatsu Zenoah Co. to Kawagoe.

Komatsu's construction and mining equipment business already enjoys the
advantage of our global networks for sales, service and production; brand power
and predominant use of our equipment; and in-house production of key components.
By adding IT to these advantages, Komatsu will facilitate growth in this
business. The Company has defined the following four directions as the hub of
the growth strategy:

(1) Globalization

Komatsu astutely anticipated the globalization of markets and appropriately
established the sales, service and production bases. Komatsu will now press
ahead with the creation of customer-driven organizations to enhance the market
presence through finely-tuned marketing strategies. At the same time, by
reinforcing and tailoring our marketing and globalizing R&D, Komatsu will
enhance its globalization strongly with original features.

(2) Full-line offering

Komatsu is ready to consider and implement aggressive investments in high-growth
products and business areas, including strategic alliances to complement its
products and expertise.

(3) Environmental business

Komatsu is convinced of the vast business potential afforded by environmental
protection for the construction and mining equipment business, and it is
confident of future success in this area.

(4) Solutions to different stages of the product life cycle of construction and
mining equipment

Komatsu will take active steps to expand the solutions-centered business in the
areas of after-sales, ranging from lease and rental, parts and service, and
sales of used equipment to logistics, and non-life insurance, all of which will
expand sales and profits. In these after-sales markets, Komatsu

                                      25
<PAGE>

is confident of differentiating its products and technologies, notably through
the use of IT. Komatsu also believes IT will have a major positive impact on
changing the way of doing business and the business models.

Electronics.  Operating profit from the electronics segment improved to
(Yen)2,887 million (US$23 million) in fiscal 2001 from a loss of (Yen)9,839
million (US$96 million) in fiscal 2000.

Komatsu Electronic Metals Co., Ltd., having successfully concentrated production
in Japan and Taiwan, is working to differentiate its technologies and business
to gain the top global market position for 200mm wafers in terms of quality,
cost and delivery.

Komatsu Silicon America, Inc. is operating the sales and service activities but
its production facilities are currently inoperative.

Sales of polycrystalline silicon by Advanced Silicon Materials LLC. expanded
over the previous year because of the strong demand in the silicon wafer market.
Sales of monosilane gas also increased significantly, supported by brisk demand
from the semiconductor and LCD industries. However, the company continued to
experience difficulties in terms of earnings, due to such factors as the
expanded amortization of the Butte Plant as it entered a full-scale production
phase.

Management believes the Excimer laser business will be further strengthened in
the global market by capitalizing upon an alliance with Ushio Inc. In
thermoelectric modules and other products with established technological
superiority, the Company is reinforcing its business bases with the goal of
achieving substantial gains in both sales and profits. Committed to securing a
reputation for total reliability, the Company is making strong efforts to
support its customers in improving their quality, cost and delivery, as well as
productivity, through the constant innovation of technology.

Others.  In fiscal 2001, Komatsu sold its equity shares in Komatsu Construction
and excluded it from consolidation during the second half. Meanwhile, the
Company increased its equity holdings in Komatsu Forklift and converted it into
a subsidiary during the year. The Company also sold its equity shares in Komatsu
Soft Ltd. to Toyo Information Systems Co., Ltd. (currently, TIS Inc.). As a
result, Komatsu Soft became a company accounted for by the equity method, from a
consolidated subsidiary.

Komatsu's industrial machinery business comprises large presses for the
automobile industry, sheet metal forming machines, small and medium-sized
presses and machine tools.

                                      26
<PAGE>

  Foreign Exchange Rate Fluctuations.  Sales to customers located outside Japan
represented approximately 47% and 48% of Komatsu's net revenues in fiscal 2001
and fiscal 2000, respectively. A significant proportion of Komatsu's
international sales has been denominated in United States dollars. An
appreciation in the value of the yen against the US dollar could generally have
an adverse effect on Komatsu's operations although Komatsu has reduced its
exposure to changes in the exchange rate between the yen and the US dollar by
increasing the local content of its products manufactured in the United States
and elsewhere outside Japan. To further reduce foreign exchange risks, Komatsu
executes forward exchange contracts as described in Item 11 below. The
devaluation of the yen against the US dollar generally results in an increase
for Komatsu's operating profit.

Results of Operations

Comparison of Fiscal 2001 with Fiscal 2000
------------------------------------------

  Net Sales

Net sales in the fiscal year ended March 31, 2001 increased 3.9% over the
previous fiscal year to (Yen)1,096,369 million (US$8,701 million at
US$1=(Yen)126). Sales in Japan advanced 6.0% to (Yen)586,865 million (US$4,658
million), while overseas sales rose 1.5% to (Yen)509,504 million (US$4,043
million). As a result, the ratio of overseas sales to consolidated net sales for
the year dipped from 47.5% in the previous fiscal year to 46.5%.

Domestic sales of construction and mining equipment were up from the previous
fiscal year, owing primarily to efforts of IT use and the expansion of sales of
machines for environment conservation, although the demand declined slightly. In
the overseas market, while European economies remained strong in general, the
United States economy, which had maintained a record-high length of buoyancy,
began to slow down. The overall recovery pace of Asian economies slowed down. As
a result, global sales of construction and mining equipment slid 3.9% from the
previous fiscal year to (Yen)718,147 million (US$5,700 million).

In the electronics business, the demand for silicon wafers dramatically
increased and the market for polycrystalline silicon as the raw material for
silicon wafers grew. Our operation in Taiwan expanded its production facilities
and accelerated sales. Demand for micromodules for use in fiber optic
communication networks also expanded. As a result, sales from the electronics
business improved 30.3% over the previous fiscal year to (Yen)117,745 million
(US$934 million).

Elsewhere in other operations, the industrial machinery business reinforced its
sales alliance, and

                                      27
<PAGE>

sales of outdoor power equipment were expanded by introducing renewed models.
Komatsu Construction became an unconsolidated company by the sale of its
ownership in October 2000. On the other hand, Komatsu Forklift became a
consolidated company due to our increased ownership. As a result, sales from
other operations expanded 19.7% to (Yen)260,477 million (US$2,067 million).
Overseas sales by region in fiscal year 2001 were as follows: sales in the
Americas accounted for (Yen)241,091 million (US$1,913 million), down 0.6%; sales
in Europe increased 2.3% to (Yen)126,479 million (US$1,004 million); sales in
Asia (excluding Japan) and Oceania increased 17.7% to (Yen)117,136 million
(US$929 million); and sales in the Middle East and Africa fell 31.2% to
(Yen)24,798 million (US$197 million).


Earnings

Cost of sales in fiscal 2001 increased 1.0% from the previous year to
(Yen)804,700 million (US$6,387 million). The ratio of cost of sales to net sales
decreased 2.1 percentage points to 73.4%.

Selling, general and administrative (SG&A) expenses for the year increased 9.2%
to (Yen)263,854 million (US$2,094 million), causing the ratio of SG&A expenses
to net of sales to increase 1.2 percentage points over the previous year to
24.1%. As a result, operating income for fiscal 2001 increased 60.6% over the
previous year to (Yen)27,815 million (US$221million). This improvement was
brought about primarily by improved earnings in the electronics business, owing
to the recovery of demand for silicon wafers as compared with fiscal 2000.

Interest and other income and expenses in fiscal 2001 netted a loss of
(Yen)7,751 million (US$62 million), compared with a net gain of (Yen)2,077
million in the previous year. This loss resulted from the fact that net other
income in fiscal 2000 included large gains such as sales of idle properties from
the Osaka plant, while net other income in fiscal 2001 did not include such non-
recurring gain. In fiscal 2001 and 2000, the Company recorded impairment losses
on long-lived asset, which was related to temporarily idle production facilities
due to the sluggish market, at its wholly-owned subsidiary in the electronics
segment.

As a result, income before income taxes, minority interests and equity in
earnings for the fiscal year increased 3.4% from previous year to (Yen)20,064
million (US$159 million), the percentage of income before income taxes, minority
interests and equity in earnings to net sales ended in 1.8%. Equity in earnings
of affiliated companies in fiscal 2001 decreased 90.5% from the previous year to
(Yen)385 million (US$3 million). This decline was primarily derived from the
fact that Applied Komatsu Technology, Inc., which had posted large profits in
the previous year, became an unconsolidated company by the sale of its equity.

                                      28

<PAGE>

As a result, the Company's net income in fiscal 2001 decreased 48.4% from the
previous year to (Yen)6,913 million (US$55 million).

On a per share basis, net income amounted to (Yen)7.24 (US5.7c). Dividends per
share were (Yen)6.00 (US4.8c). The corresponding figures for fiscal 2000 were
(Yen)13.85 and (Yen)6.00, respectively.


Comparison of Fiscal 2000 with Fiscal 1999
- ------------------------------------------

  Net Sales

Komatsu's net sales decreased 0.6% in fiscal 2000 to (Yen)971,055,654
million(US$10,249 million) from (Yen)1,061,597 million in fiscal 1999. Domestic
net sales increased 5.7% to (Yen)553,822 million (US$5,377 million) in fiscal
2000 from (Yen)523,946 million in fiscal 1999, owing primarily to the positive
effect of the government's economic stimulus measures and improved housing
investments in Japan.

Overseas net sales decreased 6.7% to (Yen)501,832 million (US$4,872 million) in
fiscal 2000 from (Yen)537,651 million in fiscal 1999, due to construction and
mining equipment operations, mainly attributable to the adverse effect of
foreign exchange translations.

Net sales in the Americas decreased 10.8% to (Yen)242,609 million (US$2,355
million), mainly attributable to the adverse effect of foreign exchange
translations, as well as dwindling demand for construction and mining equipment.

Net sales in Europe increased 3.7% to (Yen)123,633 million (US$1,200 million),
due to the brisk demand remaining for construction and mining equipment
throughout the year under review.

Net sales in Asia (other than Japan) and in Oceania increased 2.8% to
(Yen)99,558 million (US$967 million) in fiscal 2000, due to the demand recovery
in the logging and mining industries in Southeast Asia, and the continued growth
of demand for construction and mining equipment in China.

Net sales in the Middle East and Africa decreased 27.1% to (Yen)36,032 million
(US$350 million), due to the falling market demand for construction and mining
equipment.

  Earnings

                                      29
<PAGE>

     Cost of sales for fiscal 2000 declined 1.3% to (Yen)796,820 million
(US$7,736 million) from (Yen)807,255 million in fiscal 1999. The cost of sales
to net sales ratio decreased 0.5% to 75.5% in fiscal 2000 from 76.0% in fiscal
1999.

     SG&A expenses for fiscal 1999 decreased 3.4% to (Yen)241,516 million
(US$2,345 million). The ratio of SG&A expenses to net sales in fiscal 2000 was
22.9%, down 0.7% from 23.6% in fiscal 1999.

     As a result, operating income for fiscal 2000 was (Yen)17,318 million
(US$178 million), an increase by (Yen)13,037 million from (Yen)4,281 million in
fiscal 1999. This improvement was brought about primarily by improved earnings
in the electronics business, owing to the recovery of demand for silicon wafers,
and improved finances in the civil engineering and construction business,
attributable to a substantial operating loss in the previous year.

     Net interest and other income and expenses for fiscal 2000 contributed
(Yen)2,077 million (US$20 million), compared to a loss of (Yen)13,885 million in
fiscal 1999. This increase resulted from the fact that other expenses in fiscal
1999 included a large write-off due to the devaluation of domestic marketable
and investment securities, while net other income in fiscal 2000 included large
gains on sales of assets such as an equity stake in Applied Komatsu Technology,
Inc., plus the sale of idle properties at the Osaka Plant in Nakamiya district.

     Interest and other income for fiscal 2000 also included a gain of
(Yen)23,103 million (US$224 million) from the sales of idle properties at the
Osaka Plant in Nakamiya district. As a result of this profit and the decrease in
selling, general and administrative expenses described above, income (loss)
before income taxes, minority interests and equity in earnings increased in
fiscal 2000, resulting in a net income of (Yen)19,395 million (US$188 million),
compared with a loss of (Yen)9,604 million in fiscal 1999.

     Minority interests in income (loss) of consolidated subsidiaries was a loss
after income tax of (Yen)88 million (US$0.9 million) in fiscal 2000,
representing a reduction of (Yen)6,950 million from income after income tax of
(Yen)6,862 million in fiscal 1999. In fiscal 2000, equity in earnings of
affiliated companies increased to (Yen)4,038 million (US$39 million), from a
loss of (Yen)7,575 million in fiscal 1999 due primarily to a gain on sales of
assets, such as an equity stake in Applied Komatsu Technology, Inc.

As a result, the Company's net income in fiscal 2000 totaled (Yen)13,395 million
(US$130 million), firmly moving the Company back into profitability.

                                      30

<PAGE>

     On a per share basis, net income for fiscal 2000 amounted to (Yen)13.85
(US$0.13), while cash dividends per share were (Yen)6.00 (US$0.06) for the year.
Cash dividends per share were (Yen)7.00 in fiscal 1999.


Performance by Segment

     Komatsu operates in three business segments:  Construction and mining
equipment, electronics and other operations.

     Construction and Mining Equipment. Fiscal 2001 net sales of construction
and mining equipment totaled (Yen)718,147 million (US$5,700 million), a decrease
of 3.9% compared to (Yen)747,647 million in fiscal 2000, which represented an
decrease of 2.4% compared to (Yen)765,802 million in fiscal 1999. Construction
and mining equipment net sales accounted for 65.5% of Komatsu's worldwide net
sales in fiscal 2001. While sales in Japan increased 4.7% to (Yen)305,593
million (US$2,425 million) in fiscal 2001 from (Yen)291,804 million in fiscal
2000, sales outside Japan decreased 9.5% to (Yen)412,554 million (US$3,274
million) in fiscal 2001. Sales in Japan represented 42.6% of total sales of
construction and mining equipment, up 3.6% from the previous fiscal, while the
proportion of sales outside Japan decreased to 57.4%. Overall, net sales of
construction and mining equipment comprised 65.5% of Komatsu's total net sales
in fiscal 2001, down 5.3% from 70.8% in fiscal 2000 and down 6.6% from 72.1% in
fiscal 1999.

     Operating income from the construction and mining equipment segment for
fiscal 2001 decreased 22.1% compared to the previous fiscal to (Yen)22,203
million (US$176 million). In fiscal 2000 operating income decreased 12.9% to
(Yen)28,489 million from (Yen)32,697 million in fiscal 1999.

     Electronics. In the electronics business, fiscal 2001 net sales from
electronics operations increased 30.3% to (Yen)117,745 million (US$934 million)
from (Yen)90,335 million in fiscal 2000, as sales in Japan increased 19.1% to
(Yen)74,455 million (US$591 million), and sales outside Japan increased 55.7% to
(Yen)43,290 million (US$344 million). Fiscal 2000 net sales increased 4.3% to
(Yen)90,335 million from (Yen)86,608 million in fiscal 1999. Electronics
accounted for 10.7% of Komatsu's net sales in fiscal 2001, compared with 8.6% in
fiscal 2000 and 8.2% in fiscal 1999.

     KEM, a 59.9%-owned subsidiary of the Company engaged in the manufacture of
silicon wafers, had sales of (Yen)78,525 million (US$623 million) for fiscal
2001, a increase of 23.0% over sales of (Yen)63,862 million the previous fiscal
year.

                                      31
<PAGE>

     Operating income from the electronics segment for fiscal 2001 was an
operating income of (Yen) 2,887 million (US$ 23 million), which was supported by
recovery of the silicon wafer business and expanded sales of thermoelectric
modules for fiber-optic communications.

     In fiscal 2001 and 2000, the Company recorded impairment losses on long-
lived assets, which related to temporarily idle production facilities due to the
sluggish market, at its wholly owned subsidiary in the electronics segment.

     Other Operations. Fiscal 2001 sales from Komatsu's other operations
increased 19.7% to (Yen)260,477 million (US$2,067 million) from (Yen)217,672
million in fiscal 2000. During the year under review, Komatsu sold its equity
shares in Komatsu Construction and excluded it from consolidation during the
second half. Meanwhile, the Company increased its equity holdings in Komatsu
Forklift and converted it into a subsidiary during the year, which also
contributed to an increase in sales.

     Operating income from other operating segments for fiscal 2001 increased
450.8%, compared to the previous fiscal year, to (Yen)6,450 million (US$51
million).


Performance by Region

     Japan. Net sales to customers in Japan increased 6.0% from (Yen)553,822
million in fiscal 2000 to (Yen)586,865 million (US$4,658 million) in fiscal
2001. Operating income (loss) for Komatsu's operations in Japan increased from a
income of (Yen)955 million in fiscal 2000 to a income of (Yen)29,253 million
(US$232 million) in fiscal 2001. The increase in sales came from recovery of the
demand for construction equipment in Japan and an increase in the sales of
domestic electronics operations. Compared to fiscal 1999, net sales to customers
in Japan and operating income (loss) recorded by Komatsu's operations in Japan
in fiscal 2000 increased by 5.7% (from (Yen)523,946 million) and increased by
(Yen)11,007 million from an operating loss of (Yen)10,052 million, respectively.

     Asia (Excluding Japan) and Oceania. Net sales to customers in the rest of
Asia and Oceania increased 17.7% to (Yen)117,136 million (US$930 million) in
fiscal 2001 compared to (Yen)99,558 million in fiscal 2000. Net sales in fiscal
2000 increased 2.8% from (Yen)96,853 million in fiscal 1999. The increase in net
sales in fiscal 2001 was due to recovery of the market demand in Asia for
Komatsu's products. Net sales to customers in Asia (excluding Japan) and Oceania
comprised 10.7% of Komatsu's worldwide net sales in fiscal 2001, up from 9.4% in
fiscal 2000 and up from 9.1% in fiscal 1999.

     Americas. Net sales to customers in North America, Central America and
South America decreased 0.6% in fiscal 2001 to (Yen)241,091 million (US$1,913
million) from (Yen)242,609 million in

                                      32
<PAGE>

fiscal 2000. Fiscal 2000 net sales decreased 10.8% over net sales of
(Yen)272,091 million in fiscal 1999. The decrease in net sales in fiscal 2000
was due to decreased demand for construction equipment in North America. North
American, Central American and South American net sales accounted for 22.0% of
Komatsu's net sales worldwide in fiscal 2001, down from 23.0% in fiscal 2000 and
25.6% in fiscal 1999.

     Operating loss for Komatsu's operations in the Americas decreased from a
income of (Yen)12,354 million in fiscal 2000 and a income of (Yen)7,594 million
in fiscal 1999 to a loss of (Yen)2,302 million (US$18 million) in fiscal 2001.

     Europe.  Net sales to customers in Europe in fiscal 2001 increased 2.3% to
(Yen)126,479 million (US$1,004 million) from (Yen)123,633 million in fiscal
2000. Fiscal 2000 net sales increased 3.7% over (Yen)119,270 million in fiscal
1999. Increased sales in fiscal 2001 and 2000 were due primarily to increased
sales of hydraulic excavators, wheel loaders and utility equipment. Net sales to
customers in Europe comprised 11.5% of Komatsu's net sales worldwide in fiscal
2001, up from 11.7% in fiscal 2000 and 11.2% in fiscal 1999.

     In fiscal 2001, operating income from Komatsu's operations in Europe
increased to (Yen)5,945 million (US$47 million) from (Yen)4,284 million in
fiscal 2000. Compared to fiscal 1999, operating income recorded in fiscal 2000
decreased by (Yen)4,969 million from (Yen)9,253 million.

     Middle East and Africa.  In the Middle East and Africa, Komatsu's net sales
decreased 31.2% to (Yen)24,798 million (US$197 million) in fiscal 2001 compared
to (Yen)36,032 million in fiscal 2000, which represented a 27.1% decrease from
net sales of (Yen)49,437 million in fiscal 1999. The sales decline came from a
decrease in demand for the equipment in the Middle East and Africa. Net sales to
customers in the Middle East and Africa comprised 2.3% of Komatsu's net sales
worldwide in fiscal 2001, down from 3.4% in fiscal 2000 and 4.7% in fiscal 1999.


   B. Liquidity and capital resources

     Cash and cash equivalents as of March 31, 2001 were (Yen)39,760 million
(US$316 million), a decrease of (Yen)40,716 million from the previous fiscal
year end. Net cash provided by operating activities was (Yen)69,976 million
(US$555 million) for fiscal 2001, approximately doubled from (Yen)34,224 million
in the previous year.

     Net cash used by investing activities in fiscal 2001 was (Yen)35,142
million (US$279 million) and decreased by (Yen)54,022 million from (Yen)18,880
million provided in fiscal 2000. This decrease was principally due to a decrease
in the proceeds from sales of property by (Yen)17,132 million and from

                                      33
<PAGE>

sales of marketable securities and investments by (Yen)82,657 million and a
decrease in the purchase of marketable securities and investments by (Yen)55,996
million in fiscal 2001 compared to fiscal 2000. Net cash used in financing
activities increased to (Yen)75,863 million (US$602 million) in fiscal 2001, an
increase of (Yen)14,298 million over (Yen)61,565 million used by financing
activities in fiscal 2000, principally reflecting the increase of repurchase
(net) of common stock by (Yen)6,767 million and repayment of capital lease
obligations by (Yen)4,411 million.

     Working capital in fiscal 2001 decreased 8.3% from the previous year, to
(Yen)203,233 million (US$1,613 million).

     The current ratio (current assets divided by current liabilities) in fiscal
2001 decreased by 6.8% over the previous year to 134.9%, compared with 141.7% in
fiscal 2000.

     Capital expenditures in fiscal 2001 increased 37.4% over the previous year
to (Yen)79,310 million (US$629 million). The increase was caused primarily by
the conversion of Komatsu Forklift to a consolidated subsidiary and capital
expenditures for rental equipment to meet the growing demand. Capital
expenditures in fiscal 2000 declined 49.7% from the previous year. Commitments
for capital expenditures outstanding as of March 31, 2001 totaled (Yen)600
million (US$5 million).

     In the construction and mining equipment segment, which is a mature
industry, Komatsu has already developed worldwide production and distribution
capabilities. Accordingly, Komatsu does not anticipate that it will need to
incur significant capital expenditures or other investments to expand its
production in this segment.

     At March 31, 2001, Komatsu had a cash balance of (Yen)39,760 million
(US$316 million). At that date, Komatsu's consolidated total debt was
(Yen)468,486 million (US$3,718 million), (Yen)230,137 million (US$1,826 million)
of which was short-term debt (including current portions of long-term debt). As
of March 31, 2001, (Yen)34,026 million of Komatsu's long-term debt was scheduled
to mature in fiscal 2002, (Yen)53,419 million in fiscal 2003, and (Yen)184,930
million in fiscal 2004 and thereafter.

     Komatsu intends to meet its future capital expenditures, debt service and
working capital requirements through cash flow from operations; borrowings,
including under new lines of credit; securitization of accounts receivable;
sales of real property; and capital markets funding, including commercial paper.

     Komatsu has implemented an accounts receivable securitization program and
such securitizations are expected to become an important source of funds for
Komatsu in the future. As

                                      34
<PAGE>

of March 31, 2001, Komatsu had securitized accounts receivable totaling
(Yen)127,155 million (US$1,009 million) (or 24.4% of total accounts receivable
at that date). Of this amount, (Yen)22,882 million related to receivables
generated by Komatsu's Japanese operations and (Yen)104,273 million related to
receivables generated by Komatsu's North American operations. As of March 31,
2000, Komatsu had securitized accounts receivable totaling (Yen)58,415 million
(or 13.7% of total accounts receivable at that date). Of this amount,
(Yen)17,455 million related to receivables generated by Komatsu's Japanese
operations and (Yen)40,960 million related to receivables generated by Komatsu's
North American operations.

     As of July 31, 2001, the Company had outstanding (Yen)14,500 million of
commercial paper issued under its (Yen)50,000 million commercial paper program,
scheduled to mature in August 2001 and September 2001. As of July 31, 2001,
Komatsu Finance America Inc. ("KFA") had outstanding US$200 million of
commercial paper issued under its US$400 million commercial paper program (the
"CP Program") and US$593 million of notes issued under its US$1,200 million Euro
Medium Term Note Program ("EMTN Program"). Under the EMTN Program, the Company,
KFA, Komatsu Finance (Netherlands) B.V. ("KFN") and Komatsu Australia Pty., Ltd.
may from time to time issue notes denominated in any currency. The commercial
paper issued under the CP Program have scheduled maturities during August and
September of 2001 and the notes issued under the EMTN Program are scheduled to
mature on various dates through September 2009. As of July 31, 2001, Komatsu
Europe Coordination Center N.V. had outstanding EUR13 million of commercial
paper issued under its EUR150 million commercial paper program, which have
scheduled maturities during August, September, and November of 2001. As of July
31, 2001, Komatsu Finance (Netherlands) B.V. had EUR100 million of notes issued
under its EMTN program, which are scheduled to mature on various dates through
October 2004.

     In December 1998, KFA issued US$188 million of senior notes, of which
US$117 million is scheduled to mature in December 2003 and US$71 million is
scheduled to mature in December 2005. KFA used the net proceeds from the sale of
these notes for working capital and other general corporate purposes of KFA and
its U.S. affiliates (including, without limitation, the repayment of certain
short-term indebtedness.)

     In March 1999, the Company issued (Yen)35,000 million of unsecured bonds,
scheduled to mature in March 2006.  The Company used the net proceeds from the
sale of these bonds for an acquisition of KSA, previously a wholly-owned
subsidiary of KEM, and additional investment in KSA and ASiMI. They repaid bank
loans using the paid-in capital.

                                      35
<PAGE>

     The Company and certain consolidated subsidiaries have unused committed
lines of credit amounting to (Yen)54,836 million ($435 million) with certain
financial institutions at the end of fiscal 2001.


   C. Research and development, patents and licenses

     Komatsu will continue to conduct research and development in the
construction equipment, electronics, industrial machinery and other fields in
order to enhance the functionality, quality and reliability of its products with
an emphasis on environmental and social responsibility.

     Research and development ("R&D") expenses for fiscal 2001 increased 6.6%
from the previous year, to (Yen)45,282 million (US$359 million), representing
4.1% of net sales.  Komatsu's consolidated R&D expenditures for the years ended
March 31, 2000 and 1999 amounted to (Yen)42,460 million and (Yen)45,712 million,
respectively.  The construction and mining equipment segment accounted for R&D
expenses of (Yen)26,992 million in fiscal 2001 compared to (Yen)23,757 million
in fiscal 2000.  The electronics segment recorded R&D expenses of (Yen)7,047
million in fiscal 2001 compared to (Yen)8,857 million in fiscal 2000.

     Major R&D activities are conducted at the Research Division, which is
comprised of the Advanced Research Laboratory and five research and development
departments (the "R&D Departments"). The R&D Departments provide technology
support for new businesses and promotion that strengthens the existing products
throughout Komatsu.  In addition, the R&D Departments play an important role in
the development of technological innovations that are vital for Komatsu's long-
term product offerings.  The Development Division's Construction Equipment
Technical Center, which supports the technical growth and advancement of
construction and mining equipment, contributes to sustaining Komatsu's
construction equipment business.  Also, research groups and development teams
have been formed at each business division to oversee the development of their
individual projects.

     Komatsu will focus on the following technical issues in the mid-to long-
term for R&D activity:


(1)   Information Technology (IT)

     Equipping Komatsu's products and machines with IT will be one of the top
priorities in the coming years. Komatsu plans to offer system-integrated
products and services, including interfacing with machines in the field.  Some
examples of IT applications include:

  .  Unmanned hauling system for mining

                                      36
<PAGE>

  .  Automated dispatch and fleet control of a construction site
  .  Remote diagnosis/support system for machines working in the field to allow
     for more accurate preventive maintenance


(2)   Environmental Control Assessment and Development

     Komatsu will work to produce low-emission, low-energy consumption vehicles
and to use more recycled parts and material/components, longer-life coolant, and
biodegradable hydraulic oil.  All of Komatsu's product designs will be based on
life cycle assessment.  Komatsu will develop core technologies to further reduce
the noise and vibration of equipment.  Komatsu is also devoted to using its
engineering resources to develop recycling equipment and services, such as
mobile crushers and recycling plants.


(3)   Supporting Geometry-shrink of Semiconductor Circuits

     The acceleration of semiconductor geometry shrink has brought the 0.13
micron generation right around the corner. This trend is requiring new process
technology, and the role of the material and equipment industry to support this
move is becoming increasingly important. On the material (polycrystal silicon,
silane gas and wafers) side, R&D effort devoted to silicon material and wafer
manufacturing technology is made to improve crystal quality and flatness of
wafers. Substantial progress has been made on semiconductor processes and
progress in equipment technology is also on the way. Years of experience in R&D
of diesel engines and construction equipment nurtured Komatsu's excellence in
technology areas such as optics/laser technology, and heat technology.

     Komatsu owns a substantial number of patents and utility model
registrations, as well as applications for patents and utility model
registrations, in Japan. It also owns a substantial number of patents and
applications for patents in other countries where its products are marketed.

     Komatsu also manufactures a variety of products under licensing agreements
with other companies.

     While Komatsu considers its patents and licenses, collectively, to be
important in the operation of its business, it does not consider any one of its
patents or licenses or any related group of them to be so important that its
expiration or termination would materially affect Komatsu's business as a whole,
nor does it believe that any category of its activities is materially dependent
upon patents or licenses, or patent or license protection.  Komatsu also owns
and maintains a substantial number of trademarks and trade names that are
registered or otherwise protected under the laws of various jurisdictions.

                                      37
<PAGE>

  D. Trend information

     United States and European economies slowed down in the second half of
fiscal 2001, and the Japanese economy remained slack throughout fiscal 2001. In
this light, there is a concern over prolonged sluggish economies worldwide in
fiscal 2002. In this environment, Komatsu will deliver technology products and
services to customers for their diversified expectations. To accomplish the
goals of the "G" to the 21st mid-range management strategy, the Company is
determined to win over the competition and ensure continued growth.

     In the construction and mining equipment business, the Company is going to
secure earnings and new growth by undertaking regional and market-specific
activities based on globalized operations it had established in different parts
of the world. Transcending the boundaries of conventional business styles, the
Company is committed to delivering total solutions that customers seek by
deploying IT and expanding the environmental business.

     In the electronics and other businesses, the Company is going to focus its
management resources on business areas where it can maintain a technological
edge on a global scale in order to foster their business growth and improve
profitability.


Item 6.  Directors, senior management and employees
         ------------------------------------------

     A. Directors and senior management

     All Directors and Statutory Auditors are elected by a general meeting of
shareholders to serve terms of approximately two years and three years,
respectively, according to the statutory maximum. However, a Director or a
Statutory Auditor may serve any number of consecutive terms.

     The Board of Directors elects from its members a number of Representative
Directors, who have the power severally to represent the Company in all matters,
and from among them, a President. At its discretion, the Board of Directors may
also elect a Chairman, Executive Vice Presidents, Executive Managing Directors
and Managing Directors from among its members. At the present time, the
President and the Executive Vice President are Representative Directors.

     The Statutory Auditors of the Company are not required to be, and are not,
certified public accountants. Each Statutory Auditor audits the performance of
duties by Directors, and may at any time request the Directors to report on the
business activities of the Company, and

                                      38
<PAGE>

may investigate the business as well as the financial situation of the Company.
Certain powers are provided under the Commercial Code of Japan to enable the
Statutory Auditors to carry out these functions. Further, each Statutory Auditor
continues to perform the function of examining the annual financial documents
and the rendering of an opinion thereon for the general meeting of shareholders.
The Statutory Auditors may not at the same time be Directors, managers or
employees of the Company or of any of its subsidiaries.

     Set forth below are the names of the Company's Directors and Statutory
Auditors (as of June 27, 2001), their positions and offices with the Company,
and the dates when they assumed such positions.

<TABLE>
<CAPTION>
                           Current Positions
Name                        with the Company             Date of Office
(Date of birth)
<S>                      <C>                             <C>             <C>
Satoru Anzaki            Chairman of the Board              Mar.1985     Director
(Mar. 3, 1937)                                              Nov.1988     Managing Director
                                                            Jun.1991     Executive Managing Director
                                                            Jun.1995     President (Rep Director)
                                                            Jun.2001     Chairman of the Board
Masahiro Sakane          President                          Jun.1989     Director
(Jan. 7, 1941)           (Representative Director)          Jun.1994     Managing Director
                                                            Jun.1997     Executive Managing Director
                                                            Jun.1999     Executive Vice President
                                                            Jun.1999     Rep. Director
                                                            Jun.2001     President (Rep Director)

Toshitaka Hagiwara       Executive Vice President           Jun.1990     Director
(June 15, 1940)          (Representative Director)          Jun.1995     Managing Director
                         Assistant to President,            Jun.1997     Executive Managing Director
                         Corporate Administration,          Jun.1999     Executive Vice President
                         Related Businesses and             Jun.1999     Rep. Director
                         Corporate Communications

Koji Ogaki               Executive Managing Director        Jun.1991     Director
(Mar. 24, 1942)          President, Research Division       Jun.1996     Managing Director
                         Environment and                    Jun.1999     Executive Managing Director
                         Safety Management
</TABLE>

                                      39
<PAGE>

<TABLE>
<S>                      <C>                                <C>          <C>
Kazuhiro Aoyagi          Executive Managing Director        Jun.1993     Director
(Apr. 14, 1943)          General Manager,                   Jun.1998     Managing Director
                         Corporate Planning Division        Jun.1999     Senior Executive Officer
                                                            Jun.2001     Executive Managing Director

Kunio Noji               Managing Director                  Jun.1997     Director
(Nov. 17,1946)           President, Production Division,    Jun.1999     Executive Officer
                         and                                Jun.2000     Senior Executive Officer
                         President, e-Komatsu Division      Jun.2001     Managing Director

Tetsuya Katada           Director                           Mar.1978     Director
(Oct. 15, 1931)          Counselor                          Mar.1983     Managing Director
                                                            Mar.1987     Executive Managing Director
                                                            Jun.1988     Executive Vice President
                                                            Jun.1988     Rep. Director
                                                            Jun.1989     President (Rep. Director)
                                                            Jun.1995     Chairman of the Board
                                                                          (Rep.Director)
                                                            Jun.1999     Chairman of the Board
                                                            Jun.2001     Director

Toshio Morikawa          Director                           Jun.1999     Director
(Mar. 3, 1933)           Advisor, Sumitomo Mitsui
                         Banking Corpration

Norimichi Kitagawa       Statutory Auditor                  Jun.1993     Director
(July 22, 1940)                                             Jun.1997     Managing Director
                                                            Jun.1999     Executive Managing Director
                                                            Jun.2001     Statutory Auditor

Hiroyuki Watanabe        Statutory Auditor                  Jun.1997     Statutory Auditor
(Aug. 19, 1938)

Masahiro Yoshiike        Statutory Auditor                  Jun.1997     Statutory Auditor
(Mar. 23, 1940)          President,
                         The Taiyo Mutual Life
                         Insurance Co.

Takaharu Dohi            Statutory Auditor                  Jun.1999     Statutory Auditor
(Jul. 12, 1933)
</TABLE>

                                      40
<PAGE>

     There are no family relationships between any of the Directors or Statutory
Auditors of the Company.

     In order to strengthen its corporate governance as a global enterprise and
facilitate its response to a changing business environment, the Company has
reorganized its management as follows in 1999:


1.   Stronger Board of Directors

To facilitate efficient deliberation and quick decision-making, the number of
members of the Board were reduced from 26 to 8. The management decision-making
and supervisory functions were separated from the executive functions. New
external Board Directors were appointed in order to strengthen the transparency
and objectivity of management.


2.   Introduction of Executive Officer System

A total of 22 Executive Officers were appointed out of the Company's operating
and functional divisions, with five of them concurrently assuming directorship.

Executive Officers were given clearly defined responsibilities.


3.   Introduction of the Global Officer System

In order to strengthen global management, a total of 18 Global Officers were
appointed from among the leaders of key subsidiaries.

Global Officers will participate in a global meeting once or twice a year to
formulate policies for the Group's businesses.


4.   Establishment of Committee on Reward

The Company plans to establish an advisory Committee on Reward, which will
include external members, in order to ensure the transparency, validity and
objectivity of executive rewards.

The committee will make recommendations to the Board of Directors regarding
policies for rewards, including levels of awards and performance evaluations of
directors and officers.

                                      41
<PAGE>

Membership will be based initially on the current Stock Option Committee and
will include internal personnel, representatives of shareholders, external
auditors, consultants and licensed attorneys.


Interest of Management in Certain Transactions

None


   B. Compensation

Aggregate Compensation

     The aggregate compensation, including bonuses but excluding retirement
allowances, paid by the Company in fiscal 2001 to all Directors and Statutory
Auditors as a group for services in all capacities, was (Yen)388 million.

Bonuses

     In accordance with customary Japanese business practices, annual bonuses
are paid to the Directors and Statutory Auditors of the Company out of the
"profit" of the Company available for dividends, as such "profit" is determined
in accordance with the Japanese Commercial Code. Such bonuses are approved by
the shareholders of the Company at a meeting customarily held in June of each
year. Bonuses so paid are not deductible by the Company for tax purposes and for
financial reporting purposes are not reported under selling, general and
administrative expenses as a charge against income for the year in which they
are paid. Included in the figure for aggregate compensation set forth above is a
total of (Yen)70 million in bonuses paid to Directors and Statutory Auditors as
a group in their capacities as such (excluding bonuses for their services as
employees) in respect of the 2001 fiscal year, as approved by the Company's
Shareholders at the General Meeting of Shareholders held on June 28, 2000.

Retirement Allowance

     The Company has a severance payment plan for Directors and Statutory
Auditors. The plan provides for lump-sum severance payments based on pertinent
rules of the Company. The amount of provision made for such severance payments,
as charged to operating income, for the year ended March 31, 2001 was (Yen)178
million.

                                      42
<PAGE>

Options to Purchase Securities from Registrant or Subsidiaries

     On June 27, 2001, the shareholders of the Company authorized the
acquisition by the Company of 1,100,000 shares of its common stock, for a total
consideration of up to (Yen)1,000 million, through the period ending on the date
of the Company's next annual general meeting of shareholders. The Company
intends to transfer such treasury shares to the Directors and certain employees,
under agreements granting such Directors or such employees the right to acquire
a certain number of the treasury shares, at a contractually fixed price. The
purchase price will be equal to the amount obtained by multiplying 1.05 by the
average of closing prices applicable to ordinary transactions of Company shares
on the Tokyo Stock Exchange during the month immediately preceding the month in
which the date of grant of the rights occurs provided that the exercise price
shall not be less than the closing price of Company shares on the Tokyo Stock
Exchange as of the date of the grant. According to the agreement, the option
price is (Yen)559 per share and the option exercise period runs from August 1,
2002 to July 31, 2007.

     The following table sets forth the number of shares of the Company's common
stock allocated to each of the Company's Directors under the Company's stock
option plan.

                         Number of                          Number of
     Name                 shares             Name            shares
Satoru Anzaki               80,000      Masahiro Sakane        80,000
Toshitaka Hagiwara          70,000      Koji Ogaki             60,000
Kazuhiro Aoyagi             60,000      Kunio Noji             40,000
Tetsuya Katada              20,000


The following table shows the common stock option plan.
Years granted            Total number of shares to be   Exercise price per share
(Year ended March 31)      called for common stock
                                (in thousands)
        1999                       1,000                          700
        2000                       1,200                          820
        2001                       1,200                          758
        2002                       1,100                          559


   C. Board practices

      See Item 6A "Directors and senior management"


   D. Employees

                                      43
<PAGE>

Number of employees by business segment

           Total   Construction and Mining   Electronics   Other   Corporate
                           Equip.
  2001    32,002           20,345                3,578     7,625      454
  2000    28,522
  1999    31,785
Segment information for 2000 and 1999 is not available.

     The Company has a labor contract with the Komatsu Labor Union ("KLU")
covering conditions of employment.  This contract, which provides that all
employees except management and certain other enumerated personnel must become
union members, has been renegotiated every two years and its present term runs
until July 31, 2003.  The employees of the Company's principal Japanese
subsidiaries are covered by separate labor contracts between such subsidiaries
and the unions representing their employees.  These contracts contain provisions
generally similar to those contained in the Company's contract with KLU.
Certain overseas employees of the Company and subsidiaries are also covered by
labor contracts between the employer and unions in the relevant locale
representing the employees.


   E. Share ownership

     The following table lists the number of shares owned by the Directors and
Statutory Auditors of the Company as of March 31, 2001.

Name                     Position                         Number of shares
                                                           (in thousands)
Satoru Anazaki           Chairman of the Board                   132
Masahiro Sakane          President                                37
Toshitaka Hagiwara       Executive Vice President                 40
Koji Ogaki               Executive Managing Director              32
Kazuhiro Aoyagi          Executive Managing Director              28
Kunio Noji               Managing Director                        22
Tetsuya Katada           Director                                 77
Toshio Morikawa          Director                                  0
Norimichi Kitagawa       Statutory Auditor                        25
Hiroyuki Watanabe        Statutory Auditor                        18
Masahiro Yoshiike        Statutory Auditor                         2
Takaharu Dohi            Statutory Auditor                         0


Item 7.   Major Shareholders and Related Party Transactions
          -------------------------------------------------

                                      44
<PAGE>

   A. Major Shareholders

The following table shows the number of Company shares held by holders of 5% or
more of Company shares and their percentage ownership as of March 31, 2001.

Name of major shareholders                Shares owned       Percentage
                                         (in thousands)
NATS CUMCO                                   55,735             5.8%
The Taiyo Mutual Life Insurance Co.          55,224             5.8%
NATS CUMCO is the share nominee of CITIBANK, N.A. which is a trustee of the
Company's ADR(American Depositary Receipts).

The major shareholders of 5% or more of the Company shares and their percentage
ownership as of March 31, 2000 and 1999 are as follows,

As of March 31, 2000
Name of major shareholders                Shares owned       Percentage
                                         (in thousands)
The Taiyo Mutual Life Insurance Co.          55,224             5.7%
As of March 31, 1999
Name of major shareholders                Shares owned       Percentage
                                         (in thousands)
The Taiyo Mutual Life Insurance Co.          53,445             5.5%

The Company's major share holders do not have different voting rights.
As of March 31, 2001, 104 residents of the United States held approximately
15.4% of the outstanding shares of record.

To the best knowledge of the Company, the Company is not, directly or
indirectly, controlled by another corporation or other entity, by the Government
of Japan or by any foreign government, nor to the best of its knowledge does any
person own more than ten percent of the Company's Common Stock.


   B. Related party transactions

Since the beginning of Komatsu's last full fiscal year, Komatsu has not
transacted with, nor does Komatsu currently plan to transact with a related
party. In this paragraph, a related party includes: (a) enterprises that
directly or indirectly through one or more intermediaries, control or are
controlled by, or are under common control with, Komatsu; (b) associates; (c)
individuals owning, directly or

                                      45
<PAGE>

indirectly, an interest in the voting power of Komatsu that gives them
significant influence over Komatsu, and close members of any such individual's
family; (d) key management personnel, namely those persons having authority and
responsibility for planning, directing and controlling the activities of
Komatsu, including directors and senior management of companies and close
members of such individual's families; (e) enterprises for which a substantial
interest in the voting power is owned, directly or indirectly, by any person
described in (c) or (d) or over which such a person is able to exercise
significant influence. This item includes enterprises owned by directors or
major shareholders of Komatsu and enterprises that have a member of key
management personnel in common with Komatsu. Close members of an individual's
family are those that may be expected to influence, or be influenced by, that
person in their dealings with Komatsu. An associate is an unconsolidated
enterprise in which Komatsu has a significant influence or which has significant
influence over Komatsu. Significant influence over an enterprise is the power to
participate in the financial and operating policy decisions of the enterprise
but is less than control over those policies. Shareholders beneficially owing a
10% interest in the voting power of Komatsu are presumed to have a significant
influence on Komatsu.

To the best knowledge of the Company, no person owns more than ten percent of
the Company's common stock.


   C. Interests of experts and counsel

   None

Item 8   Financial Information
         ---------------------

   A. Consolidated Statements and Other Financial Information

Refer to consolidated Financial Statements and Notes to Consolidated Financial
Statements.


Legal Proceedings

Komatsu is involved in or subject to various ordinary, routine litigation and
legal proceedings incidental to the normal conduct of its business, including
with respect to regulatory matters. The outcome of these matters is not expected
to have a material adverse effect on Komatsu's financial condition, liquidity or
results of operations.


Dividend Policy

Concerning cash dividends to shareholders, the Company maintains a basic policy
of redistributing

                                      46
<PAGE>

profits by taking payout ratios into account and linking returns more directly
with business results, while ensuring sufficient internal reserves for
reinvestment. Based on this policy, we have set fiscal 2001 year-end per share
dividends at (Yen)3.0 for the second half, with total annual per share dividends
to be set at (Yen)6.0, and the payout ratio of fiscal 2001 was 79.4%.


   B. Significant changes

No significant change has occurred since the date of the annual financial
statements.


Item 9   The Offer and Listing
         ---------------------

   A. Offer and listing details

     The shares of common stock of the Company, par value 50 yen per share, are
listed on the Tokyo Stock Exchange (TSE) and four other stock exchanges in
Japan: Osaka, Nagoya, Fukuoka and Sapporo.

     ADS's, each representing 4 shares of common stock, have been issued by
Citibank N.A. of New York, as Depositary for the American Depositary Receipts
(ADR's) evidencing the ADS's, and are traded in the US on the over-the-counter
market.

     EDR is listed on the Luxemburg Stock Exchange.
     GBC is listed on the Frankfurt Stock Exchange.

     As of July 31, 2001, 958,921,701 shares of common stock were outstanding.
On the same date, 14,945,925 ADS's (equivalent to 59,783,700 shares of common
stock, or approximately 6.2% of the total number of shares of common stock
outstanding on that date) were outstanding and were held by 13 record holders of
ADR's.

The following table sets forth for the periods indicated the reported high and
low sales prices of the Company's stock on Tokyo Stock Exchange and the reported
high and low sales prices of ADS's.


  Period                                      TSE                   ADS
                                         (Japanese Yen)        (U.S. dollars)
                                         High       Low       High        Low
  The fiscal year ended March 31, 1997   1,090      779      40.000      26.200

                                      47
<PAGE>

  The fiscal year ended March 31, 1998     985      486      32.500      15.140
  The fiscal year ended March 31, 1999     745      505      23.260      16.170
  The fiscal year ended March 31, 2000
     1/st/ quarter                         820      605      27.750      20.375
     2/nd/ quarter                         793      606      27.500      23.500
     3/rd/ quarter                         742      460      27.500      18.000
     4/th/ quarter                         574      444      20.625      16.750
  The fiscal year ended March 31, 2001
     1/st/ quarter                         759      488      28.750      19.125
     2/nd/ quarter                         803      587      30.125      21.500
     3/rd/ quarter                         608      465      22.500      17.250
     4/th/ quarter                         615      480      19.500      16.500

  2001 February                            560      510      19.125      17.625
  2001 March                               615      497      19.500      16.500
  2001 April                               705      580      22.900      18.375
  2001 May                                 689      586      22.900      19.200
  2001 June                                596      516      19.600      17.000
  2001 July                                582      495      18.250      16.000


   B. Plan of distribution

   Not applicable.

   C. Markets

   See Item 9A "Offer and listing details"


Item 10  Additional Information
         ----------------------

   A. Share capital

   Not applicable

   B. Memorandum and articles of corporation

   See Item 19, Exhibit (1).

                                      48
<PAGE>

   C. Material contracts

(1)  In May 2000, the Company and Komatsu Forklift entered into a global
     alliance agreement with Linde of Germany in production and sales for
     forklift truck business. See Item 4. B. "Business Overview - Other
     Operations Segment - Komatsu Forklift".

(2)  In July 2000, the Company entered into a joint venture agreement with USHIO
     INC. whereby GIGAPHOTON INC. was jointly established in August 2000, for
     Excimer lasers used in lithography tools for semiconductor manufacturing.
     See Item 4. B. "Business Overview - Electronics Segment - Excimer Lasers".

(3)  In September 2000, the Company entered into a share purchase agreement with
     TAKAMATSU CORPORATION, pursuant to which Komatsu offered sale of its shares
     in Komatsu Construction to TAKAMATSU CORPORATION in the course of a tender
     offer commenced by TAKAMATSU CORPORATION in October 2000. In this
     connection, the Company entered into a financial assistance agreement with
     Komatsu Construction and TAKAMATSU CORPORATION concerning the improvement
     of financial condition of , Komatsu Construction. See Item 4. B. "Business
     Overview - Other Operations Segment - Komatsu Construction".

(4)  In September 2000, the Company entered into a basic agreement with
     Galveston-Houston Company pursuant to which in December 2000 Komatsu
     acquired Hensley Industries, Inc., a leading manufacturer of buckets,
     teeth, edges and other products for construction and mining equipment in
     the international GET market. See Item 4. B. "Business Overview -
     Construction and Mining Equipment Segment - Ground Engaging Tools (GET)
     Business".

   D. Exchange controls

     The Foreign Exchange and Foreign Trade Law of Japan, as amended ("Foreign
Exchange Law"), and the cabinet orders and ministerial ordinances thereunder,
regulate certain transactions involving a "non-resident of Japan" or a "foreign
investor," including a portfolio on foreign ownership of debt or equity
securities of Japanese companies.

     "Non-residents of Japan" include individuals who are not resident in Japan
and corporations whose principal offices are located outside of Japan.
Generally, branches and other offices of Japanese corporations located outside
of Japan are regarded as non-residents of Japan, but branches and other offices
of non-resident corporations located within Japan are regarded as residents of
Japan. "Foreign

                                      49
<PAGE>

investors" are defined to be: (i) individuals not resident in Japan; (ii)
corporations which are organized under the laws of foreign countries or whose
principal offices are located outside of Japan; (iii) corporations of which not
less than 50 percent of the shares are held directly or indirectly by (i) or
(ii) above; and (iv) any corporation in which: (a) a majority of the officers
are non-resident individuals; or (b) a majority of the officers having the power
to represent the corporation are non-resident individuals.

     The following is a summary of the pertinent regulations under the Foreign
Exchange Law insofar as they affect debt securities of the Company, shares of
the Company's Common Stock or Depositary Receipts representing such shares.


Debt Securities
---------------

     The Foreign Exchange Law requires that a resident of Japan whose debt
securities are being issued outside of Japan file a post facto report of
                                                    ---- -----
"capital transaction" with the Minister of Finance.  Under the Foreign Exchange
Law, payment of the principal of and interest on these debt securities
(including any additional amounts payable pursuant to the terms of the
securities) may in general be made by the issuer without any restrictions.

     On March 28, 1996, the Company, Komatsu Finance America Inc., and Komatsu
Finance (Netherlands) B.V. (the "Issuers") established and registered the US$1
billion Euro Medium-Term Note Program on the London Stock Exchange. The
aggregate nominal amount of the Notes under the Program was increased to US$1.2
billion on April 1, 1999, and Komatsu Australia Pty. Ltd. joined the Program as
an additional Issuer on March 31, 2000. Under this program, each of the Issuers
may from time to time issue notes denominated in any currency.


Acquisition of Shares
---------------------

     In general, the acquisition of shares in a Japanese company listed on any
stock exchange in Japan or traded on the over-the-counter market in Japan (the
"listed shares") from a resident of Japan by a non-resident of Japan requires
the resident of Japan to file a post facto report with the Minister of Finance
                                ---- -----
of the transaction. The Foreign Exchange Law gives the Minister of Finance the
power in certain limited and exceptional circumstances to require prior approval
for any such acquisition.

     If a foreign investor intends to acquire the listed shares and as a result
of such acquisition the aggregate of the shares in the relevant company already
held by that foreign investor and certain related parties (as specified under
the Foreign Exchange Law) and the number of such shares proposed to be acquired
by that foreign investor would be 10 percent or more of the total issued shares,
such foreign

                                      50
<PAGE>

investor will generally be subject to a post facto reporting requirement to the
                                        ---- -----
Minister of Finance and any other competent Minister. In certain exceptional
cases, a prior notification is required in respect of such an acquisition.

     Under the Foreign Exchange Law and the regulations thereunder currently in
effect, a holder of convertible bonds or warrants to subscribe for new shares
which were issued or offered outside of Japan may acquire the listed shares upon
the conversion or exercise of such convertible bonds or warrants without being
subject to any of the aforesaid prior notification and/or post facto reporting
                                                          ---- -----
requirements.


Dividends and Proceeds of Sale
------------------------------

     Under the Foreign Exchange Law and regulations thereunder, dividends paid
on the shares of a Japanese corporation (including those in the form of
Depository Receipts) held by non-residents of Japan and the proceeds of any sale
of such shares within Japan may in general be converted into any foreign
currency and repatriated abroad. The acquisition of shares by non-resident
shareholders by way of stock splits is not subject to any of the prior
notification and/or post facto reporting requirements.
                    ---- -----


Exercise or Transfer of Subscription Rights
-------------------------------------------

     The acquisition by a foreign investor of shares in a Japanese company upon
the exercise of subscription rights is subject to the formalities and
restrictions described in the second paragraph under "Acquisitions of Shares"
above. However, if a foreign investor wishes to dispose of, rather than
exercise, any subscription rights, he may sell the rights inside or outside of
Japan without restriction.


Depositary Receipts
-------------------

     When shares are deposited with a Depositary located outside of Japan and
Depositary Receipts are issued in exchange therefor, the Depositary is treated
like any other foreign investor acquiring Shares.


  E. Taxation

                                      51
<PAGE>

Debt Securities
---------------

     Except as mentioned below, under the Japanese tax laws currently in effect,
the interest on debt securities or corporate bonds (shasai) issued by a Japanese
                                                    ------
corporation is generally subject to the withholding of Japanese income tax and,
in the case of a corporation (other than a non-Japanese corporation having no
permanent establishment in Japan), to corporation tax, and premium (if any) on
such debt securities is generally subject to Japanese income or corporation tax,
depending on the status of the recipient.

     Under Japanese tax laws currently in effect, the payment of interest on
debt securities issued outside Japan by a Japanese company (on or after April 1,
1998 and on or before March 31, 2002) and the difference, if any, between the
issue price and the amount payable upon redemption of such debt securities will
not be subject to the withholding of Japanese income tax, if such interest or
difference is payable outside of Japan to a non-resident of Japan or non-
Japanese corporation which (in the case of interest) has submitted documents
certifying its non-Japanese residency in accordance with the requirements set
out in Japanese tax laws. Furthermore, such payment will not be subject to any
other Japanese income or corporation tax, unless such non-resident or non-
Japanese corporation has a permanent establishment in Japan and the payment is
attributable to the business of such non-resident or non-Japanese corporation
carried on in Japan through such permanent establishment. The Convention Between
Japan and the United States of America for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with respect to Taxes on Income of March 1,
1971, as presently in effect (the "Tax Convention"), provides that the interest
income of a United States resident or corporation from debt securities may be
taxable by Japan if and to the extent that interest is paid by a resident of
Japan or otherwise is from sources within Japan.

     Under the Tax Convention, the maximum rate of Japanese tax on interest
income of United States residents or corporations is 10 percent unless the
recipient has a permanent establishment in Japan and the debt securities in
respect of which such interest is paid are effectively connected with such
permanent establishment, in which case such income will be taxed at the normal
rates provided by the Japanese income or corporate tax laws.

     There are no Japanese taxes payable on conversion of convertible bonds into
shares of Common Stock or Depository Receipts.

     Gains derived from the sales of debt securities of the Company outside of
Japan by non-residents (including individuals and non-Japanese corporations),
will not be subject to Japanese income or corporation taxes, except in limited
circumstances.  Gains derived by non-residents

                                      52
<PAGE>

(including individuals and non-Japanese corporations) from the sale in Japan of
debt securities of the Company will be exempt from Japanese taxes on income if
the non-resident does not have a permanent establishment in Japan.

     Japanese inheritance and gift taxes at progressive rates may be payable by
an individual who has acquired debt securities of the Company as legatee, heir
or donee.


Common Stock and Depositary Receipts
------------------------------------

     Generally, a non-resident of Japan or a non-Japanese corporation is subject
to Japanese withholding tax on dividends paid by Japanese corporations. Stock
splits are not subject to Japanese income tax. However, a transfer of retained
earnings or legal reserve (but, in general, not capital surplus) to stated
capital (whether made in connection with a stock split or otherwise) is treated
as a dividend payment to shareholders for Japanese tax purposes and is, in
general, subject to Japanese income tax. No such transfer would be necessary in
connection with a stock split if the total par value of the shares in issue
after the stock split does not exceed the stated capital.

     Pursuant to the Tax Convention the maximum rate of Japanese withholding tax
that may be imposed on dividends paid by a Japanese corporation to a United
States resident individual or, subject to certain limited exceptions, a United
States corporation is 15 percent unless such United States resident individual
or United States corporation has a permanent establishment in Japan and the
shares with  respect to which the dividends are paid are effectively connected
with the permanent establishment.

     Gains derived from the sale outside of Japan of Common Stock or Depositary
Receipts by non-residents of Japan, including non-Japanese corporations, will
not be in general subject to Japanese taxes on income.

     Gains derived from the sale in Japan of Common Stock or Depositary Receipts
by a non-resident (including a non-Japanese corporation) are in general exempt
from Japanese income or corporation taxes, unless the non-resident has a
permanent establishment in Japan.

     Japanese inheritance and gift taxes, at progressive rates, may be payable
by an individual who acquires Common Stock or Depositary Receipts as a legatee,
heir or donee.


  F. Dividends and paying agents

                                      53
<PAGE>

     Not Applicable


     G. Statements by experts

     Not applicable


     H. Documents on display

     The company files reports and other information, including Form 20-F and
Annual Reports to Securities and Exchange Commission. These reports may be
inspected at the following place.


Securities and Exchange Commission
450 Fifth Street, NW, Washington, D.C. 20549

     I. Subsidiary Information

     Not applicable

Item 11. Quantitative and Qualitative Disclosures About Market Risk
         ----------------------------------------------------------

Market risk exposure
Komatsu is exposed to market risk primarily from changes in foreign currency
exchange rates and interest rates with respect to international operations and
foreign currency denominated credits and debts. In order to manage these risks
that arise in the normal course of business, the companies enter into various
derivative transactions pursuant to their policies and procedures. Komatsu does
not enter into derivative financial transactions for trading or speculative
purposes. Komatsu is exposed to credit-related losses in the event of
nonperformance by counterparties to derivative financial instruments. However,
because of the counterparties' high credit ratings, none are expected to fail to
meet their obligations.

Foreign Exchange Risk
To reduce foreign exchange risks against foreign currency denominated assets and
liabilities, Komatsu executes forward exchange contracts and option contracts in
a range of 50% to 100% based on their projected cash flow in foreign currencies.
Furthermore, to reduce foreign exchange risks in relation to medium-term and
long-term foreign currency denominated assets and liabilities and to fix related
costs, Komatsu has executed such forward exchange contracts for a portion of
their

                                      54
<PAGE>

bonds and loans.
The following table provides information concerning the derivative financial
instruments of Komatsu in relation to foreign currency exchange transactions
existing as of March 31, 2001, which are translated into yen at the rate used on
that date, together with the related weighted average contractual exchange rates
as of March 31, 2001. As of March 31, 2001, the notional amount of option
contracts is (Yen)3,395 million (US$27 million).

<TABLE>
<CAPTION>
                                         Millions of yen (except average contractual rates)
Forwards to sell Foreign        US$/Yen     GBP/EUR      EUR/Yen     US$/EUR      Others        Total
currencies
<S>                         <C>          <C>         <C>          <C>         <C>         <C>
Contract amounts            (Yen)18,508  (Yen)5,598  (Yen) 5,086  (Yen)2,626  (Yen)1,256  (Yen)33,074
Average contractual rates        113.13        1.63       107.63        1.12

<CAPTION>
Forwards to buy        GBP/EUR     Yen/EUR     Yen/ZAR     US$/EUR     US$/AU$     US$/Yen      Others        Total
foreign currencies
<S>                <C>          <C>         <C>         <C>         <C>         <C>         <C>         <C>
Contract amounts   (Yen)11,628  (Yen)3,053  (Yen)2,860  (Yen)2,398  (Yen)2,123  (Yen)2,058  (Yen)4,381  (Yen)28,528
Average                   0.62       99.58       13.99        0.89        0.54        0.01
contractual rates

<CAPTION>
                                                      Thousands of U.S. dollars
Forwards to sell Foreign        US$/Yen     GBP/EUR      EUR/Yen     US$/EUR      Others        Total
currencies
<S>                         <C>          <C>         <C>          <C>         <C>         <C>
Contract amounts               $146,889     $44,429       $40365     $20,841      $9,968     $262,492

<CAPTION>
Forwards to buy        GBP/EUR     Yen/EUR     Yen/ZAR     US$/EUR     US$/AU$     US$/Yen      Others       Total
foreign currencies
<S>                <C>          <C>         <C>         <C>         <C>         <C>         <C>         <C>
Contract amounts       $92,286     $24,230     $22,698     $19,032     $16,849     $16,548     $34,770    $226,413
</TABLE>


Interest rate risk
To reduce risks and hedge cash flow, Komatsu engages in certain interest rate
swaps, cross-currency swaps and cap option transactions for interest payment and
interest receipt. Certain interest rate swap contracts are not qualified as
hedging and are recorded at the fair value and the resulting gains are
recognized as income.
The following tables provide information concerning the derivatives and other
financial instruments of Komatsu that are sensitive to changes in interest
rates, mainly including interest rate swaps, cross-currency swaps and debt
obligations, excluding capital lease obligations. For debt obligations, the
tables present principal cash flows and related weighted average interest rates
by expected maturity dates. For interest rate and cross-currency swaps, the
tables on the following page present notional amounts and weighted average for
receipt and payment of interest rates. As of March 31, 2001, the notional amount
and its average strike rate of interest cap transactions are (Yen)52,656 million
(US$418 million) and 6.31%, respectively.

Long-term debt excluding capital lease obligations (including due within one
year)  Millions of yen

                                      55
<PAGE>

<TABLE>
<CAPTION>
                                     Average                                           Expected maturity date
                                  Interest rate     Total        2002         2003       2004        2005        2006     Thereafter
<S>                               <C>           <C>          <C>         <C>         <C>         <C>         <C>         <C>
U.S. dollar bonds                         6.97% (Yen) 21,573 (Yen)    -- (Yen)    -- (Yen)13,426 (Yen)    -- (Yen) 8,147 (Yen)    --
Japanese yen convertible
Debentures/debentured bonds               1.86%       62,447           -           -      27,447           -      35,000           -
Euro medium-term notes                    1.29%       65,020      13,704      23,474       7,239       7,758       4,928       7,890
Loans, principally from banks             3.67%      108,142      16,140      26,400      37,353      10,345       5,731      12,173
Total                                           (Yen)257,182 (Yen)29,844 (Yen)49,874 (Yen)85,465 (Yen)18,130 (Yen)53,806 (Yen)20,063
</TABLE>

<TABLE>
<CAPTION>
Interest rate and cross-currency swaps                                   Millions of yen

                                Average
                              interest rate                                             Expected maturity date
                            Receive       Pay       Total        2002        2003        2004        2005        2006    Thereafter
<S>                         <C>           <C>   <C>          <C>         <C>         <C>         <C>         <C>         <C>
Japanese yen interest rate
 swap                        0.47%       0.93%  (Yen) 66,637 (Yen) 1,556 (Yen)22,156 (Yen) 4,674 (Yen)33,169 (Yen) 5,082 (Yen)    -
U.S. dollar interest rate
 swap                        6.13%       6.23%        77,848      40,197      23,002       9,106       3,197         918      1,428
Australian dollar interest
 rate swap                   5.34%       5.36%         3,043           -       3,043           -           -           -          -
Yen/US$ cross-currency swap  1.16%       6.39%        81,274      31,500      22,500       6,618       7,418       5,618      7,620
Yen/EUR cross-currency swap  1.42%       4.85%        10,500       4,000       2,000       3,000       1,500           -          -
Others                                                 3,490         770         708       1,744         218          19         31
Total                                           (Yen)242,792 (Yen)78,023 (Yen)73,409 (Yen)25,142 (Yen)45,502 (Yen)11,637 (Yen)9,079
</TABLE>

<TABLE>
<CAPTION>
Long-term debt excluding capital lease obligations (including due within one year)      Thousands of U.S. dollars

                                Average                                        Expected maturity date
                                Interest rate     Total      2002      2003       2004     2005      2006    Thereafter
<S>                             <C>            <C>         <C>       <C>       <C>       <C>       <C>       <C>
U.S. dollar bonds                       6.97%  $  171,215  $      -  $      -  $106,556  $      -  $ 64,659   $      -
Japanese yen convertible
debentures/debentured bonds             1.86%     495,611         -         -   217,833         -   277,778          -
Euro medium-term notes                  1.29%     516,032   108,762   186,302    57,452    61,786    39,111     62,619
Loans, principally from banks           3.67%     858,270   128,095   209,524   296,453    82,103    45,484     96,611
Total                                          $2,041,128  $236,857  $395,826  $678,294  $142,889  $427,032   $159,230
</TABLE>

<TABLE>
<CAPTION>
Interest rate and cross-currency swaps                        Thousands of U.S. dollars

                                      Average interest                                  Expected maturity date
                                            rate

                                      Receive     Pay      Total      2002      2003      2004      2005      2006   Thereafter
<S>                                   <C>         <C>   <C>         <C>       <C>       <C>       <C>       <C>      <C>
Japanese yen interest rate swap         0.47%    0.93%  $  528,865  $ 12,349  $175,841  $ 37,096  $263,246  $40,333     $     -
U.S. dollar interest rate swap          6.13%    6.23%     617,841   319,024   182,555    72,270    25,373    7,286      11,333
Australian dollar interest rate swap    5.34%    5.36%      24,151         -    24,151         -         -        -
Yen/US$ cross-currency swap             1.16%    6.39%     645,032   250,000   178,572    52,524    58,873   44,587      60,476
Yen/EUR cross-currency swap             1.42%    4385%      83,333    31,746    15,873    23,809    11,905        -           -
Others                                                      27,699     6,111     5,619    13,841     1,730      151         247
Total                                                   $1,926,921  $619,230  $582,611  $199,540  $361,127  $92,357     $72,056
</TABLE>


Item 12  Description of Securities Other than Equity Securities
         ------------------------------------------------------

Not Applicable

                                      56
<PAGE>

Item 13  Defaults, Dividend Arrearages and Delinquencies
         -----------------------------------------------

Not Applicable


Item 14  Material Modifications to the Rights of Security Holders and Use of
         -------------------------------------------------------------------
Proceeds
--------

Not Applicable


Item 15. Reserved
         --------


Item 16. Reserved
         --------


Item 17. Financial Statements
         --------------------

Not Applicable


Item 18. Financial Statements
         --------------------

See Consolidated Financial Statements and Schedules attached hereto.


Item 19. Exhibits
         --------

(1) Articles of Incorporation (English Translation)
(2) Certificate of English translations

                                      57

<PAGE>

                                  SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.


                                                    KOMATSU LTD.
                                           -----------------------------
                                                    (Registrant)


Date:  September 26, 2001                 By:    /s/ Kenji Kinoshita
                                              ---------------------------
                                                     Kenji Kinoshita
                                                     Executive Officer
<PAGE>

                                 KOMATSU LTD.
                                 ============


                                 CONSOLIDATED
                      FINANCIAL STATEMENTS AND SCHEDULES
               FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999



                        PREPARED FOR FILING AS PART OF
                           ANNUAL REPORT (FORM 20-F)
                   TO THE SECURITIES AND EXCHANGE COMMISSION

                              * * * * * * * * * *
<PAGE>

                  KOMATSU LTD. AND CONSOLIDATED SUBSIDIARIES
                  ------------------------------------------


                                   INDEX TO
                CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
                -----------------------------------------------



<TABLE>
<CAPTION>
                                                                                      Page in
                                                                                    Shareholders
                                                                                       Report
                                                                               --------------------

<S>                                                                            <C>
Consolidated Financial Statements and Report of Independent Public Accountants
 Included in the Company's Financial Report to Shareholders for the Year Ended
 March 31, 2001 Attached Hereto and Incorporated Herein by Reference:

 Consolidated Balance Sheets, March 31, 2001 and 2000..........................      34 and 35

 Consolidated Statements of Income for the
 Years Ended March 31, 2001, 2000 and 1999.....................................         36

 Consolidated Statements of Shareholders' Equity for the
 Years Ended March 31, 2001, 2000 and 1999.....................................         37

 Consolidated Statements of Cash Flows for the
 Years Ended March 31, 2001, 2000 and 1999.....................................         38

 Notes to Consolidated Financial Statements....................................       39 to 59

 Report of Independent Public Accountants......................................         60
</TABLE>

                                      -1-
<PAGE>

<TABLE>
<CAPTION>
                                                                                       Page in
                                                                                    Annual Report
                                                                                     (Form 20-F)
                                                                               --------------------
<S>                                                                            <C>
Supplemental Information to Conform with Regulation S-X:

 Supplemental Notes to Consolidated Financial Statements                             A-1 to A-3
 to Conform with Regulation S-X................................................

 Schedule for the Years Ended March 31, 2001, 2000 and 1999:

   II  -  Valuation and Qualifying Accounts....................................         A-4


   (Note -  Schedules other than one listed above are omitted because of the
    absence of the conditions under which they are required or because the
    information called for is included in the consolidated financial
    statements or notes thereto.)


Report of Independent Public Accountants.......................................         B-1
</TABLE>

                                      -2-
<PAGE>

Financial Review

Sales
--------------------------------------------------------------------------------
Net sales in fiscal 2001 ended March 31, 2001 increased 3.9% over the previous
fiscal year, to (Yen)1,096,369 million (US$8,701 million at US$1=(Yen)126).
     Sales in Japan advanced 6.0%, to (Yen)586,865 million (US$4,658 million),
while overseas sales rose 1.5%, to (Yen)509,504 million (US$4,043 million). As a
result, the ratio of overseas sales to consolidated net sales for the year
dipped from 47.5% in the previous fiscal year, to 46.5%.
     Domestic sales of construction and mining equipment were up from the
previous fiscal year, owing primarily to efforts of information technology
utilization and the expansion of sales of machines for environment conservation,
although the demand declined slightly. In overseas market, while European
economies remained strong in general, the United States economy, which had
maintained the record-high length of buoyancy, began to slow down. The recovery
pace of overall Asian economies slowed down. As a result, global sales of
construction and mining equipment slid 3.9% from the previous fiscal year, to
(Yen)718,147 million (US$5,700 million).
     In the electronics business, the demand for silicon wafers dramatically
increased and the market of polycrystalline silicon as the raw material for
silicon wafers grew. Our operation in Taiwan expanded its production facilities
and accelerated sales. Demand for micro modules for use in fiber optic
communication network also expanded. As a result, sales from the electronics
business improved 30.3% over the previous fiscal year, to (Yen)117,745 million
(US$934 million).
     Elsewhere in the other operations, the industrial machinery business
reinforced the sales alliance, and the sales of outdoor power equipment were
expanded by introducing renewed models. Komatsu Construction Co., Ltd. became
unconsolidated company by the sale of its ownership in October 2000. On the
other hand, Komatsu Forklift Co., Ltd. became consolidated company due to our
increased ownership. As a result, sales from other operations expanded 19.7%,
to (Yen)260,477 million (US$2,067 million).
     Overseas sales by region in fiscal 2001 were as follows: sales in the
Americas accounted for (Yen)241,091 million (US$1,913 million), down 0.6%; sales
in Europe advanced 2.3%, to (Yen)126,479 million (US$1,004 million); sales in
Asia (excluding Japan) and Oceania increased 17.7%, to (Yen)117,136 million
(US$929 million); and sales in the Middle East and Africa fell 31.2%, to
(Yen)24,798 million (US$197 million).

Earnings
--------------------------------------------------------------------------------
Cost of sales in fiscal 2001 increased 1.0% from previous year, to (Yen)804,700
million (US$6,387 million). The ratio of cost of sales to net sales grew 2.1
percentage points, to 73.4%. Selling, general and administrative (SG&A) expenses
for the year increased 9.2%, to (Yen)263,854 million (US$2,094 million), causing
the ratio of SG&A expenses to net of sales to increase 1.2 percentage points
over the previous year, to 24.1%. As a result, operating income for fiscal 2001
increased 60.6% over the previous year, to (Yen)27,815 million (US$221 million).
This improvement was brought about primarily by improved earnings in the
electronics business, owing to the recovery of demand for silicon wafers as
compared with fiscal 2000.
     Interest and other income and expenses in fiscal 2001 netted to a loss of
(Yen)7,751 million (US$62 million), compared with a net gain of (Yen)2,077
million in the previous year. This resulted from the fact that net other income
in fiscal 2000 included large gain such as sales of idle properties of the Osaka
plant, while net other income in fiscal 2001 did not include such non recurring
gain. In fiscal 2001 and 2000, the Company recorded impairment losses on long-
lived asset, which was related to temporarily idle production

Return on Net Sales

[Graphic]

R&D Expenses as a
Percentage of Net Sales

[Graphic]

Capital Expenditures as a
Percentage of Net Sales

[Graphic]

Shareholders' Equity Ratio

[Graphic]

                                     -28-
<PAGE>

facilities due to the sluggish market, at its wholly owned subsidiary in the
electronics segment.
     As a result, income before income taxes, minority interests and equity in
earnings for the fiscal year increased 3.4% from previous year to (Yen)20,064
million (US$159 million), the percentage of income before income taxes, minority
interests and equity in earnings to net sales ended in 1.8%.
     Equity in earnings of affiliated companies in fiscal 2001 decreased 90.5%
from the previous year, to 385 million (US$3 million). This decline was
primarily derived from the fact that Applied Komatsu Technology, Inc., which had
large profit in the previous year, became an unconsolidated company, by sale of
its equity.
     As a result, the Company's net income in fiscal 2001 decreased 48.4% from
the previous year, to (Yen)6,913 million (US$55 million).
     On a per share basis, net income amounted to (Yen)7.24 (US5.7(cent)).
Dividends per share were (Yen)6.00 (US4.8(cent)). The corresponding figures for
fiscal 2000 were (Yen)13.85 and (Yen)6.00 respectively.

Liquidity and Capital Resources
--------------------------------------------------------------------------------
Working capital in fiscal 2001 decreased 8.3% from the previous year, to
(Yen)203,233 million (US$1,613 million).
     The current ratio in fiscal 2001 declined 6.8 percentage points from the
previous year, to 134.9%.
     Capital expenditures in fiscal 2001 increased 37.4% over the previous year,
to (Yen)79,310 million (US$629 million). The increase was caused primarily by
the conversion of Komatsu Forklift Co., Ltd. to a consolidated subsidiary and
the capital expenditures for rental equipment to meet the growing Financial
Condition demand. Capital expenditures in fiscal 2000 declined 49.7% from the
previous year. Commitments for capital expenditures outstanding as of March 31,
2001 totaled (Yen)600 million (US$5 million).
     R&D expenses in fiscal 2001 rose 6.6% over the previous year, to
(Yen)45,282 million (US$359 million), and represented 4.1% of net sales. Fiscal
2001 expenses for advertising and public relations activities jumped 24.1%, to
(Yen)5,369 million (US$43 million), or 0.5% of net sales.

Financial Condition
--------------------------------------------------------------------------------
The Company continues to strengthen its financial position. In fiscal 2001, the
Company combined its bank commitment lines and the credit lines that allow
borrowings to a certain amount when necessary, that were formerly maintained
separately in Japan and the United States. The combined global commitment line
in the amount of US$450 million allows the Company and certain subsidiaries to
flexibly procure funds in yen or U.S. dollar from the banks of Japan, the United
States and Europe. This allowed the Group companies in Japan and the United
States to decrease debts and interest expenses. As a result, DER (debt-equity
ratio) as of March 31, 2001, was maintained below 1 point at 0.99 to 1.
     Cash and cash equivalents at the end of the fiscal year amounted
to(Yen)39,760 million (US$316 million), a decrease Business Risk of (Yen)40,716
million from the previous fiscal year. Net cash provided by operating activities
in fiscal 2001 totaled (Yen)69,976 million (US$555 million), an increase of
(Yen)35,752 million from the previous fiscal year. This improvement was
primarily from improved earnings in the electronics business. Net cash flows
from investing activities for the fiscal year amounted to (Yen)35,142 million
(US$279 million), a decrease of (Yen)54,022 million from the previous fiscal
year. Primary factor of the decrease is due to the decline in proceeds from
sales of marketable securities and investments. Net cash outflows from in
financing activities for the fiscal year came to (Yen)75,863 million (US$602
million), an increase of (Yen)14,298 million from the previous fiscal year due
to debt repayment and purchase of treasury stock.

Business Risk
--------------------------------------------------------------------------------
The Company believes that, as an independent business entity, it has its own
management strategy and resources to win against the competition within a
foreseeable scope based on available information. The market conditions for the
Company's individual businesses differ by region and change widely depending
upon economic and competitive conditions. Profitability of the Company's global
construction and mining equipment business, as its core operation, is affected
primarily by the following factors:

 . Further intensification of competition in the Japanese market, where demand
  has declined considerably since 1997.
 . Further reduction in demand in North America brought about by greater-than-
  expected economic deceleration.
 . A considerable decline in demand in Europe, owing to the economic slowdown
  there.
 . A delay in the recovery of demand for mining equipment.

                                     -29-

<PAGE>

 . Significant increases in R&D expenses for construction and mining equipment in
  order to meet more stringent environmental protection regulations.

 . Greater-than-expected fluctuation in foreign exchange rates (especially
  vis-a-vis the U.S. dollar and the Euro).
     With regard to the electronics business, the Company expects no financial
burden resulting from sizable investments for the time being. However, the
Company considers that the following factors could affect profitability: sharp
changes in the semiconductor market and declining sales prices due to unbalanced
supply and demand, along with intensified competition.
     Although the profitability of other businesses is also affected by changes
in their respective markets, this is not expected to have a significant impact
on the Company's overall performance.

Market Risk Exposure
--------------------------------------------------------------------------------
The companies are exposed to market risk primarily from changes in foreign
currency exchange rates and interest rates with respect to international
operations and foreign currency denominated credits and debts. In order to
manage these risks that arise in the normal course of business, the companies
enter into various derivative transactions pursuant to their policies and
procedures. The companies do not enter into derivative financial transactions
for trading or speculative purposes.
     The companies are exposed to credit-related losses in the event of
nonperformance by counterparties to derivative financial instruments. However,
because of the counterparties' high credit ratings, none are expected to fail to
meet their obligations.

Foreign Exchange Risk
--------------------------------------------------------------------------------
To reduce foreign exchange risks against foreign currency denominated assets and
liabilities, the companies execute forward exchange contracts and option
contracts in a range of 50% to 100% based on their projected cash flow in
foreign currencies. Furthermore, to reduce foreign exchange risks in relation to
medium-term and long-term foreign currency denominated assets and liabilities
and to fix related costs, the companies have executed such forward contracts for
a portion of their bonds and loans.
     The following table provides information concerning derivative financial
instruments of the companies in relation to foreign currency exchange
transactions existing as of March 31, 2001, which are translated into yen at the
rate used on that date, together with the related weighted average contractual
exchange rates as of March 31, 2001. As of March 31, 2001, the notional amount
of option contracts is (Yen)3,395 million (US$26,944 thousand).

<TABLE>
<CAPTION>
                                                                 Millions of yen (except average contractual rates)
                                          ------------------------------------------------------------------------------------------
<S>                                       <C>          <C>       <C>         <C>        <C>        <C>        <C>        <C>
Forwards to sell foreign currencies:                              US$/Yen     GBP/EUR     EUR/Yen    US$/EUR    Others      Total
Contract amounts..............................................   (Yen)18,508 (Yen)5,598 (Yen)5,086 (Yen)2,626 (Yen)1,256 (Yen)33,074
Average contractual rates.....................................        113.13       1.63     107.63       1.12
====================================================================================================================================

Forwards to buy foreign currencies:         GBP/EUR    Yen/EUR     Yen/ZAR    US$/EUR    US$/AU$     US$/Yen    Others      Total
Contract amounts.......................   (Yen)11,628 (Yen)3,053 (Yen)02,860 (Yen)2,398 (Yen)2,123 (Yen)2,085 (Yen)4,381 (Yen)28,528
Average contractual rates..............          0.62      99.58       13.99       0.89       0.54       0.01
====================================================================================================================================

<CAPTION>
                                                                                 Thousands of U.S. dollars
                                       ---------------------------------------------------------------------------------------------
<S>                                    <C>               <C>        <C>         <C>        <C>        <C>         <C>        <C>
Forwards to sell foreign currencies:                                US$/Yen     GBP/EUR    EUR/Yen    US$/EUR     Others     Total
------------------------------------------------------------------------------------------------------------------------------------
Contract amounts...............................................     $146,889    $44,429    $40,365    $20,841    $ 9,968    $262,492
====================================================================================================================================
Forwards to buy foreign currencies:           GBP/EUR    Yen/EUR     Yen/ZAR    US$/EUR    US$/AU$    US$/Yen     Others     Total
Contract amounts..........................    $92,286    $24,230     $22,698    $19,032    $16,849    $16,548    $34,770    $226,413
====================================================================================================================================
</TABLE>

                                     -30-
<PAGE>

Interest Rate Risk
--------------------------------------------------------------------------------
To reduce risks and hedge the cash flow, the companies engage in certain
interest rate swaps, cross-currency swaps and cap option transactions for
interest payment and interest receipt. Certain interest rate swap contracts are
not qualified as hedge and are recorded at the fair value and the resultant
gains are recognized as income.
     The following tables provide information concerning derivatives and other
financial instruments of the companies that are sensitive to changes in interest
rates, mainly including interest rate swaps, cross-currency swaps and debt
obligations excluding capital lease obligations. For debt obligations, the
tables present principal cash flows and related weighted average interest rates
by expected maturity dates. For interest rate and cross-currency swaps, the
tables on the following page present notional amounts and weighted average
receive and pay interest rates. As of March 31, 2001, the notional amount and
its average strike rate of interest cap transactions are (Yen)52,656 million
(US$417,905 thousand) and 6.31%, respectively.

<TABLE>
<CAPTION>
Long-term debt excluding capital lease obligations (including due within one year)          Millions of yen
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Expected maturity date
                                       Average               ----------------------------------------------------------------------
                                    interest rate    Total       2002       2003        2004         2005       2006      Thereafter
------------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>          <C>         <C>         <C>          <C>        <C>          <C>
U.S. dollar bonds.................     6.97%    (Yen) 21,573 (Yen)    -- (Yen)    -- (Yen)13,426  (Yen)   -- (Yen) 8,147  (Yen)   --
Japanese yen convertible
   debentures /debentured bonds...     1.86%          62,447          --          --      27,447          --      35,000          --
Euro medium-term notes............     1.29%          65,020      13,704      23,474       7,239       7,785       4,928       7,890
Loans, principally from banks.....     3.67%         108,142      16,140      26,400      37,353      10,345       5,731      12,173
------------------------------------------------------------------------------------------------------------------------------------
Total.............................              (Yen)257,182 (Yen)29,844 (Yen)49,874 (Yen)85,465 (Yen)18,130 (Yen)53,806 (Yen)20,063
====================================================================================================================================

<CAPTION>
Interest rate and cross-currency swaps                                                        Millions of yen
------------------------------------------------------------------------------------------------------------------------------------
                               Average interest rate                                          Expected maturity date
                               ---------------------          ----------------------------------------------------------------------
                                    Receive  Pay     Total       2002        2003        2004        2005         2006    Thereafter
------------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>     <C>   <C>         <C>         <C>         <C>         <C>          <C>        <C>
Japanese yen interest rate swap...  0.47%   0.93% (Yen)66,637 (Yen) 1,556 (Yen)22,156 (Yen) 4,674 (Yen)33,169  (Yen)5,082 (Yen)   --
U.S. dollar interest rate swap....  6.13%   6.23%      77,848      40,197      23,002       9,106       3,197         918      1,428
Australian dollar interest
  rate swap.......................  5.34%   5.36%       3,043          --       3,043          --          --          --         --
Yen/US$ cross-currency swap.......  1.16%   6.39%      81,274      31,500      22,500       6,618       7,418       5,618      7,620
Yen/EUR cross-currency swap.......  1.42%   4.85%      10,500       4,000       2,000       3,000       1,500          --         --
Others............................                      3,490         770         708       1,744         218          19         31
------------------------------------------------------------------------------------------------------------------------------------
Total.............................               (Yen)242,792 (Yen)78,023 (Yen)73,409 (Yen)25,142 (Yen)45,502 (Yen)11,637 (Yen)9,079
====================================================================================================================================

<CAPTION>
Long-term debt excluding capital lease obligations (including due within one year) Thousands of U.S. dollars
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                    Expected maturity date
                                           Average                  ----------------------------------------------------------------
                                        interest rate      Total      2002       2003        2004      2005      2006     Thereafter
------------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>             <C>         <C>       <C>        <C>        <C>        <C>        <C>
U.S. dollar bonds......................      6.97%      $   171,215 $      -- $      --  $  106,556 $      --  $ 64,659   $       --
Japanese yen convertible
   debentures/debentured bonds.........      1.86%          495,611        --        --     217,833        --   277,778           --
Euro medium-term notes.................      1.29%          516,032   108,762   186,302      57,452    61,786    39,111       62,619
Loans, principally from banks..........      3.67%          858,270   128,095   209,524     296,453    82,103    45,484       96,611
------------------------------------------------------------------------------------------------------------------------------------
Total..................................                 $ 2,041,128 $ 236,857 $ 395,826  $  678,294 $ 143,889  $ 427,032  $  159,230
====================================================================================================================================

<CAPTION>
Interest rate and cross-currency swaps                                               Thousands of U.S. dollars
------------------------------------------------------------------------------------------------------------------------------------
                                   Average interest rate                               Expected maturity date
                                   ---------------------            ----------------------------------------------------------------
                                       Receive   Pay       Total      2002      2003        2004      2005       2006     Thereafter
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>      <C>     <C>         <C>       <C>       <C>         <C>        <C>        <C>
Japanese yen interest rate swap.......  0.47%   0.93%   $   528,865 $  12,349 $ 175,841 $    37,096 $ 263,246  $ 40,333     $     --
U.S. dollar interest rate swap........  6.13%   6.23%       617,841   319,024   182,555      72,270    25,373     7,286       11,333
Australian dollar interest rate swap..  5.34%   5.36%        24,151        --    24,151          --        --        --           --
Yen/US$ cross-currency swap...........  1.16%   6.39%       645,032   250,000   178,572      52,524    58,873    44,587       60,476
Yen/EUR cross-currency swap...........  1.42%   4.85%        83,333    31,746    15,873      23,809    11,905        --           --
Others................................                       27,699     6,111     5,619      13,841     1,730       151          247
------------------------------------------------------------------------------------------------------------------------------------
Total.................................                  $ 1,926,921 $ 619,230 $ 582,611 $   199,540 $ 361,127  $ 92,357     $ 72,056
====================================================================================================================================
</TABLE>

                                     -31-

<PAGE>

Ten-Year Summary
Komatsu Ltd. and Consolidated Subsidiaries

<TABLE>
<CAPTION>
                                                                                           Millions of yen
                                                                                      (except per share amounts)
                                                                     ----------------------------------------------------------
                                                                                          Years ended March 31
                                                                     ----------------------------------------------------------
                                                                          2001                  2000               1999
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                   <C>                <C>
For the fiscal period
Net sales.........................................................   (Yen)1,096,369        (Yen)1,055,654     (Yen)1,061,597
Cost of sales.....................................................          804,700               796,820            807,255
Income (loss) before income taxes, minority interests, equity
   in earnings and cumulative effect of accounting changes........           20,064                19,395             (9,604)
Net income (loss).................................................            6,913                13,395            (12,378)
     As percentage of sales.......................................              0.6%                  1.3%              (1.2)%
Capital expenditures..............................................           79,310                57,728            114,874
---------------------------------------------------------------------------------------------------------------------------------

At fiscal period-end
Total assets......................................................   (Yen)1,403,195        (Yen)1,375,280     (Yen)1,524,600
Working capital...................................................          203,233               221,517            256,039
Property, plant and equipment.....................................          438,795               397,534            440,706
Long-term debt--Less current maturities...........................          238,349               245,289            292,250
Shareholders' equity..............................................          474,257               490,454            495,643
     As percentage of total assets................................             33.8%                 35.7%              32.5%
---------------------------------------------------------------------------------------------------------------------------------

Per share data
Net income (loss) per share
     Basic........................................................  (Yen)      7.24        (Yen)    13.85        (Yen)(12.77)
     Diluted......................................................             7.24                 13.76             (12.77)
Cash dividends per share..........................................             6.00                  6.00               7.00
Shareholders' equity per share....................................           497.12                507.26             511.54
---------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                                            Yen per U.S. dollar
                                                                            ---------------------------------------------------
                                                                            2001                    2000             1999
-------------------------------------------------------------------------------------------------------------------------------
Other information
Exchange rate into U.S. dollars
   (per the Federal Reserve Bank of New York):
     At fiscal period-end.........................................         (Yen)126              (Yen)103           (Yen)118
     Average for the fiscal period................................              112                   110                128
     Range:
        High......................................................              126                   121                145
        Low.......................................................              106                   102                113
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

 1  Net income in 1994 includes the cumulative effect of accounting changes for
    postretirement benefits other than pensions and income taxes.
 2  Total assets and shareholders' equity after 1995 include the effect of
    adopting SFAS No. 115.
 3  In fiscal 1994, Komatsu America International Company, formerly Komatsu
    Dresser Company, was consolidated.
 4. Working capital in fiscal 2000 is restated retroactively, as we restated
    marketable securities to investment securities in fiscal 2001. (Refer to
    Note 1.(3))

                                     -32-

<PAGE>

<TABLE>
<CAPTION>
                                                          Millions of yen
                                                     (except per share amounts)
------------------------------------------------------------------------------------------------------------------------------------
                                                        Years ended March 31
------------------------------------------------------------------------------------------------------------------------------------
           1998              1997             1996                  1995             1994              1993              1992
------------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>              <C>                   <C>              <C>               <C>               <C>

     (Yen)1,104,077    (Yen)1,098,916     (Yen)999,327          (Yen)918,910     (Yen)845,853      (Yen)869,928        (Y)919,753
            826,627           827,665          763,045               702,416          649,512           662,408           689,039

             40,252            45,769           32,431                24,482           13,933            30,757            41,911
             19,241            18,160           14,291                10,225            1,303             3,037            10,898
                1.7%              1.7%             1.4%                  1.1%             0.2%              0.3%              1.2%
            123,026            70,604           47,499                41,492           30,032            47,156            73,771
------------------------------------------------------------------------------------------------------------------------------------


     (Yen)1,561,662    (Yen)1,512,730   (Yen)1,593,003        (Yen)1,541,972   (Yen)1,375,966    (Yen)1,323,960    (Yen)1,452,818
            212,096           228,404          260,296               254,992          221,274           249,419           230,751
            393,603           299,098          264,842               257,219          260,720           260,999           261,211
            196,898           163,590          140,208               140,550          142,578           207,027           222,088
            524,201           541,933          606,444               575,534          505,871           516,409           523,387
               33.6%             35.8%            38.1%                 37.3%            36.8%             39.0%             36.0%
------------------------------------------------------------------------------------------------------------------------------------


         (Yen)19.60        (Yen)18.26       (Yen)14.24              (Y)10.19        (Yen)1.30         (Yen)3.03        (Yen)10.81
              19.32             18.02            14.10                 10.19             1.30              3.03             10.81
               8.00              8.00             8.00                  8.00             8.00              8.00              8.00
             540.50            550.79           604.07                573.29           504.28            515.05            522.15
------------------------------------------------------------------------------------------------------------------------------------

                                                        Yen per U.S. dollar
------------------------------------------------------------------------------------------------------------------------------------
              1998              1997             1996                  1995             1994              1993              1992
------------------------------------------------------------------------------------------------------------------------------------


           (Yen)133          (Yen)124         (Yen)107              (Yen)087         (Yen)102          (Yen)115          (Yen)133
                124               113               96                    99              107               124               133

                133               124              107                   105              114               135               142
                115               105               84                    87              101               115               123
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                     -33-

<PAGE>

Consolidated Balance Sheets
Komatsu Ltd. and Consolidated Subsidiaries
March 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                                                        Thousands of
                                                                                                                        U.S. dollars
                                                                                       Millions of yen                    (Note 1)
                                                                                   -----------------------              ------------
Assets                                                                             2001               2000                   2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                <C>                   <C>
Current assets
Cash and cash equivalents (Note 1).....................................         (Yen)39,760        (Yen)80,476          $   315,556
Time deposits (Note 8).................................................               1,110                915                8,809
Trade notes and accounts receivable, less allowance
   for doubtful receivables of (Yen)10,998 million
   ($87,286 thousand) in 2001 and (Yen)12,208 million
   in 2000 (Notes 3 and 8).............................................             394,658            368,452            3,132,206
Inventories (Notes 1 and 4)............................................             255,801            209,089            2,030,167
Deferred income taxes and other current assets
   (Notes 1 and 13)....................................................              94,799             93,347              752,373
------------------------------------------------------------------------------------------------------------------------------------
Total current assets...................................................             786,128            752,279            6,239,111
------------------------------------------------------------------------------------------------------------------------------------



Investments
Investments in and advances to affiliated companies
   (Notes 1 and 6).....................................................              24,531             26,846              194,690
Investment securities (Notes 1, 5 and 19)..............................              68,788            116,154              545,937
Other..................................................................               1,860              7,982               14,762
------------------------------------------------------------------------------------------------------------------------------------
Total investments......................................................              95,179            150,982              755,389
------------------------------------------------------------------------------------------------------------------------------------



Land and buildings held for sale--at the lower of cost
   or market (including projects in progress)..........................              12,809             17,503              101,659
------------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment--less accumulated
   depreciation (Notes 1, 7, 8 and 14).................................             438,795            397,534            3,482,500
------------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes (Notes 1 and 13).................................              20,228             17,495              160,540
------------------------------------------------------------------------------------------------------------------------------------
Other assets (Note 10).................................................              50,056             39,487              397,269
------------------------------------------------------------------------------------------------------------------------------------
                                                                             (Yen)1,403,195     (Yen)1,375,280          $11,136,468
====================================================================================================================================
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.

                                     -34-

<PAGE>

<TABLE>
<CAPTION>
                                                                                                                   Thousands of
                                                                                                                   U.S. dollars
                                                                                       Millions of yen               (Note 1)
                                                                                   -----------------------         ------------
Liabilities and Shareholders' Equity                                               2001               2000             2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                <C>           <C>
Current liabilities
Short-term debt (Notes 8 and 9)...........................................     (Yen)196,111       (Yen)160,664  $    1,556,436
Current maturities of long-term debt (Notes 8, 9, 14 and 19)..............           34,026             54,306         270,048
Trade notes and accounts payable..........................................          209,526            184,624       1,662,905
Income taxes payable (Note 13)............................................           11,598             12,792          92,048
Deferred income taxes and other current liabilities
   (Notes 1 and 13).......................................................          131,634            118,376       1,044,714
------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities.................................................          582,895            530,762       4,626,151
------------------------------------------------------------------------------------------------------------------------------------

Long-term debt (Notes 8, 9, 14 and 19)....................................          238,349            245,289       1,891,659
------------------------------------------------------------------------------------------------------------------------------------
Liability for pension and postretirement benefits (Notes 1 and 10)........           54,110             55,406         429,444
------------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes (Notes 1 and 13)....................................            4,317             23,500          34,262
------------------------------------------------------------------------------------------------------------------------------------
Minority interests........................................................           49,267             29,869         391,008
------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Note 17)


Shareholders' equity (Notes 1 and 11)
Common stock,(Y)50 par value--
     Authorized, 3,955,000,000 shares in 2001 and
        3,965,000,000 shares in 2000;
     Issued and outstanding, 958,921,701 shares in 2001 and
        968,921,701 shares in 2000........................................           67,870             68,370         538,651
Capital surplus...........................................................          117,418            117,366         931,889
Retained earnings:
     Appropriated for legal reserve.......................................           20,718             20,431         164,429
     Unappropriated.......................................................          300,499            305,483       2,384,912
Accumulated other comprehensive income (loss)
   (Notes 1, 5, 10 and 12)................................................          (29,204)           (19,590)       (231,778)
Treasury stock at cost, 4,911,812 shares in 2001
   and 2,180,000 shares in 2000 (Note 11).................................           (3,044)            (1,606)        (24,159)
------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity................................................          474,257            490,454       3,763,944
------------------------------------------------------------------------------------------------------------------------------------
                                                                             (Yen)1,403,195     (Yen)1,375,280  $   11,136,468
====================================================================================================================================
</TABLE>

                                     -35-


<PAGE>

<TABLE>
<CAPTION>
Consolidated Statements of Income
Komatsu Ltd. And Consolidated Subsidiaries
Years ended March 31, 2001, 2000 and 1999                                                                          Thousands of
                                                                                                                   U.S. dollars
                                                                                Millions of yen                      (Note 1)
                                                                 -----------------------------------------------  --------------
                                                                       2001             2000             1999          2001
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>              <C>            <C>
Revenues
Net sales (Notes 1 and 6)......................................  (Yen)1,096,369   (Yen)1,055,654   (Yen)1,061,597  $ 8,701,341
Interest and other income......................................          30,718           55,857           25,655      243,794
--------------------------------------------------------------------------------------------------------------------------------
Total..........................................................       1,127,087        1,111,511        1,087,252    8,945,135
--------------------------------------------------------------------------------------------------------------------------------

Costs and expenses (Notes 14 and 15)
Cost of sales..................................................         804,700          796,820          807,255    6,386,508
Selling, general and administrative............................         263,854          241,516          250,061    2,094,079
Interest.......................................................          22,194           24,392           21,219      176,143
Other..........................................................          16,275           29,388           18,321      129,167
--------------------------------------------------------------------------------------------------------------------------------
Total..........................................................       1,107,023        1,092,116        1,096,856    8,785,897
--------------------------------------------------------------------------------------------------------------------------------

Income (loss) before income taxes, minority
   interests and equity in earnings............................          20,064           19,395           (9,604)     159,238
--------------------------------------------------------------------------------------------------------------------------------
Income taxes (Notes 1 and 13)
Current........................................................          20,952           18,158           19,083      166,286
Deferred.......................................................          (7,237)          (8,208)         (17,022)     (57,437)
--------------------------------------------------------------------------------------------------------------------------------
Total..........................................................          13,715            9,950            2,061      108,849
--------------------------------------------------------------------------------------------------------------------------------
Income (loss) before minority interests
   and equity in earnings......................................           6,349            9,445          (11,665)      50,389

Minority interests in income (loss) of
   consolidated subsidiaries...................................             179             (88)            6,862        1,421

Equity in earnings (losses) of affiliated
   companies...................................................             385            4,038           (7,575)       3,055
--------------------------------------------------------------------------------------------------------------------------------

Net income (loss)..............................................  (Yen)    6,913   (Yen)   13,395   (Yen)  (12,378) $    54,865
================================================================================================================================
                                                                                      Yen                             U.S. cents
                                                                 -----------------------------------------------    --------------

Net income (loss) per share (Notes 1 and 16):
     Basic.....................................................  (Yen)     7.24   (Yen)    13.85      (Yen) (12.77)        5.7(cent)
     Diluted...................................................            7.24            13.76            (12.77)        5.7
Dividends per share (Note 1)...................................            6.00             6.00              7.00         4.8
================================================================================================================================
</TABLE>

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

                                     -36-

<PAGE>

<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
Komatsu Ltd. And Consolidated Subsidiaries
Years ended March 31, 2001, 2000 and 1999                                                                           Thousands of
                                                                                                                    U.S. dollars
                                                                                   Millions of yen                     (Note 1)
                                                                      ---------------------------------------  -------------------
                                                                           2001          2000           1999             2001
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>             <C>             <C>          <C>
Common stock
Balance, beginning of year..........................................   (Yen)  68,370   (Yen)  68,370   (Yen)  68,416   $  542,619
Purchase and retirement of common stock:
   10,000,000 shares in 2001 and
   921,000 shares in 1999...........................................            (500)             --             (46)      (3,968)
----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year................................................   (Yen)  67,870   (Yen)  68,370   (Yen)  68,370   $  538,651
==================================================================================================================================

Capital surplus
Balance, beginning of year..........................................   (Yen) 117,366   (Yen) 117,083   (Yen) 116,981   $  931,476
Sales of treasury stock.............................................              52             283             102          413
Balance, end of year................................................   (Yen) 117,418   (Yen) 117,366   (Yen) 117,083   $  931,889
==================================================================================================================================

Retained earnings
Appropriated for legal reserve
Balance, beginning of year..........................................   (Yen)  20,431   (Yen)  20,200   (Yen)  19,921   $  162,151
Transfer from unappropriated retained earnings......................             287             231             279        2,278
----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year................................................   (Yen)  20,718   (Yen)  20,431   (Yen)  20,200   $  164,429
==================================================================================================================================

Unappropriated retained earnings
Balance, beginning of year..........................................   (Yen) 305,483   (Yen) 298,122   (Yen) 319,054   $2,424,468
Net income (loss)...................................................           6,913          13,395         (12,378)      54,865
Cash dividends paid.................................................          (5,770)         (5,803)         (7,751)     (45,794)
Transfer to retained earnings appropriated for legal reserve........            (287)           (231)           (279)      (2,278)
Purchase and retirement of common stock.............................          (5,840)             --            (524)     (46,349)
----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year................................................   (Yen) 300,499   (Yen) 305,483   (Yen) 298,122   $2,384,912
==================================================================================================================================

Accumulated other comprehensive income (loss)
Balance, beginning of year..........................................   (Yen) (19,590)  (Yen)  (7,436)  (Yen)    (171)  $ (155,476)
Other comprehensive income (loss) for the year, net of tax..........          (9,614)        (12,154)         (7,265)     (76,302)
----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year................................................   (Yen) (29,204)  (Yen) (19,590)  (Yen)  (7,436)  $ (231,778)
==================================================================================================================================

Treasury stock
Balance, beginning of year..........................................   (Yen)  (1,606)  (Yen)    (696)  (Yen)      --   $  (12,746)
Purchase of treasury stock..........................................          (1,956)           (925)         (1,175)     (15,524)
Sales of treasury stock.............................................             518              15             479        4,111
----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year................................................   (Yen)  (3,044)  (Yen)  (1,606)  (Yen)    (696)  $  (24,159)
==================================================================================================================================
Total shareholders' equity..........................................   (Yen) 474,257   (Yen) 490,454   (Yen) 495,643   $3,763,944
==================================================================================================================================

Disclosure of comprehensive income (loss)
Net income (loss) for the year......................................   (Yen)   6,913   (Yen)  13,395   (Yen) (12,378)  $   54,865
Other comprehensive income (loss) for the year, net of tax..........          (9,614)        (12,154)         (7,265)     (76,302)
----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) for the year............................   (Yen)  (2,701)  (Yen)   1,241   (Yen) (19,643)  $  (21,437)
==================================================================================================================================
</TABLE>

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

                                     -37-
<PAGE>

<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Komatsu Ltd. And Consolidated Subsidiaries
Years ended March 31, 2001, 2000 and 1999                                                                             Thousands of
                                                                                                                      U.S. dollars
                                                                                     Millions of yen                     (Note 1)
                                                                         ----------------------------------------   ---------------
                                                                            2001           2000            1999            2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>            <C>             <C>
Operating activities
Net income (loss)....................................................   (Yen)  6,913   (Yen) 13,395   (Yen) (12,378)    $   54,865
Adjustments to reconcile net income (loss) to net
   cash provided by operating activities:
     Depreciation and amortization...................................         65,106         63,690          55,376        516,714
     Reversal for deferred income taxes..............................         (7,237)        (8,208)        (17,022)       (57,437)
     Net loss (gain) from marketable securities and investments......        (11,991)       (16,993)          4,679        (95,167)
     Gain on sale of property........................................         (3,440)       (23,777)         (7,912)       (27,302)
     Loss on disposal or sale of fixed assets........................          5,565         14,367           6,418         44,167
     Impairment loss on long-lived assets............................          4,337          4,474              --         34,421
     Provision (reversal) for postretirement benefits, net...........          5,467        (10,920)         (9,282)        43,389
Changes in assets and liabilities:
     Decrease (increase) in trade receivables........................          3,874        (13,448)         60,293         30,746
     Decrease (increase) in inventories..............................         (3,899)        13,683          (2,803)       (30,944)
     Increase (decrease) in trade payables...........................          8,652          4,065         (47,541)        68,667
     Increase (decrease) in income taxes payable.....................          2,641         (1,075)          5,304         20,960
Other, net...........................................................         (6,012)        (5,029)           (786)       (47,714)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities............................         69,976         34,224          34,346        555,365
------------------------------------------------------------------------------------------------------------------------------------

Investing activities
Capital expenditures.................................................        (60,046)       (57,728)       (114,874)      (476,555)
Proceeds from sales of property......................................         20,452         37,584          14,069        162,317
Proceeds from sales of marketable securities and investments.........         54,621        137,278          50,929        433,500
Purchases of marketable securities and investments...................        (42,222)       (98,218)        (21,122)      (335,095)
Acquisition or sale of subsidiaries..................................         (8,994)            --          (3,940)       (71,381)
Collection of loan receivables.......................................          3,034          5,066          13,441         24,079
Disbursement of loan receivables.....................................         (1,983)        (4,930)        (17,731)       (15,738)
Decrease (increase) in time deposits.................................             (4)          (172)         15,225            (32)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities..................        (35,142)        18,880         (64,003)      (278,905)
------------------------------------------------------------------------------------------------------------------------------------

Financing activities
Proceeds from long-term debt.........................................         29,503         19,798         140,708        234,151
Repayments on long-term debt.........................................        (80,123)       (21,663)        (47,638)      (635,897)
Decrease in short-term debt..........................................         (7,385)       (52,987)        (77,690)       (58,611)
Repayments of capital lease obligations..............................         (4,411)            --              --        (35,008)
Sales (repurchase) of common stock, net..............................         (7,677)          (910)         (1,015)       (60,928)
Dividends paid.......................................................         (5,770)        (5,803)         (7,751)       (45,794)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities..................        (75,863)       (61,565)          6,614       (602,087)
------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate change on cash and
   cash equivalents..................................................            313          1,636           1,082          2,484
------------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents............................        (40,716)        (6,825)        (21,961)      (323,143)
Cash and cash equivalents, beginning of year.........................         80,476         87,301         109,262        638,699
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year...............................   (Yen) 39,760   (Yen) 80,476   (Yen)  87,301     $  315,556
====================================================================================================================================
</TABLE>

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

                                     -38-
<PAGE>

Notes to Consolidated Financial Statements
Komatsu Ltd. and Consolidated Subsidiaries

1. Description of Business, Basis of Financial Statements and Summary of
   ---------------------------------------------------------------------
   Significant Accounting Policies
   -------------------------------

Description of Business

Komatsu Ltd. ("the Company") and consolidated subsidiaries (together "the
companies") manufacture and market primarily various types of construction and
mining equipment throughout the world, and also engage in manufacturing and
sales of electronics including semiconductor products, and other activities. The
semiconductor industry has historically been cyclical and has experienced
periodic downturns, which have had a material adverse effect on the
semiconductor industry's demand for semiconductor products manufactured and
marketed by the Company and certain subsidiaries.
     The consolidated net sales of the Company and consolidated subsidiaries for
the year ended March 31, 2001, consisted of the following:
     Construction and mining equipment--65.5%, Electronics--10.7%, Others--
23.8%.
     Sales are made principally under the Komatsu brand name, and are almost
entirely through sales subsidiaries and sales distributors. These subsidiaries
and distributors are responsible for marketing and distribution and primarily
sell to retail dealers in their geographical area. Of consolidated net sales in
2001, 46.5% were generated outside Japan, with 22.0% in the Americas, 11.5% in
Europe, 10.7% in Asia (excluding Japan) and Oceania, and 2.3% in the Middle East
and Africa.
     The manufacturing operations of the Company and consolidated subsidiaries
are conducted primarily at plants in Japan, the United States of America,
Germany, the United Kingdom, Brazil, Italy, China and Taiwan.

Basis of Financial Statements

The accompanying consolidated financial statements are stated in Japanese yen,
the currency of the country in which the Company is incorporated and principally
operates. The translation of Japanese yen amounts into United States dollar
amounts for the year ended March 31, 2001, is included solely for the
convenience of readers outside Japan and has been made at the rate of (Yen)126
to $1, the approximate rate of exchange prevailing at the Federal Reserve Bank
of New York on March 30, 2001. Such translation should not be construed as a
representation that Japanese yen amounts could be converted into United States
dollars at the above or any other rate.
     The accompanying consolidated financial statements reflect certain
adjustments, not recorded in the companies' books, to present them in conformity
with accounting principles generally accepted in the United States of America,
modified for accounting for stock splits (Note 11). The major adjustments
include those relating to accounting for postretirement benefits, leases,
valuation losses of long-lived assets and accruals of certain expenses. Certain
reclassification have been made to prior year amounts to conform with current
year presentation.

Summary of Significant Accounting Policies

(1)  Consolidation and Investments in Affiliated Companies

The consolidated financial statements include the accounts of the Company and
all of its majority-owned domestic and foreign subsidiaries, except for certain
minor subsidiaries.
     In 2000, the Company increased its ownership in certain affiliated
companies namely Komatsu Forklift Co., Ltd., and three other companies and newly
invested in a company, and those companies became consolidated subsidiaries. In
addition, the Company established a consolidated subsidiary and an affiliated
company and acquired two U.S. companies (100% owned subsidiaries) which were
accounted for by the purchase method during fiscal 2001.
     The Company sold major part of ownership of certain consolidated
subsidiaries namely Komatsu Soft Ltd., Komatsu Construction Ltd. and one other
consolidated subsidiary and those companies were excluded from consolidated
subsidiaries during fiscal 2001.
     In 1999, the Company increased its ownership in certain affiliated
companies namely Komatsu Zenoah Co., Komatsu Mining Germany GmbH and three other
companies and those companies became consolidated subsidiaries as of March 31,
1999.
     The accounts of certain foreign consolidated subsidiaries have been
included on the basis of fiscal periods ended three months or less prior to
March 31.
     Investments in 20% to 50%-owned affiliated companies and certain minor
subsidiaries not consolidated are, with minor exceptions, accounted for by the
equity method. All significant intercompany transactions have been eliminated.
The excess cost of investments in the subsidiaries and affiliated companies over
their equity in the net assets at the dates of acquisition is generally being
amortized on a straight-line method over the estimated periods benefited, not
exceeding periods of 10 years.

(2)  Translation of Foreign Currency Accounts

Under the provisions of Statement of Financial Accounting Standards ("SFAS") No.
52, "Foreign Currency Transaction," assets and liabilities are translated at the
exchange rates in effect at each fiscal year-end, and income and expenses are
translated at the average rates of exchange prevailing during each fiscal year
in translating the financial statements of overseas subsidiaries. The resulting
translation adjustments are accumulated in a separate component of the
accumulated other comprehensive income (loss) in the accompanying consolidated
balance sheets.

(3) Investment Securities

In compliance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company has categorized noncurrent marketable equity
securities and debt securities as investment securities available for

                                     -39-
<PAGE>

sale which are stated at fair value. In fiscal 2001, the Company determined that
the classification of certain investment securities as current assets at March
31, 2000 should be changed. These securities related primarily to investments
made for the purpose of longer-term business affiliations and relationships. As
a result, the Company has restated the previously reported balance sheet at
March 31, 2000 by reclassifying investment securities of (Yen)40,219 million
from marketable securities included in current assets to noncur-rent investment
securities. There was no impact on results of operations or financial position.

(4) Inventories

Inventories, consisting of finished products including finished parts held for
sale, work in process, and materials and supplies, are stated at the lower of
cost or market. Cost is determined by the last-in, first-out method for finished
parts held for sale and by using actual costs accumulated under a job-order-cost
system for other finished products and work in process. Cost of materials and
supplies represents average cost.

(5) Property, Plant and Equipment, and Related Depreciation

Property, plant and equipment are stated at cost. Depreciation is computed
principally using the declining-balance method at rates based on the estimated
useful lives of the assets. Effective rates of depreciation for buildings,
machinery and equipment for the years ended March 31, 2001, 2000 and 1999, are
as follows:

                                               2001    2000     1999
--------------------------------------------------------------------
Buildings.....................................   8%      8%       8%
Machinery and equipment.......................  24%     25%      23%
--------------------------------------------------------------------

     Certain leased machinery and equipment are accounted for as capital leases
in conformity with SFAS No. 13, "Accounting for Leases," from the fiscal year
ended March 31, 2001. The aggregate cost included in property, plant and
equipment and related accumulated depreciation as of March 31, 2001 were as
follows:

                                                        Thousands of
                                       Million of yen   U.S. dollars
-----------------------------------------------------  -------------
Aggregate cost.......................  (Yen)19,264          $152,889
Accumulated depreciation.............        4,430            35,159
--------------------------------------------------------------------

    Ordinary maintenance and repairs are charged to income as incurred. Major
replacements and improvements are capitalized. When properties are retired or
otherwise disposed of, the property and related accumulated depreciation
accounts are relieved of the applicable amounts and any differences are included
in other income or expenses.

(6) Revenue Recognition

The companies recognize revenue from product sales at the time when title and
risk of all ownership is transferred to independently owned and operated dealers
or customers, which typically occurs when products are received and accepted by
the customers for major products such as construction equipment and electronics
products, and upon shipment for parts and certain other products. Lease revenues
are recognized in the period earned.
    In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No.101 ("SAB101"), "Revenue Recognition in Financial
Statements". SAB101, as amended, summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition and
provides guidance on revenue recognition issues. The companies adopted SAB101 in
the year ended March 31, 2001 and adoption of this guidance did not have a
material impact on the consolidated financial position or results of operation.
    In fiscal 2001, Komatsu Construction Ltd., a consolidated subsidiary, was
sold by the Company to a third party engaged in construction operation in Japan.
Related income from short-term construction contracts and long-term construction
contracts was generally recognized under the completed-contract method and the
percentage-of-completion method, respectively, prior to the sale of that
consolidated subsidiary.

(7) Income Taxes

In accordance with SFAS No. 109, "Accounting for Income Taxes," the deferred tax
provision is determined by the asset and liability method. Under this method,
deferred tax assets and liabilities are recognized based on temporary
differences between financial statement and tax bases of assets and liabilities
using enacted tax rates as of each balance-sheet date. On March 31, 1999, new
income tax rates, effective April 1, 1999, were enacted. The effect on deferred
tax assets and liabilities of changes in tax rates was recognized in income on
the enactment date.
    The companies compute and record income taxes currently payable based on
their separate determinations of taxable income which may be different from
accounting income.
    Provision for income taxes is not recorded for undistributed earnings of
foreign subsidiaries and affiliated companies because the Company considers that
such earnings are permanently reinvested and/or would not result in material
additional taxation should they be distributed to the Company under current
circumstances.

(8) Postretirement Benefits

The defined benefit plans are accounted for in accordance with SFAS No. 87,
"Employers' Accounting for Pensions," except for certain subsidiaries' pension
plans which in the aggregate are not significant. Certain domestic subsidiaries
also have local severance payment plans under which accrued severance
liabilities are stated on the vested benefits obligation basis, which is the
amount required to be paid if all eligible employees voluntarily terminated
their employment as of the balance-sheet date.
    The Company adopted SFAS No. 132, "Employers' Disclosure about Pensions and
Other Postretirement Benefits,"

                                     -40-
<PAGE>

in the year ended March 31, 1999. SFAS No. 132 revised employers' disclosures
about pension and other postretirement benefit plans. SFAS No. 132 did not
change the recognition or measurement of those plans and did not affect the
Company's consolidated financial position and results of operations.

(9) Free Share Distribution

The Commercial Code of Japan permits Japanese companies, upon approval by the
Board of Directors, to issue shares, in the form of a stock split, to
shareholders to the extent that the aggregate par value of the shares to be
distributed does not exceed the excess of the common stock account over the par
value of shares issued and outstanding (Note 11).

(10) Per Share Data

Basic net income (loss) per share has been computed by dividing net income
(loss) by the weighted-average number of common shares outstanding during each
fiscal year, after deducting treasury shares. Diluted net income (loss) per
share reflects the potential dilution and has been computed on the basis that
all convertible bonds were converted at the beginning of the year to the extent
that it is not antidilutive.
    Dividends per share shown in the accompanying consolidated statements of
income have been presented on an accrual basis and include, in each fiscal year
ended March 31, dividends approved or to be approved by shareholders after such
date, but applicable to the year then ended.

(11) Consolidated Statements of Cash Flows

For the purposes of the consolidated statements of cash flows, cash and cash
equivalents include highly liquid investments with an original maturity of three
months or less to be cash equivalents.

(12) Derivative Financial Instruments

The companies use various derivative financial instruments to manage their
interest rate and foreign currency exchange exposure. In determining whether
these instruments qualify as a hedge, the companies use hedge criteria that
include their effectiveness to reduce risk, specific identification of the asset
or liability being hedged and the time horizon being hedged.

Financial Instruments Qualifying as Hedge

The companies enter into interest rate swap and cap agreements as a means of
managing their rate exposures. Interest differentials on those interest rate
swaps are accrued as interest rate change over the contract period. Premiums
paid for interest rate caps are amortized over the life of contracts and are
expensed as a part of interest expense.
    The companies also enter into forward exchange contracts and swaps to hedge
foreign currency exposure arising from foreign currency assets and liabilities
and sales commitments.
    Gains and losses on the foreign exchange contracts are recognized based on
changes in exchange rates, and are offset by corresponding foreign exchange
gains or losses on such assets and liabilities being hedged.
    Gains and losses on the forward exchange contracts to hedge foreign currency
commitments are deferred and included in the measurement of the related
transactions, unless it is estimated that such deferral would lead to
recognizing losses in later periods.

Financial Instruments Not Qualifying as Hedge

In May 1999, the Company entered into interest rate swap contracts with the
notional amount of (Yen)40,000 million as a means of managing the Company and
its group companies' interest rate exposures. During fiscal 2001, a consolidated
subsidiary also entered into interest rate swap contract with the notional
amount of (Yen)600 million ($4,762 thousand) for the purpose of managing
interest rate exposure of future borrowing. Those contracts did not meet the
hedge criteria. Accordingly, those interest rate swaps were recorded in the
accompanying consolidated balance sheets at their fair value as of March 30,
2001 and March 31, 2000, and the resultant losses of (Yen)365 million ($2,897
thousand) and gains of (Yen)401 million from those interest rate swaps were
recognized in the accompanying consolidated statements of income for the year
ended March 31, 2001 and 2000, respectively.

(13) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," the long-lived assets and
certain identifiable intangibles to be held and used by the companies are
reviewed for impairment based on a cash flow analysis of related operations
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Long-lived assets and certain identifiable
intangibles to be disposed of are reported at the lower of carrying amount or
fair value less cost to sell.
    In fiscal 2001 and 2000, the Company recorded impairment losses on
long-lived asset, related to temporarily idle production facilities due to the
sluggish market, at its wholly owned subsidiary in the electronics segment. Such
impairment losses were calculated using the best estimate of discounted future
cash flows based on the assumption to continue its operation. However, because
of uncertainties in management's best estimate of future cash flows based on the
assumption to continue its operation, the actual result with regard to losses of
long-lived assets may have a materially unfavorable impact on the Company if the
assumption of cash flow projection is changed in future.
    On November 9, 1998, the Company announced its plans to restructure the
domestic manufacturing plants for construction equipment, which also covered
some of the group companies. Under such plans, the Company has been combining
the manufacturing facilities of certain manufacturing plants of the Company and
certain consolidated subsidiaries in order to achieve optimal manufacturing
operations by improving the productivity of manufacturing through disposal of
certain properties on a consolidated basis. This restructuring plan was
completed during the year ended March 31, 2001.

                                     -41-
<PAGE>

    As part of this restructuring plan, specified manufacturing facilities of
certain consolidated subsidiaries were disposed of during fiscal 2000. Disposal
losses of (Yen)196 million and (Yen)1,000 million were charged to income in
fiscal 2000 and 1999, respectively.

(14) Comprehensive Income

The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in the year
ended March 31, 1999. Comprehensive income consists of net income, changes in
foreign currency translation adjustments, net unrealized holding gains on
securities available for sale and pension liability adjustments, and is included
in the consolidated statements of shareholders' equity. SFAS No. 130 requires
only additional disclosures in the consolidated financial statements and does
not affect the Company's consolidated financial position and results of
operations.

(15) Use of Estimates

The Company's management has made a number of estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses,
including impairment losses of long-lived assets and the disclosures of fair
value of financial instruments and contingent assets and liabilities to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from the estimates and assumptions.

(16) New Accounting Standards

In September 2000, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," a replacement of SFAS No. 125. SFAS No. 140
revises the standards for accounting for securitizations and requires certain
disclosures. SFAS No. 140 is effective for all transfers of financial assets
occurring after March 31, 2001, and for disclosures relating to securitization
transactions for fiscal years ending after December 15, 2000. The effect of
adopting SFAS No. 140 has been disclosed in Note 3.
    In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities as amended, in June 2000, by SFAS No. 138,
"Accounting for Certain Derivative Instrument and Certain Hedging Activities, an
amendment of FASB Statement No. 133." SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS No. 133 requires, as amended, that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income (loss),
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, depending on the type of hedge transaction. The ineffective
portion of all hedges will be recognized in earnings. SFAS No. 133, as amended
by SFAS No. 138, is effective for fiscal year beginning after June 15, 2000. The
Company adopted SFAS No. 133 and 138 for the year beginning April 1, 2001. As of
April 1, 2001, the adoption of the new accounting resulted in immaterial impact
to net income and a decrease to other comprehensive income (loss) of
approximately (Yen)670 million ($5,317 thousand).

2. Supplemental Cash Flow Information
--------------------------------------------------------------------------------

Additional cash flow information and noncash investing and financing activities
for the years ended March 31, 2001, 2000 and 1999, are as follows:

<TABLE>
<CAPTION>
                                                                                                                      Thousands of
                                                                                    Millions of yen                   U.S. dollars
                                                                      ------------------------------------------   ----------------
                                                                            2001          2000            1999            2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>            <C>             <C>
Additional cash flow information:
  Interest paid....................................................  (Yen)  22,385    (Yen)25,007    (Yen)  21,235     $   177,659
  Income taxes paid................................................         18,311         20,922           14,172         145,325
------------------------------------------------------------------------------------------------------------------------------------
Noncash investing and financing activities:
  Assets and liabilities of newly consolidated
   subsidiaries in fiscal 2001, 2000 and 1999 (Note 6):
        Fair value of assets acquired..............................  (Yen)(131,913)   (Yen)(9,021)   (Yen)(100,716)    $(1,046,929)
        Liabilities assumed........................................         92,628          6,478           67,746         735,143
        Less: Carrying amount of investment........................         13,083          1,501           10,807         103,833
              Minority interest....................................         17,930             97           13,111         142,302
        Net assets exceeding the carrying value....................         (8,272)          (945)          (9,052)        (65,651)
  Sale of subsidiaries in fiscal 2001:
        Proceed from sale of subsidiaries..........................          9,526             --               --          75,603
  Cash and cash equivalent balance of subsidiaries newly
   consolidated or sold............................................        (10,248)            945           5,112         (81,333)
                                                                     -------------------------------------------------------------
  Net effect on consolidated cash flow statements..................         (8,994)             --          (3,940)        (71,381)
------------------------------------------------------------------------------------------------------------------------------------
  Transfer of securities to pension fund...........................         11,250              --              --          89,286
  Decrease of postretirement obligation............................        (11,250)             --              --         (89,286)
------------------------------------------------------------------------------------------------------------------------------------
  Capital lease obligations incurred...............................         19,264              --              --         152,889
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                     -42-
<PAGE>

3. Trade Notes and Accounts Receivable
--------------------------------------------------------------------------------

The Company and certain of its consolidated subsidiaries follow the practice of
including installment and lease receivables due after one year (less unearned
interest) in current assets. Receivables due after one year (less unearned
interest) amounted to (Yen)67,243 million ($533,675 thousand) and (Yen)56,874
million at March 31, 2001 and 2000, respectively.
    Lease receivables represent receivables from customers for equipment leased
by Komatsu Forklift Co., Ltd., which became a consolidated subsidiary in fiscal
2001. These leases are accounted for as sales-type leases in conformity with
SFAS No. 13. Revenue from sales-type leases are recognized at the inception of
the lease.
    At March 31, 2001, lease receivables comprised the following:

                                                                   Thousands of
                                                Millions of yen    U.S. dollars
                                                ---------------    ------------
                                                      2001              2001
-------------------------------------------------------------------------------
Minium lease payments receivable..............   (Yen)16,624        $  131,937
Unearned income...............................        (1,536)          (12,190)
-------------------------------------------------------------------------------
Net lease receivables.........................   (Yen)15,088        $  119,747
===============================================================================

    The Company adopted SFAS No. 140 from fiscal 2001. The Company and its
consolidated subsidiaries sold trade notes and accounts receivable of
(Yen)282,431 million ($2,241,516 thousand) in securitization transactions during
fiscal 2001 and the related balance of outstanding sold notes and accounts
receivable as of March 31, 2001 amount to (Yen)127,155 million ($1,009,167
thousand). The receivables are removed from the accompanying consolidated
balance sheet and gross gain or loss is recognized for the difference between
the proceeds received and the net carrying value of the receivables sold.
    The Company and its consolidated subsidiaries retain servicing
responsibilities, however no contractual servicing fees are received from the
third parties. The investors and the securitization trusts have no or limited
recourse rights to the Company and its consolidated subsidiaries' assets in case
of debtors' default. Appropriate reserves have been established for potential
losses relating to the limited recourse of the sold receivables. Also the
Company and its consolidated subsidiaries except for a certain U.S. subsidiary,
as a transferor do not retain any interest in the receivables sold.
    A certain U.S. subsidiary retains the right to receive excess spread results
from the difference between the yield on the underlying receivables sold and the
interest paid on the underlying securities issued, of which the fair value is
subject to credit and prepayment risks on the transferred assets and amounted to
approximately (Yen)539 million ($4,278 thousand) under the following key
economic assumptions for fiscal 2001.

-----------------------------------------------------------------
Weighted-average life...............................   48 months
Prepayment speed over the life......................  1.4%
Expected credit losses over the life................  1.3%
Discount rate on cash flow..........................  6.6%
Variable returns to transferee......................  5.9%
-----------------------------------------------------------------

    In fiscal 2001, the Company and its consolidated subsidiaries recognized net
gains or losses from these securitizations of receivables, which were not
material.

4. Inventories
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
At March 31, 2001 and 2000, inventories comprised the following:                                                  Thousands of
                                                                                   Millions of yen                U.S. dollars
                                                                           -------------------------------        ------------
                                                                               2001               2000                 2001
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                <C>                 <C>
Finished products, including finished parts held for sale.........         (Yen)171,600       (Yen)138,230        $ 1,361,905
Work in process...................................................               52,162             45,376            413,984
Materials and supplies............................................               32,039             25,483            254,278
------------------------------------------------------------------------------------------------------------------------------
Total.............................................................         (Yen)255,801       (Yen)209,089        $ 2,030,167
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

5. Investment Securities
--------------------------------------------------------------------------------

Investment securities at March 31, 2001 and 2000, primarily consisted of
securities available for sale.

    The cost, gross unrealized holding gains and losses, and fair value for such
investment securities by major security types at March 31, 2001 and 2000, are as
follows:

<TABLE>
<CAPTION>
                                                                             Millions of yen
                                                         --------------------------------------------------------
                                                                         Gross unrealized holding
                                                                       ----------------------------
                                                            Cost           Gains          Losses       Fair value
-----------------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>            <C>            <C>
At March 31, 2001
Investment securities available for sale:
    Marketable debt securities......................     (Yen)   965    (Yen)    --    (Yen)    --    (Yen)   965
    Marketable equity securities....................          39,876         16,072          1,374         54,574
    Other investment securities.....................          13,249             --             --         13,249
-----------------------------------------------------------------------------------------------------------------
                                                         (Yen)54,090    (Yen)16,072    (Yen) 1,374    (Yen)68,788
-----------------------------------------------------------------------------------------------------------------
</TABLE>

                                     -43-
<PAGE>

<TABLE>
<CAPTION>
                                                                                   Millions of yen
                                                             ------------------------------------------------------------
                                                                               Gross unrealized holding
                                                                             ----------------------------
                                                                 Cost           Gains           Losses         Fair value
-------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>             <C>             <C>             <C>
At March 31, 2000
Investment securities available for sale:
   Marketable debt securities.............................   (Yen)    110    (Yen)      8    (Yen)     --    (Yen)    118
   Marketable equity securities...........................         61,239          45,170           1,016         105,393
   Other investment securities............................         10,643              --              --          10,643
-------------------------------------------------------------------------------------------------------------------------
                                                             (Yen) 71,992    (Yen) 45,178    (Yen)  1,016    (Yen)116,154
-------------------------------------------------------------------------------------------------------------------------

                                                                               Thousands of U.S. dollars
-------------------------------------------------------------------------------------------------------------------------
At March 31, 2001
Investment securities available for sale
   Marketable debt securities.............................     $    7,659      $       --      $      --       $    7,659
   Marketable equity securities...........................        316,476         127,556         10,905          433,127
   Other investment securities............................        105,151              --             --          105,151
-------------------------------------------------------------------------------------------------------------------------
                                                               $  429,286      $  127,556      $  10,905       $  545,937
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

    Maturities of marketable debt securities at March 31, 2001 and 2000
primarily fall within five years.
    Unrealized holding gains and losses are included as a component of
shareholders' equity until realized.
    Proceeds from the sales of marketable securities and investment securities
available for sale were (Yen)54,621 million ($433,500 thousand), (Yen)137,278
million and (Yen)50,929 million for the years ended March 31, 2001, 2000 and
1999, respectively.
    Net realized gains (losses) on the sales of marketable securities and
investment securities available for sale during the years ended March 31, 2001,
2000 and 1999, amounted to (Yen)11,991 million ($95,167 thousand), (Yen)16,993
million and (Yen)(4,679) million, respectively. They were included in the
determination of net income. The cost of the marketable securities and
investment securities sold was computed based on the average-cost method.
    In fiscal 2001, the Company contributed certain marketable equity
securities, not those of its subsidiaries and affiliated companies, to an
employee retirement benefit trust fully administrated and controlled by an
independent bank trustee, with no cash proceeds thereon. The transfer of the
available-for-sale securities has been accounted for as a sale in accordance
with SFAS No. 140 (a replacement of SFAS No. 125), and accordingly, the recorded
pension liability has been reduced by the fair market value of the transferred
securities. The fair market value of those securities at the time of
contribution was (Yen)11,250 million ($89,286 thousand), and net realized gain
of (Yen)1,955 ($15,516 thousand) from the transfer of those securities was
recognized and included in interest and other income in the accompanying
consolidated statement of income for the year ended March 31, 2001.

6. Investments in and Advances to Affiliated Companies
--------------------------------------------------------------------------------

At March 31, 2001 and 2000, investments in and advances to affiliated companies
comprised the following:

<TABLE>
<CAPTION>
                                                                                       Thousands of
                                                          Millions of yen              U.S. dollars
                                                    ---------------------------       --------------
                                                        2001            2000                 2001
----------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>               <C>
Investments in capital stock.....................   (Yen)19,603     (Yen)26,635         $  155,579
Advances.........................................         4,928             211             39,111
----------------------------------------------------------------------------------------------------
Total............................................   (Yen)24,531     (Yen)26,846         $  194,690
----------------------------------------------------------------------------------------------------
</TABLE>

    As of March 31, 2000, the companies owned a 39.2% interest in Komatsu
Forklift Co., Ltd., a public company in Japan which manufactured and distributed
forklift products. The carrying value of the companies' investment as of March
31, 2000, was(Yen)14,903 million, with corresponding quoted market values
of (Yen)5,228 million. In fiscal 2001, the Company acquired additional shares of
Komatsu Forklift Co., Ltd. and increased its ownership interest from 39.2% to
50.8%. As a result, Komatsu Forklift Co., Ltd. became a consolidated subsidiary
of the Company in fiscal 2001.
    Dividends received from affiliated companies were (Yen)515 million ($4,087
thousand), (Yen)324 million and (Yen)25 million during the years ended March 31,
2001, 2000 and 1999, respectively.
    Trade notes and accounts receivable from affiliated companies at March 31,
2001 and 2000, were (Yen)47,712 million ($378,667 thousand) and(Yen)44,050
million, respectively.
    Short-term loans receivable from affiliated companies at March 31, 2001 and
2000, were (Yen)16,447 million ($130,532 thousand) and (Yen)19,200 million,
respectively.

                                     -44-
<PAGE>

    Trade notes and accounts payable to affiliated companies at March 31, 2001
and 2000, were (Yen)5,819 million ($46,183 thousand) and (Yen)5,506 million,
respectively.
    Net sales for the years ended March 31, 2001, 2000 and 1999, included net
sales to affiliated companies in the amounts of (Yen)75,634 million ($600,270
thousand), (Yen)83,001 million and (Yen)87,643 million, respectively.
    Summarized financial information for affiliated companies at March 31, 2001
and 2000, and for the years ended March 31, 2001, 2000 and 1999, is as follows:

<TABLE>
<CAPTION>
                                                                                                          Thousands of
                                                                              Millions of yen             U.S. dollars
                                                                        ----------------------------     --------------
                                                                            2001            2000              2001
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>             <C>              <C>
Current assets......................................................    (Yen)149,589    (Yen)155,703      $  1,187,214
Net property, plant and equipment...................................          45,669          60,649           362,452
Other assets........................................................          13,914          32,792           110,429
-----------------------------------------------------------------------------------------------------------------------
Total assets........................................................    (Yen)209,172    (Yen)249,144      $  1,660,095
-----------------------------------------------------------------------------------------------------------------------
Current liabilities.................................................    (Yen)145,629    (Yen)153,662      $  1,155,786
Noncurrent liabilities..............................................          23,734          21,256           188,365
Shareholders' equity................................................          39,809          74,226           315,944
-----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity..........................    (Yen)209,172    (Yen)249,144      $  1,660,095
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                                         Thousands of
                                                                       Millions of yen                    U.S. dollars
                                                         --------------------------------------------   ---------------
                                                             2001           2000            1999              2001
-----------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>             <C>               <C>
Net sales.............................................   (Yen)240,256   (Yen)271,831    (Yen)259,870      $  1,906,794
-----------------------------------------------------------------------------------------------------------------------
Net income (loss).....................................   (Yen)  2,424   (Yen)  8,259    (Yen)(15,873)     $     19,238
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

    The summarized financial information as of and for the years ended March 31,
2000 and 1999 included the accounts of Komatsu Forklift Co., Ltd. and three
other companies, which were newly consolidated in fiscal 2001. The aggregated
total assets and shareholder's equity of these companies as of March 31, 2000
amounted to (Yen)78,510 million and (Yen)44,916 million, respectively. The
aggregated net sales of these companies for the year ended March 31, 2000 and
1999 amounted to (Yen)63,369 million and (Yen)64,497 million, and the aggregated
net loss of these companies amounted to (Yen)323 million and (Yen)4,240 million,
respectively.
    Also, the summarized financial information for the year ended March 31, 1999
included the accounts of Komatsu Zenoah Co., Komatsu Mining Germany GmbH, and
three other companies, which were newly consolidated in fiscal 1999. The
aggregate net sales and net losses of those consolidated companies for the year
ended March 31, 1999 would have amounted to (Yen)79,385 million and (Yen)717
million, respectively, if those companies were consolidated subsidiaries at the
beginning of fiscal 1999. The impact on net loss per share would not have been
material if those companies were consolidated at the beginning of fiscal 1999.
    The summarized financial information as of and for the years ended March 31,
2001 included the accounts of Komatsu Soft Ltd., which became an affiliated
company from a consolidated subsidiary at the beginning of the fiscal 2001. The
aggregated total assets and shareholders' equity of the affiliated company as of
March 31, 2001 amounted to (Yen)9,844 million ($78,127 thousand) and (Yen)4,245
million ($33,690 thousand), respectively, and aggregated net sales and net
income for the year ended March 31, 2001 amounted to (Yen)20,322 million
($161,286 thousand) and (Yen)367 million ($2,913 thousand), respectively.

7. Property, Plant and Equipment
--------------------------------------------------------------------------------

The major classes of property, plant and equipment at March 31, 2001 and 2000,
are as follows:

<TABLE>
<CAPTION>
                                                                                                  Thousands of
                                                                       Millions of yen            U.S. dollars
                                                               -------------------------------   --------------
                                                                    2001              2000            2001
---------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                <C>              <C>
Land......................................................... (Yen)   75,135     (Yen)  58,856     $    596,309
Buildings....................................................        304,925           270,961        2,420,040
Machinery and equipment......................................        602,767           533,075        4,783,865
Construction in progress.....................................         44,736            56,252          355,048
---------------------------------------------------------------------------------------------------------------
Total........................................................      1,027,563           919,144        8,155,262
Less: accumulated depreciation...............................       (588,768)         (521,610)      (4,672,762)
---------------------------------------------------------------------------------------------------------------
Net property, plant and equipment............................ (Yen)  438,795     (Yen) 397,534     $ (3,482,500
---------------------------------------------------------------------------------------------------------------
</TABLE>

                                     -45-

<PAGE>

8. Pledged Assets
--------------------------------------------------------------------------------

At March 31, 2001, assets pledged as collateral for short-term debt, long-term
debt and guarantee for debt are as follows:

<TABLE>
<CAPTION>
                                                                                                        Thousands of
                                                                                    Millions of yen     U.S. dollars
---------------------------------------------------------------------------------------------------    --------------
<S>                                                                                 <C>                 <C>
Time deposits.....................................................................    (Yen)    813        $   6,452
Trade notes and accounts receivable...............................................             132            1,048
Property, plant and equipment--Less accumulated depreciation......................          32,879          260,944
---------------------------------------------------------------------------------------------------------------------
Total.............................................................................    (Yen) 33,824        $ 268,444
---------------------------------------------------------------------------------------------------------------------
</TABLE>

The above pledged assets were classified by type of liabilities to which they
relate as follows:

<TABLE>
<CAPTION>
                                                                                                        Thousands of
                                                                                    Millions of yen     U.S. dollars
---------------------------------------------------------------------------------------------------    --------------
<S>                                                                                 <C>                 <C>
Liabilities appearing in the consolidated balance sheets as:
   Short-term debt................................................................    (Yen)  1,518        $  12,047
   Long-term debt.................................................................          31,313          248,516
Guarantee for debt................................................................             993            7,881
---------------------------------------------------------------------------------------------------------------------
Total.............................................................................    (Yen) 33,824        $ 268,444
---------------------------------------------------------------------------------------------------------------------
</TABLE>

9. Short-Term and Long-Term Debt
--------------------------------------------------------------------------------
Short-term debt primarily consisted of short-term bank loans. The
weighted-average annual interest rates applicable to short-term debt outstanding
at March 31, 2001 and 2000, were 4.1% and 2.4%, respectively. The Company and
certain consolidated subsidiaries have unused committed lines of credit
amounting to (Yen)54,836 million ($435,206 thousand) with certain financial
institutions at the end of fiscal 2001.
    Long-term debt at March 31, 2001 and 2000, consisted of the following:

<TABLE>
<CAPTION>
                                                                                                                       Thousands of
                                                                                         Millions of yen               U.S. dollars
                                                                                   ----------------------------       --------------
                                                                                       2001            2000                2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>             <C>                <C>
Long-term debt with collateral (Note 8):
   Banks, insurance companies and other financial institutions,
    maturing serially through 2001-2014, weighted-average rate 5.5%
       Government-owned banks and government agencies............................  (Yen) 14,035    (Yen) 14,608          $  111,389
       Other.....................................................................         7,196           6,459              57,111
Long-term debt without collateral:
   Banks, insurance companies and other financial institutions,
    maturing serially through 2001-2022, weighted-average rate 3.3%..............        85,824         104,818             681,143
   Euro Medium-Term Notes with various interest rates maturing serially
    through 2001-2009............................................................        65,020          90,959             516,032
   6.9% Senior Notes due 2003 (payable in U.S. dollars)..........................        13,426          11,981             106,556
   1.8% Convertible Unsecured Bonds due 2004.....................................        27,447          27,447             217,833
   7.0% Senior Notes due 2005 (payable in U.S. dollars)..........................         8,147           7,270              64,659
   1.9% Unsecured Bonds due 2006.................................................        35,000          35,000             277,778
   Capital lease obligations (Note 14)...........................................        15,193              --             120,579
   Other.........................................................................         1,087           1,053               8,627
------------------------------------------------------------------------------------------------------------------------------------
Total............................................................................       272,375         299,595           2,161,707
Less: current maturities.........................................................       (34,026)        (54,306)           (270,048)
------------------------------------------------------------------------------------------------------------------------------------
Long-term debt...................................................................  (Yen)238,349    (Yen)245,289          $1,891,659
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

    The conversion price per share of the 1.8% convertible unsecured bonds at
March 31, 2001, was (Yen)971.2, which was subject to adjustments under certain
conditions. These bonds are redeemable anytime before maturity at the option of
the Company, at the initial redemption price of 103% of the principal as of
March 31, 2001.
    In 1996, the Company, Komatsu Finance America Inc., and Komatsu Finance
(Netherlands) B.V. (the "Issuers") registered the US$1.0 billion Euro Medium-
Term Note Program on the London Stock Exchange. On April 1, 1999, the registered
amounts of Euro Medium-Term Notes Program were increased to US$1.2 billion. On
March 31, 2000, Komatsu Australia Holdings Pty. Ltd., formerly Komatsu Australia
Pty. Ltd. was added as an issuer under the Program. Under the Program, each of
the issuers may from time to time issue notes denominated in any currency as may
be agreed between the relevant issuers and dealers. Komatsu Finance America Inc.
issued (Yen)7,000 million ($55,556 thousand) and US$0 million during fiscal
2001,

                                     -46-


<PAGE>

and (Yen)29,800 million and US$0 million during fiscal 2000 of Euro Medium-Term
Notes with various interest rates and maturity dates. Komatsu Finance
(Netherlands) B.V. issued (Yen)1,707 million ($13,548 thousand) during fiscal
2001, and (Yen)8,139 million during fiscal 2000 of Euro Medium-Term Notes with
various interest rates and maturity dates. To offset market risk exposure
arising from changes in foreign exchange rates and interest rates on debts under
the Program, cross-currency interest rate swap and interest rate swap contracts
are utilized. The cross-currency interest rate swap contracts effectively
convert yen-denominated debts and related interest into U.S. dollar and Euro
obligations.
    U.S. dollar interest rates are based on three month LIBOR with borrowing
spreads of LIBOR minus 0.10% to LIBOR plus 0.59% for the years ended March 31,
2001 and 2000, respectively, depending upon the contract. The floating interest
rates for fiscal 2001 and 2000 ranged from 6.39% to 7.34% and 4.87% to 6.69%,
respectively.
    The companies have also entered into interest rate and currency swap
agreements for certain long-term debts (Note 18).
    As is customary in Japan, substantially all bank loans are made under
agreements which provide that the banks may require, under certain conditions,
the borrower to provide collateral, additional collateral or guarantors for its
loans.
    Lending banks have a right to offset cash deposited with them against any
debt or obligation that becomes due and, in the case of default and certain
other specified events, against all other debt payable to the banks.
    Under certain loan agreements, the lender may require the borrower to submit
proposals for the payment of dividends and other appropriations of earnings for
the lender's review and approval before presentation to the shareholders. The
companies have never received such a request.
    Annual maturities of long-term debt subsequent to March 31, 2001, are as
follows:

                                                        Thousands of
Year ending March 31               Millions of yen      U.S. dollars
--------------------------------------------------      ------------
2002............................      (Yen) 34,026        $  270,048
2003............................            53,419           423,960
2004............................            88,427           701,802
2005............................            19,918           158,080
2006............................            54,826           435,127
2007 and thereafter.............            21,759           172,690
--------------------------------------------------------------------
Total...........................      (Yen)272,375        $2,161,707
====================================================================

10. Liability for Pension and Other Postretirement Benefits
================================================================================

The Company's employees, with certain minor exceptions, are covered by a
severance payment and pension plan. The plan provides that 70% of the employee
benefits are payable as a pension payment, commencing upon retirement at age 60
(mandatory retirement age) and that the remaining benefits are payable as a
lump-sum severance payment based on remuneration, years of service and certain
other factors at the time of retirement. The plan also provides for lump-sum
severance payments, payable upon earlier termination of employment. The
Company's funding policy is to contribute semiannually the amounts to provide
not only for benefits attributed to service to date but also for those expected
to be earned in the future.
    Net periodic cost of the Company's plan for the years ended March 31, 2001,
2000 and 1999, included the following components:

<TABLE>
<CAPTION>
                                                                                                                    Thousands of
                                                                                     Millions of yen                U.S. dollars
                                                                        ------------------------------------------  ------------
                                                                            2001          2000            1999         2001
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>           <C>             <C>           <C>
Service cost--Benefits earned during the year........................   (Yen) 4,768   (Yen) 5,122     (Yen) 4,828   $   37,841
Interest cost on projected benefit obligation........................         3,826         3,907           4,428       30,365
Expected return on plan assets.......................................        (1,521)       (1,294)         (1,147)     (12,071)
Net amortization and deferral........................................         1,782         2,834           1,726       14,143
--------------------------------------------------------------------------------------------------------------------------------
Net periodic cost....................................................   (Yen) 8,855   (Yen)10,569     (Yen) 9,835   $   70,278
================================================================================================================================
</TABLE>

    The reconciliations of beginning and ending balances of the benefit
obligations and the fair value of the plan assets of the Company's plan are as
follows:

<TABLE>
<CAPTION>
                                                                                                                    Thousands of
                                                                                        Millions of yen             U.S. dollars
                                                                                ----------------------------------  ------------
                                                                                    2001             2000               2001
--------------------------------------------------------------------------------------------------------------------------------
<S>.........................................................................    <C>              <C>                <C>
Change in benefit obligation:
    Benefit obligation, beginning of year...................................    (Yen)123,429     (Yen)126,051       $   979,595
    Service cost............................................................           4,768            5,122            37,841
    Interest cost...........................................................           3,826            3,907            30,365
    Actuarial loss..........................................................            (526)           3,460            (4,174)
    Benefits paid...........................................................         (10,664)         (15,111)          (84,635)
--------------------------------------------------------------------------------------------------------------------------------
    Benefit obligation, end of year.........................................    (Yen)120,833     (Yen)123,429        $  958,992
================================================================================================================================
</TABLE>

                                     -47-
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                       Thousands of
                                                                                           Millions of yen             U.S. dollars
                                                                                   ------------------------------     --------------
                                                                                        2001            2000               2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>              <C>               <C>
Change in plan assets:
   Fair value of plan assets, beginning of year.................................   (Yen) 72,435     (Yen) 60,312      $   (574,881
   Actual return on plan assets.................................................         (5,499)           4,045           (43,643)
   Employer contribution........................................................         16,193           13,192           128,516
   Benefits paid................................................................         (4,884)          (5,114)          (38,762)
------------------------------------------------------------------------------------------------------------------------------------
   Fair value of plan assets, end of year.......................................   (Yen) 78,245     (Yen) 72,435      $    620,992
====================================================================================================================================

Funded status...................................................................   (Yen)(42,588)    (Yen)(50,994)     $   (338,000)
Unrecognized net loss...........................................................         26,854           21,251           213,127
Unrecognized net obligation at transition being recognized over 15 years........          2,351            3,133            18,659
Unrecognized prior service cost being recognized over 15 years..................          4,172            4,718            33,111
====================================================================================================================================
Net amount recognized...........................................................   (Yen) (9,211)    (Yen)(21,892)     $    (73,103)
====================================================================================================================================

Net amounts recognized in the consolidated balance sheets consist of:
   Liability for postretirement benefits........................................   (Yen)(28,532)    (Yen)(36,031)     $   (226,444)
   Intangible assets included in other assets...................................          6,523            7,851            51,770
   Amount included in accumulated other comprehensive
     income (loss), gross of tax................................................         12,798            6,288           101,571
------------------------------------------------------------------------------------------------------------------------------------
   Net amount recognized........................................................   (Yen) (9,211)    (Yen)(21,892)     $    (73,103)
====================================================================================================================================
</TABLE>

    Assumptions used in determining costs of the Company's plan and the funded
status information shown above are as follows:

                                           2001     2000    1999
----------------------------------------------------------------
Weighted-average discount rate             3.1%     3.1%    3.1%
Rate of increase in future
   compensation levels                     2.3%     2.1%    2.4%
Expected long-term rate of
   return on plan assets                   1.9%     2.3%    2.1%
----------------------------------------------------------------

    As described in Note 5, the Company contributed certain marketable equity
securities to an employee retirement benefit trust in fiscal 2001. The
securities held in this trust are qualified as plan assets under SFAS No.87.
    Certain foreign subsidiaries have various funded pension plans, of which the
plan assets and the projected benefit obligations are calculated under the
provisions of SFAS No. 87. The aggregated fair value of plan assets as of March
31, 2001 and 2000, was approximately (Yen)12,634 million ($100,270 thousand) and
(Yen)8,297 million, respectively, and the aggregated benefit obligations as of
March 31, 2001 and 2000, were approximately (Yen)10,767 million ($85,452
thousand) and (Yen)7,865 million, respectively. Discount rates of 3.0% to 10.0%
and expected long-term rates of return on plan assets of 7.0% to 9.0% were used
as assumptions in determining the actuarial value of benefit obligations for the
years ended March 31, 2001, 2000 and 1999.
    Certain domestic subsidiaries also have unfunded severance payment plans
and/or pension plans similar to those of the Company for their employees with
estimated projected benefit obligations of approximately (Yen)20,000 million
($158,730 thousand), and estimated accumulated benefit obligations of
approximately (Yen)17,000 million ($134,921 thousand) as of March 31, 2001 which
were approximately equal to the aggregated fair value of plan assets and
accruals. The amounts of net periodic costs of certain foreign and domestic
subsidiaries for the years ended March 31, 2001, 2000 and 1999, were (Yen)5,476
million ($43,460 thousand), (Yen)2,945 million and (Yen)2,901 million,
respectively.
    Directors of the Company and domestic subsidiaries are primarily covered by
unfunded retirement allowances plans.
    Under the unfunded plans described in the preceding paragraphs, the amounts
required if all employees and directors had voluntarily terminated their
employment at each balance-sheet date are fully accrued. The payments to
directors are subject to shareholders' approval.
    During fiscal 1999, the Company and certain consolidated subsidiaries
offered retirement incentive programs to employees. Expenses of (Yen)215 million
and (Yen)6,476 million under this program were charged to income in fiscal 2000
and 1999, respectively, and paid or accrued severance payments for the employees
who had accepted their entitlement to such programs up to March 31, 1999.
    Total expenses of all severance-payment and pension plan premiums charged to
income for the years ended March 31, 2001, 2000 and 1999, were (Yen)15,033
million ($119,310 thousand), (Yen)14,140 million and (Yen)17,015 million,
respectively. Total expenses of all severance payments for the years ended March
31, 2000 and 1999 included the additional severance payment under the retirement
incentive programs paid up to March 31, 2000.
    Certain foreign subsidiaries have postretirement benefit plans other than
pensions, which are primarily not funded. The accumulated postretirement benefit
obligation at March 31, 2001 and 2000, was (Yen)6,413 million ($50,897 thousand)

                                     -48-
<PAGE>

and (Yen)3,714 million, respectively, and the accrued post-retirement benefit
obligation at March 31, 2001 and 2000, was (Yen)3,512 million ($27,873 thousand)
and (Yen)2,955 million, respectively. The amounts of net periodic post-
retirement benefits other than pensions for the years ended March 31, 2001, 2000
and 1999, were not material.

11. Shareholders' Equity
================================================================================
(1) Common Stock and Capital Surplus
Under the Commercial Code of Japan ("the Code"), certain issuance of common
shares, including conversions of debt issued and exercises of warrants, are
required to be credited to the common stock account for at least the greater of
par value or 50% of the proceeds.
    The Code permits, upon approval of the Board of Directors, transfer of
amounts from capital surplus to the common stock. Pursuant to resolutions of the
Board of Directors, the Company from time to time has made free share
distributions (Note 1). Such free share distributions have been accounted for by
a transfer from capital surplus to common stock of the aggregate par value of
shares issued or no change in common stock and capital surplus. Publicly owned
corporations in the United States issuing shares in similar transactions would
be required to account for them as stock dividends as of the shareholders'
record date by reducing retained earnings and increasing appropriate capital
accounts by an amount equal to the fair value of the shares issued.
    If such United States practice had been applied to the cumulative free
distributions made by the Company, capital surplus at March 31, 2001, would have
been increased by (Yen)103,189 million ($818,960 thousand) with a corresponding
decrease in unappropriated retained earnings. If all convertible bonds were
converted at March 31, 2001, 28,260,914 shares of the Company's common stock
would be issuable. At March 31, 2001 and 2000, affiliated companies owned
1,575,357 and 4,368,021 shares of the Company's common stock, respectively.

(2) Retirement of the Company's Outstanding Shares
The Code permits a company to retire a portion of its outstanding shares upon
approval of the shareholders at the annual general shareholders' meeting or of
the Board of Directors if stipulated in the Articles of Corporation. On November
10, 1997, the Board of Directors passed a resolution approving the purchase and
the retirement of the outstanding shares of the Company up to a maximum
aggregate acquisition cost of (Yen)10,000 million and up to a maximum of
15,000,000 shares.
    By March 31, 1999, the Company purchased 15,000,000 shares based on the
resolution of the Board of Directors on November 10, 1997, and had retired
shares totaling (Yen)9,203 million in 1998 and (Yen)570 million in 1999.
    On May 2, 2000, the Board of Directors passed a resolution approving the
purchase and retirement of outstanding shares of the Company up to a maximum
aggregate acquisition cost of (Yen)7,000 million ($55,556 thousand) and up to a
maximum of 10,000,000 shares before the close of the next general shareholders'
meeting in 2001 as permitted by the Company's Articles of Corporation.
    By May 17, 2000, the Company purchased and retired 10,000,000 shares having
a market value of (Yen)6,340 million ($50,317 thousand) based on the resolution
of the Board of Directors on May 2, 2000.

(3) Appropriated for Legal Reserve
The Code provides that an amount at least equal to 10% of all cash payments
which are made as an appropriation of retained earnings applicable to each
fiscal period shall be appropriated as a legal reserve until such reserve equals
25% of the stated amount of capital stock. Legal reserve may be used to
eliminate or reduce a deficit by resolution of the shareholders or may be
transferred to common stock by resolution of the Board of Directors.

(4) Unappropriated Retained Earnings and Dividends
The amount of retained earnings available for dividends under the Code is based
on the amount recorded in the Company's general books of account maintained in
accordance with generally accepted Japanese accounting practices. The
adjustments included in the accompanying financial statements but not recorded
in the general books of account, as explained under "Basis of Financial
Statements" in Note 1, have no effect on the determination of retained earnings
available for dividends under the Code. In addition to the Code provision
requiring an appropriation for legal reserve as discussed above, the Code
imposes certain limitations on the amount of retained earnings available for
dividends. Retained earnings of (Yen)264,970 million ($2,102,937 thousand),
included in the Company's general books of account as of March 31, 2001, is not
restricted by the limitations under the Code.
    The Code permits transfers, upon approval of shareholders, of a portion of
unappropriated retained earnings available for dividends to capital stock
account without issuance of any shares. Dividends are approved by the
shareholders at the meeting held subsequent to the statutory fiscal period to
which the dividends are applicable. A semiannual interim dividend payment may be
made by resolution of the Board of Directors. Such dividends are payable to
shareholders of record at the end of each such fiscal or interim six-month
period.
    On June 27, 2001, the shareholders authorized payment of a cash dividend
totaling (Yen)2,866 million ($22,746 thousand) to shareholders of record on
March 31, 2001. In accordance with the Code, the declaration of this dividend
has not been reflected in the consolidated financial statements as of March 31,
2001. Dividends are reported in the Consolidated Statements of Shareholders'
Equity when paid.

                                     -49-
<PAGE>

(5) Stock Option Plan
On June 28, 2000, the shareholders authorized the acquisition of 1,200,000
shares of the Company's common stock for the total consideration not exceeding
(Yen)1,000 million ($7,937 thousand) during the period up to the close of the
following annual general shareholders' meeting in fiscal 2001. On June 29, 1999,
the shareholders authorized the acquisition of 1,200,000 shares of the Company's
common stock for the total consideration not exceeding (Yen)1,200 million during
the period up to the close of the following annual general shareholders' meeting
in fiscal 2000. On June 26, 1998, the shareholders authorized the acquisition of
1,000,000 shares of the Company's common stock for the total consideration not
exceeding (Yen)1,000 million during the period up to the close of the following
annual general shareholders' meeting in fiscal 1999. The Company intends to
transfer such treasury shares to directors and certain employees under an
agreement granting the right for them to request such transfers at a
predetermined price. The purchase price is set to equal an amount obtained by
multiplying by 1.05 an average of the closing prices applicable to ordinary
transactions of shares of the Company on the Tokyo Stock Exchange on all days
for a month immediately preceding the month in which the date of grant of the
right falls, provided that the exercise price shall not be less than the closing
price of the shares of the Company on the Tokyo Stock Exchange at the date of
the grant. Based on the resolutions of the shareholders' meeting on June 28,
2000, and June 29, 1999 and June 26, 1998, the Company acquired 1,200,000
shares, 1,200,000 shares and 1,000,000 shares of its common stock from the
market for the plan during the years ended March 31, 2001, 2000 and 1999,
respectively. The options vest 100% on each of the grant dates and were and will
be exercisable from July 1, 2001, 2000 and 1999, respectively.
    SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair
value based method of accounting for a stock option. This statement gives
entities a choice of recognizing related compensation expense by adopting the
new fair value method or to continue to measure compensation using the intrinsic
value approach under APB Opinion No. 25 ("Accounting for Stock Issued to
Employees"), the former standard. The Company chose to use the intrinsic value
measurement prescribed by APB Opinion No. 25 and no additional compensation cost
was incurred in fiscal 2001, 2000 and 1999. Had compensation cost for the
Company's stock option plans been determined consistent with SFAS No. 123, the
Company's net income (loss) and net income (loss) per share for the years ended
March 31, 2001, 2000 and 1999 would have been as follows:

<TABLE>
<CAPTION>
                                                                                                                   Thousands of
                                                                      Millions of yen                              U.S. dollars
                                                       --------------------------------------------                ------------
                                                          2001             2000            1999                        2001
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>            <C>                          <C>
Net income (loss)..................................    (Yen)6,637      (Yen)13,451    (Yen)(12,648)                $    52,675

                                                                           Yen                                      U.S. cents
                                                       --------------------------------------------                ------------
                                                          2001             2000            1999                        2001
-------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share
   Basic...........................................    (Yen) 6.95      (Yen) 13.60    (Yen) (13.05)                        5.5c
   Diluted.........................................          6.95            13.51          (13.05)                        5.5
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

    1.8% Japanese yen convertible bonds, due 2004, was excluded from the diluted
net income (loss) per share calculation for fiscal 2001 and 1999 because the
effect would have been antidilutive.
    The following table summarizes information about stock option activity for
fiscal 2001 and 2000:

<TABLE>
<CAPTION>
                                                                    Weighted average        Weighted
                                                   Number of         exercise price         average           Exercise price
                                                               -------------------------                    ------------------
                                                    shares       Yen        U.S. dollars  remaining life     Low        High
------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>         <C>          <C>           <C>               <C>       <C>
Outstanding at March 31, 1999...................   1,000,000   (Yen)700
Granted.........................................   1,200,000   (Yen)820
Exercised.......................................          --         --
Cancelled or Expired............................    (20,000)   (Yen)820
------------------------------------------------------------------------------------------------------------------------------
Outstanding at March 31, 2000...................   2,180,000   (Yen)765
Granted.........................................   1,200,000   (Yen)758      $    6.02
Exercised.......................................    (10,000)   (Yen)700      $    5.56
Cancelled or Expired............................          --         --
------------------------------------------------------------------------------------------------------------------------------
Outstanding at March 31, 2001...................   3,370,000   (Yen)763      $    6.06      4.22 years      (Yen)700  (Yen)820

[Exercisable at March 31, 2000].................   1,000,000   (Yen)700
[Exercisable at March 31, 2001].................   2,170,000   (Yen)765      $    6.07
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                     -50-
<PAGE>

    The fair value of these stock options was estimated using the Black-Scholes
option pricing model under the following assumptions:

                                  2001           2000            1999
------------------------------------------------------------------------
Grant-date fair value.....  (Yen)230($1.83)    (Yen)207        (Yen)270
Expected life.............      6 years         6 years         6 years
Risk-free rate............       1.47%           1.23%           1.35%
Expected volatility.......      32.00%          29.00%          44.00%
Expected dividend yield...       0.79%           0.63%           1.14%
------------------------------------------------------------------------

    On June 27, 2001, the shareholders authorized the acquisition of 1,100,000
shares of the Company's common stock for the total consideration not exceeding
(Yen)1,000 million ($7,937 thousand), with the same conditions as the aggregated
acquisition of 3,400,000 shares made prior to March 31, 2001.

12. Other Comprehensive Income (Loss)
================================================================================

Accumulated other comprehensive income (loss) at March 31, 2001, 2000 and 1999,
is as follows:

<TABLE>
<CAPTION>
                                                                                                                       Thousands of
                                                                                      Millions of yen                  U.S. dollars
                                                                       ------------------------------------------     --------------
                                                                           2001           2000           1999               2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>              <C>            <C>
Foreign currency translation adjustments:
   Balance, beginning of year.......................................   (Yen)(39,724)   (Yen)(24,159)    (Yen)(15,706)   $  (315,270)
   Aggregate adjustment for the year resulting from
     translation of foreign currency financial statements...........         10,384         (15,565)          (8,453)        82,412
------------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year.............................................   (Yen)(29,340)   (Yen)(39,724)    (Yen)(24,159)   $  (232,858)
====================================================================================================================================
Net unrealized holding gains on securities available for sale:
   Balance, beginning of year.......................................   (Yen) 23,467    (Yen) 25,650     (Yen) 20,803    $   186,246
   Net increase (decrease)..........................................        (16,218)         (2,183)           4,847       (128,714)
------------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year.............................................   (Yen)  7,249    (Yen) 23,467     (Yen) 25,650    $    57,532
====================================================================================================================================
Pension liability adjustments:
   Balance, beginning of year.......................................   (Yen) (3,333)   (Yen) (8,927)     (Yen)(5,268)   $   (26,452)
   Adjustment for the year..........................................         (3,780)          5,594           (3,659)       (30,000)
------------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year.............................................   (Yen) (7,113)   (Yen) (3,333)     (Yen)(8,927)   $   (56,452)
====================================================================================================================================
Total accumulated comprehensive income (loss)
   Balance, beginning of year.......................................   (Yen)(19,590)   (Yen) (7,436)     (Yen)  (171)   $  (155,476)
   Adjustment for the year..........................................         (9,614)        (12,154)          (7,265)       (76,302)
------------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year.............................................   (Yen)(29,204)   (Yen)(19,590)     (Yen)(7,436)   $  (231,778)
====================================================================================================================================
</TABLE>

   Tax effects allocated to each component of other comprehensive income (loss)
and adjustments are as follows:

<TABLE>
<CAPTION>
                                                                                                   Millions of yen
                                                                                ----------------------------------------------------
                                                                                                      Tax (expense)     Net of tax
                                                                                  Pretax amount        or benefit         amount
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                 <C>               <C>
2001:
Foreign currency translation adjustments....................................      (Yen)  10,384        (Yen)    --     (Yen) 10,384
Net unrealized holding gains on securities available for sale:
   Unrealized holding gains or (losses) arising during the year.............            (40,774)            17,019          (23,755)
   Less: reclassification adjustment for (gains) or losses
     included in net income (loss)..........................................             11,374             (3,837)           7,537
------------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)...............................................            (29,400)            13,182          (16,218)
Pension liability adjustments...............................................             (6,488)             2,708           (3,780)
------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss)...........................................      (Yen) (25,504)       (Yen)15,890     (Yen) (9,614)
====================================================================================================================================
</TABLE>

                                     -51-
<PAGE>

<TABLE>
<CAPTION>
                                                                                            Millions of yen
                                                                        -----------------------------------------------------
                                                                                             Tax (expense)      Net of tax
                                                                          Pretax amount       or benefit          amount
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                 <C>               <C>
2000:
Foreign currency translation adjustments............................        (Yen)(15,565)     (Yen)    --      (Yen)(15,565)
Net unrealized holding gains on securities available for sale:
   Unrealized holding gains or (losses) arising during the year.....               2,585           (1,079)            1,506
   Less: reclassification adjustment for (gains) or losses
     included in net income (loss)..................................              (6,848)           3,159            (3,689)
-----------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses).......................................              (4,263)           2,080            (2,183)
Pension liability adjustments.......................................              10,555           (4,961)            5,594
-----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss)...................................        (Yen) (9,273)     (Yen)(2,881)     (Yen)(12,154)
=============================================================================================================================
1999:
Foreign currency translation adjustments............................        (Yen) (8,453)     (Yen)    --      (Yen) (8,453)
Net unrealized holding gains on securities available for sale:
   Unrealized holding gains or (losses) arising during the year.....              (3,932)           1,723            (2,209)
   Less: reclassification adjustment for (gains) or losses
     included in net income (loss)..................................               9,182           (2,126)            7,056
-----------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses).......................................               5,250             (403)            4,847
Pension liability adjustments.......................................              (6,904)           3,245            (3,659)
-----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss)...................................        (Yen)(10,107)     (Yen) 2,842      (Yen) (7,265)
=============================================================================================================================

                                                                                       Thousands of U.S. dollars
-----------------------------------------------------------------------------------------------------------------------------
2001:
Foreign currency translation adjustments                                    $     82,412      $        --      $     82,412
Net unrealized holding gains on securities available for sale:
   Unrealized holding gains or (losses) arising during the year                 (323,603)         135,071          (188,532)
   Less: reclassification adjustment for (gains) or losses
     included in net income (loss)                                                90,270          (30,452)           59,818
-----------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)                                                   (233,333)         104,619          (128,714)
Pension liability adjustments                                                    (51,492)          21,492           (30,000)
-----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss)                                           $   (202,413)     $   126,111      $    (76,302)
=============================================================================================================================
</TABLE>

13. Income Taxes
================================================================================
Income (loss) before income taxes, minority interests and equity in earnings for
the years ended March 31, 2001, 2000 and 1999, is as follows:

<TABLE>
<CAPTION>
                                                                                                                Thousands of
                                                                               Millions of yen                  U.S. dollars
                                                               ----------------------------------------------  --------------
                                                                   2001            2000              1999           2001
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>              <C>            <C>
Income (loss) before income taxes:
   Domestic.................................................   (Yen) 32,703     (Yen) 13,431     (Yen)(20,598)  $   259,548
   Foreign..................................................        (12,639)           5,964           10,994      (100,310)
-----------------------------------------------------------------------------------------------------------------------------
                                                               (Yen) 20,064     (Yen) 19,395     (Yen) (9,604)  $   159,238
=============================================================================================================================
Income taxes:
   Current--
     Domestic...............................................   (Yen) 21,331     (Yen) 11,542     (Yen) 11,108   $   169,294
     Foreign................................................           (379)           6,616            7,975        (3,008)
-----------------------------------------------------------------------------------------------------------------------------
                                                                     20,952           18,158           19,083       166,286
-----------------------------------------------------------------------------------------------------------------------------
   Deferred--
     Domestic...............................................         (4,691)          (9,403)         (15,105)      (37,230)
     Foreign................................................         (2,546)           1,195           (1,917)      (20,207)
-----------------------------------------------------------------------------------------------------------------------------
                                                                     (7,237)          (8,208)         (17,022)      (57,437)
-----------------------------------------------------------------------------------------------------------------------------
Total.......................................................   (Yen) 13,715     (Yen)  9,950     (Yen)  2,061   $   108,849
=============================================================================================================================
</TABLE>

                                     -52-

<PAGE>

Total income taxes recognized for the years ended March 31, 2001, 2000 and 1999
were applicable to the following:

<TABLE>
<CAPTION>
                                                                                                                       Thousands of
                                                                                Millions of yen                        U.S. dollars
                                                                    --------------------------------------            --------------
                                                                         2001        2000         1999                     2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>          <C>                    <C>
Income (loss) before income taxes, minority interests
  and equity in earnings........................................    (Yen) 13,715  (Yen) 9,950  (Yen) 2,061              $ 108,849
Other comprehensive income (loss):
   Net unrealized holding gains (losses) on securities
 available for sale.............................................         (13,182)      (2,080)         403               (104,619)
   Pension liability adjustments................................          (2,708)       4,961       (3,245)               (21,492)
------------------------------------------------------------------------------------------------------------------------------------
Total income taxes..............................................    (Yen) (2,175) (Yen)12,831  (Yen)  (781)             $ (17,262)
====================================================================================================================================
</TABLE>

   Temporary differences and tax loss carryforwards which gave rise to deferred
tax assets and liabilities at March 31, 2001 and 2000, are as follows:

<TABLE>
<CAPTION>
                                                                                                                       Thousands of
                                                                                  Millions of yen                      U.S. dollars
                                                                         ---------------------------------            --------------
                                                                             2001                2000                      2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                  <C>                     <C>
Deferred tax assets:
   Unrealized intercompany profit...................................     (Yen) 30,881         (Yen) 29,734              $ 245,087
   Allowances provided, not yet recognized for tax..................            4,336                6,923                 34,413
   Accrued expenses.................................................           15,559                5,099                123,484
   Inventories......................................................            6,060                7,823                 48,095
   Net operating loss carryforwards.................................           30,309               30,608                240,548
   Research and development expenses................................            8,559               10,712                 67,929
   Other............................................................            2,503                6,133                 19,865
   Less valuation allowance.........................................          (19,976)             (20,551)              (158,540)
------------------------------------------------------------------------------------------------------------------------------------
                                                                         (Yen) 78,231         (Yen) 76,481              $ 620,881
====================================================================================================================================
Deferred tax liabilities:
   Unrealized holding gains on securities available for sale........     (Yen)  4,604         (Yen) 23,088              $  36,540
   Deferral of profit from installment sales........................            5,126                5,664                 40,682
   Deferred gains on sales of property for tax purposes.............           21,156               26,828                167,905
   Other............................................................            5,073                2,543                 40,262
------------------------------------------------------------------------------------------------------------------------------------
                                                                         (Yen) 35,959         (Yen) 58,123              $ 285,389
====================================================================================================================================
</TABLE>

   The net change in the total valuation allowance for the years ended March
31, 2001 and 2000, was a decrease of (Yen)575 million ($4,563 thousand) and an
increase of (Yen)139 million, respectively.

   Income taxes in Japan applicable to the companies, imposed by the national,
prefecture and municipal governments, in the aggregate result in a normal
statutory tax rate of approximately 41.7% for the year ended March 31, 2001 and
2000, and 47.0% for the year ended March 31, 1999. However, due to a change in
Japanese income tax regulations, effective April 1, 1999, the normal statutory
tax rate was reduced to approximately 41.7% and such a rate was used in
calculating the deferred taxes at March 31, 2001, 2000 and 1999.

   The overall effective tax rates reflected in the consolidated statements of
income (income taxes as a percentage of income (loss) before income taxes,
minority interests and equity in earnings) for the years ended March 31, 2001,
2000 and 1999, were 68.4%, 51.3% and 21.5%, respectively.

   The differences between the normal tax rates and the effective tax rates for
the years ended March 31, 2001, 2000 and 1999, are summarized as follows:

<TABLE>
<CAPTION>
                                                                                         2001              2000           1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>               <C>            <C>
Normal tax rate.......................................................................   41.7%             41.7%         (47.0)%
Increase (decrease) in tax rates resulting from:
   Operating losses of subsidiaries...................................................   23.1               6.1           70.5
   Expenses not deductible for tax purposes...........................................    6.6              11.1           11.6
   Realization of tax benefits on operating losses of subsidiaries....................   (1.3)             (0.4)          (1.0)
   Income of foreign subsidiaries taxed at lower than Japanese normal rate............   (5.0)             (5.9)         (17.5)
   Effect of tax rate change..........................................................     --                --            3.8
   Other, net.........................................................................    3.3              (1.3)           1.1
------------------------------------------------------------------------------------------------------------------------------------
Effective tax rate....................................................................   68.4%             51.3%          21.5%
====================================================================================================================================
</TABLE>

                                     -53-
<PAGE>

    Foreign subsidiaries are subject to income taxes of the countries in which
they operate.
    At March 31, 2001 and 2000, no deferred tax liabilities were recognized for
undistributed earnings of foreign subsidiaries and affiliated companies
aggregating (Yen)36,161 million ($286,992 thousand) and (Yen)40,063 million,
respectively, because the Company currently does not expect those earnings to be
distributed and/or believes that no material additional taxation would result
should they be distributed to the Company under the current circumstances.
    At March 31, 2001, certain subsidiaries had operating loss carryforwards
aggregating approximately (Yen)79,535 million ($631,230 thousand), which may be
used as a deduction in determining taxable income in future periods. The
operating loss carryforwards of (Yen)63,688 million ($505,461 thousand) expire
through December 31, 2020, while the remainder have an indefinite carryforward
period.

14. Rent Expenses
--------------------------------------------------------------------------------

     The companies leases office space and equipment, employees' housing, etc.,
under cancelable and noncancelable operating lease agreements. Rent expenses
under such leases amounted to (Yen)16,128 million ($128,000 thousand),
(Yen)13,468 million and (Yen)10,680 million, respectively, for the years ended
March 31, 2001, 2000 and 1999. Certain lease contracts for equipment that would
be classified as capital lease in conformity with SFAS No.13 were capitalized.
    At March 31, 2001, the future minimum lease payments under these leases are
as follows:

<TABLE>
<CAPTION>
                                                                  Millions of yen                   Thousands of U.S. dollars
                                                        ------------------------------------  ------------------------------------
                                                          Capital  Operaing lease               Capital  Operaing lease
Year ending                                               leases     commitment     Total       leases    commitments       Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>          <C>           <C>           <C>      <C>             <C>
2002.................................................   (Yen) 4,665  (Yen) 3,202   (Yen) 7,867   $ 37,024    $ 25,413     $ 62,437
2003.................................................         3,846        3,209         7,055     30,524      25,468       55,992
2004.................................................         3,213        3,727         6,940     25,500      29,579       55,079
2005.................................................         1,940        3,318         5,258     15,397      26,333       41,730
2006.................................................         1,107        3,313         4,420      8,786      26,293       35,079
Thereafter...........................................         1,711        1,714         3,425     13,579      13,604       27,183
----------------------------------------------------------------------------------------------------------------------------------
Total minimum lease payments.........................   (Yen)16,482  (Yen)18,483   (Yen)34,965   $130,810    $146,690     $277,500
----------------------------------------------------------------------------------------------------------------------------------
Less: amounts representing interest..................        (1,289)                              (10,231)
-------------------------------------------------------------------                              --------
Present value of net minimum capital lease payments..   (Yen)15,193                              $120,579
===================================================================                              ========
</TABLE>

15. Research and Development and Advertising Expenses
--------------------------------------------------------------------------------

Research and development expenses charged to costs and expenses for the years
ended March 31, 2001, 2000 and 1999, amounted to (Yen)45,282 million ($359,381
thousand), (Yen)42,460 million and (Yen)45,712 million, respectively.
    Advertising expenses charged to costs and expenses as incurred for the years
ended March 31, 2001, 2000 and 1999, amounted to (Yen)5,369 million ($42,611
thousand), (Yen)4,327 million and (Yen)5,579 million, respectively.

16. Net Income (Loss) per Share
--------------------------------------------------------------------------------

A reconciliation of the numerators and denominators of the basic and diluted net
income (loss) per share computations is as follows:

<TABLE>
<CAPTION>
                                                                                                                 Thousands of
                                                                                Millions of yen                  U.S. dollars
                                                                  -----------------------------------------      --------------
                                                                        2001        2000          1999               2001
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>           <C>           <C>                <C>
Net income (loss)..........................................       (Yen)6,913    (Yen)13,395   (Yen)(12,378)            $54,865
Effect of dilutive securities:
   1.8% Japanese yen convertible bonds, due 2004...........               --            300             --                  --
Diluted net income (loss)..................................       (Yen)6,913    (Yen)13,695   (Yen)(12,378)            $54,865
===============================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                              Number of shares
                                                                --------------------------------------------
                                                                     2001           2000             1999
------------------------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>             <C>
Average common shares outstanding, less treasury stocks....      955,250,229     967,057,543     968,941,887
Dilutive effect of:
   1.8% Japanese yen convertible bonds, due 2004...........               --     28,260,914               --
------------------------------------------------------------------------------------------------------------
Diluted common shares outstanding..........................      955,250,229     995,318,457     968,941,887
============================================================================================================
</TABLE>

                                     -54-
<PAGE>

                                                  Yen                 U.S. cents
                                   ---------------------------------  ----------
                                     2001       2000         1999       2001
Net income (loss) per share:

Basic........................... (Yen)7.24  (Yen)13.85  (Yen)(12.77)   5.7(cent)
Diluted.........................      7.24       13.76       (12.77)   5.7(cent)

    1.8% Japanese yen convertible bonds, due 2004, was excluded from the net
diluted income (loss) per share calculation for fiscal 2001 and 1999 because the
effect would have been antidilutive.

17. Commitments and Contingent Liabilities
--------------------------------------------------------------------------------

At March 31, 2001, the companies were contingently liable for discounted and
transferred receivables on a recourse basis with the financial institutions of
(Yen)8,705 million ($69,087 thousand) (Note 3) and also as guarantors of
indebtedness of others, including letters of awareness and keep-well agreements
aggregating (Yen)29,485 million ($234,008 thousand), including (Yen)2,274
million ($18,048 thousand) relating to affiliated companies. With regard to sale
of a subsidiary, the Company guarantees to the purchaser to pay up to (Yen)4,258
million ($33,794 thousand) as of March 31, 2001 relating to the credit risk of
subsidiary's outstanding receivables at the time of the sale. Management of the
Company believes that losses from those contingent liabilities, if any, would
not have a material effect on the consolidated financial statements.

    Commitments for capital expenditures outstanding at March 31, 2001,
aggregated approximately (Yen)600 million ($4,762 thousand).

    The companies are involved in certain legal actions and claims arising in
the ordinary course of their business. It is the opinion of management and legal
counsel that such litigation and claims will be resolved without material effect
on the companies' financial position.

    The companies have business activities with customers, dealers and
associates around the world and their trade receivables from and guarantees to
such parties are well diversified to minimize concentrations of credit risks.
Management does not anticipate incurring losses on their trade receivables in
excess of established allowances.

18. Derivative Financial Instruments
--------------------------------------------------------------------------------

The companies utilize derivative financial instruments such as interest rate
swap agreements and foreign exchange contracts to reduce market risks of changes
in interest rates on interest payment and receipt and changes in currency
exchange rates on assets and liabilities. The companies do not enter into
derivative financial transactions for trading or speculation purposes.

    The companies are exposed to credit-related losses in the event of
nonperformance by counterparties to derivative financial instruments, but they
do not expect any counterparties to fail to meet their obligations because of
the high credit rating of the counterparties. The primary derivative instruments
used by the companies are as follows:

(1) Interest Rate Swap and Cap Agreements
Financial Instruments Qualifying as Hedge

The companies have entered into interest rate swap and cap agreements, partly
concurrent with currency swap agreements for the purpose of managing their
interest rate and foreign currency exposure for certain short-term and long-term
debts and investment securities in an aggregate notional amount of (Yen)254,848
million ($2,022,603 thousand) and (Yen)210,615 million at March 31, 2001 and
2000, respectively.

Financial Instruments Not Qualifying as Hedge

The Company has entered into interest rate swap contracts as a means of managing
the Company and its group companies' interest rate exposures for short-term and
long-term debts in a notional amount of (Yen)40,600 million ($322,222 thousand)
and (Yen)40,000 million at March 31, 2001 and 2000, respectively. These
contracts do not qualify as a hedge and are accounted for accordingly as more
fully explained in Note 1 (12). (2) Foreign Exchange Contracts Notional
principal amounts of foreign exchange contracts outstanding at March 31, 2001
and 2000, are set forth below.

                                                                Thousands of
                                           Millions of yen      U.S. dollars
                                       -----------------------  ------------
                                           2001        2000          2001
----------------------------------------------------------------------------
Forwards and options:
   To sell foreign currencies          (Yen)33,074 (Yen)28,755      $262,492
   To purchase foreign currencies           28,528      19,196       226,413
   Options (purchased)                       3,395          --        26,944
----------------------------------------------------------------------------

    The companies enter into forward foreign exchange contracts and options to
hedge existing assets and liabilities and certain sale commitments denominated
in foreign currencies (principally U.S. dollar and Euro). The terms of these
foreign exchange contracts rarely extend beyond three months except for those
related to long-term debts denominated in foreign currencies which have the same
terms as the underlying debts.

    Net foreign currency transaction gains of (Yen)2,908 million
($23,079 thousand), losses of (Yen)4,323 million, and losses of (Yen)2,596
million for the years ended March 31, 2001, 2000 and 1999, respectively, were
included in the determination of net income (loss).

                                     -55-
<PAGE>

19. The Fair Value of Financial Instruments
--------------------------------------------------------------------------------
(1) Cash and Cash Equivalents, Time Deposits, Trade Notes and Accounts
Receivables, Other Current Assets, Short-Term Debt, Trade Notes and Accounts
Payables, and Other Current Liabilities
The carrying amount approximates fair value because of the short maturity of
these instruments.

(2) Investment Securities
The fair values of investment securities available for sale are based on quoted
market prices.

(3) Installment Receivables
The fair values of installment receivables are based on the present value of
future cash flows through maturity, discounted using estimated current interest
rates. The fair values computed on such a basis approximate the carrying amounts
(Note 3).

(4) Long-Term Debt
The fair values of each of the long-term debts are based on the quoted price in
the most active market or the present value of future cash flows associated with
each instrument discounted using the current borrowing rate for similar debt of
comparable maturity.

(5) Derivative Financial Instruments
The fair values of derivative financial instruments, consisting principally of
foreign currency contracts and interest swap agreements, are estimated by
obtaining quotes from brokers.

The carrying amounts and the estimated fair values of the financial instruments,
including financial instruments not qualifying as hedge, as of March 31, 2001
and 2000, are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                              Thousands of
                                                                   Millions of yen                            U.S. dollars
                                                ----------------------------------------------------    ------------------------
                                                           2001                     2000                        2001
--------------------------------------------------------------------------------------------------------------------------------
                                                    Carrying    Estimated     Carrying   Estimated       Carrying    Estimated
                                                     amount     fair value     amount    fair value       amount     fair value
--------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>          <C>           <C>            <C>          <C>
Investment securities........................   (Yen) 68,788  (Yen) 68,788 (Yen)116,154  (Yen)116,154   $  545,937   $  545,937
Long-term debt, including current portion....        272,375       272,645      299,595       299,622    2,161,707    2,163,849
Derivatives:
   Foreign exchange contracts
     Assets..................................            574         1,544          190           466        4,556       12,254
     Liabilities.............................            549         1,912           94           333        4,357       15,175
   Interest rate swap and cap agreements
     Assets..................................            312         4,312           45        15,333        2,476       34,222
     Liabilities.............................          1,050         4,876           --           629        8,333       38,698
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could affect the estimates.

20. Business Segment Information
--------------------------------------------------------------------------------

Under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, in deciding how to allocate
resources and in assessing performance. The operating segments are managed
separately because each operating segment represents a strategic business unit
that offers different products and services.

    The companies operate on a worldwide basis principally with three operating
segments: 1) Construction and mining equipment, 2) Electronics, 3) Others. Prior
to fiscal 2000, the Company disclosed the five operating segments:

1) Construction and mining equipment, 2) Electronics, 3) Civil engineering and
construction, 4) Industrial machinery, and 5) Others. However, due to the change
of the business operation, including the sale of major subsidiary namely Komatsu
Construction Ltd. which belonged to the civil engineering and construction
segment, the management of the Company has reduced the operating segments from
five to three segments from fiscal 2001, and accordingly the segment disclosures
for fiscal 2000 and 1999 have been restated.

    The following tables present certain information regarding the companies'
operating segments and geographic information at March 31, 2001, 2000 and 1999,
and for the years then ended:

                                     -56-
<PAGE>

<TABLE>
<CAPTION>

Operating segments:                                                                                            Thousands of
                                                                       Millions of yen                         U.S. dollars
                                                      -------------------------------------------------     ----------------
                                                             2001           2000             1999                  2001
<S>                                                   <C>              <C>              <C>                 <C>
----------------------------------------------------------------------------------------------------------------------------
Net sales:
   Construction and mining equipment--
     Customers.....................................   (Yen)   718,147  (Yen)  747,647   (Yen)  765,802       $     5,699,579
     Intersegment..................................             7,400          12,485              963                58,730
----------------------------------------------------------------------------------------------------------------------------
        Total......................................           725,547         760,132          766,765             5,758,309
   Electronics--
     Customers.....................................           117,745          90,335           86,608               934,484
     Intersegment..................................               492              80              102                 3,905
----------------------------------------------------------------------------------------------------------------------------
        Total......................................           118,237          90,415           86,710               938,389
   Others--
     Customers.....................................           260,477         217,672          209,187             2,067,278
     Intersegment..................................            49,221          59,982           43,057               390,643
----------------------------------------------------------------------------------------------------------------------------
        Total......................................           309,698         277,654          252,244             2,457,921
   Elimination.....................................           (57,113)        (72,547)         (44,122)             (453,278)
----------------------------------------------------------------------------------------------------------------------------
   Consolidated....................................   (Yen) 1,096,369  (Yen)1,055,654   (Yen)1,061,597       $     8,701,341
============================================================================================================================
Operating income (loss):
   Construction and mining equipment...............   (Yen)    22,203  (Yen)   28,489   (Yen)   32,697       $       176,214
   Electronics.....................................             2,887          (9,839)         (18,074)               22,913
   Others..........................................             6,450           1,171           (5,533)               51,190
----------------------------------------------------------------------------------------------------------------------------
     Total.........................................            31,540          19,821            9,090               250,317
   Corporate expenses and elimination..............            (3,725)         (2,503)          (4,809)              (29,563)
----------------------------------------------------------------------------------------------------------------------------
   Consolidated operating income...................            27,815          17,318            4,281               220,754
   Interest and other income.......................            30,718          55,857           25,655               243,794
   Interest expense................................            22,194          24,392           21,219               176,143
   Other expenses..................................            16,275          29,388           18,321               129,167
----------------------------------------------------------------------------------------------------------------------------
   Consolidated income (loss) before income taxes..   (Yen)    20,064  (Yen)   19,395   (Yen)   (9,604)      $      (159,238)
============================================================================================================================
Identifiable assets:
   Construction and mining equipment...............   (Yen)   868,611  (Yen)  672,031   (Yen)  813,854       $     6,893,738
   Electronics.....................................           240,592         231,317          263,951             1,909,460
   Others..........................................           254,960         231,989          183,884             2,023,492
   Corporate assets and elimination................            39,032         239,943          262,911               309,778
----------------------------------------------------------------------------------------------------------------------------
   Consolidated....................................   (Yen) 1,403,195  (Yen)1,375,280   (Yen)1,524,600       $    11,136,468
============================================================================================================================
Depreciation and amortization:
   Construction and mining equipment...............   (Yen)    32,317  (Yen)   32,166   (Yen)   29,087       $       256,484
   Electronics.....................................            20,210          20,860           16,328               160,397
   Others..........................................            11,388           8,474            6,735                90,381
----------------------------------------------------------------------------------------------------------------------------
   Consolidated....................................   (Yen)    63,915  (Yen)   61,500   (Yen)   52,150       $       507,262
============================================================================================================================
Capital expenditures:
   Construction and mining equipment...............   (Yen)    47,380  (Yen)   37,989   (Yen)   48,599       $       376,031
   Electronics.....................................            16,476          13,089           61,854               130,762
   Others..........................................            15,454           6,650            4,421               122,651
----------------------------------------------------------------------------------------------------------------------------
   Consolidated....................................   (Yen)    79,310  (Yen)   57,728   (Yen)  114,874       $       629,444
============================================================================================================================
</TABLE>

     Transfer between segments are made at arm's-length prices. Operating income
(loss) is sales less costs and operating expenses. Identifiable assets are those
assets used in the operations of each segment. Unallocated corporate assets
consist primarily of cash and cash equivalents and marketable investment
securities maintained for general corporate purposes.

                                     -57-
<PAGE>

Geographic information:

Net sales recognized by sales destination for the years ended March 31, 2001,
2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                                                          Thousands of
                                                                    Millions of yen                       U.S. dollars
                                                ---------------------------------------------------   -----------------
                                                       2001               2000              1999            2001
-----------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                <C>               <C>              <C>
Japan...................................        (Yen)  586,865     (Yen)  553,822    (Yen)  523,946      $   4,657,659
Americas................................               241,091            242,609           272,091          1,913,421
Europe..................................               126,479            123,633           119,270          1,003,801
Asia (excluding Japan) and Oceania......               117,136             99,558            96,853            929,651
Middle East and Africa..................                24,798             36,032            49,437            196,809
-----------------------------------------------------------------------------------------------------------------------
Consolidated net sales..................        (Yen)1,096,369     (Yen)1,055,654    (Yen)1,061,597      $   8,701,341
=======================================================================================================================
</TABLE>

Net sales recognized by geographic origin and long-lived assets at March 31,
2001, 2000 and 1999, and for the years then ended are as follows:

<TABLE>
<CAPTION>
                                                                                        Thousands of
                                                 Millions of yen                        U.S. dollars
                                   ------------------------------------------------  ----------------
                                          2001           2000             1999              2001
-----------------------------------------------------------------------------------------------------
<S>                                <C>              <C>             <C>              <C>
Net sales:
   Japan.......................    (Yen)  662,025   (Yen)  615,580  (Yen)  601,583      $   5,254,167
   U.S.A.......................           241,745          245,002         281,337          1,918,611
   Europe......................           112,257          114,742         114,247            890,928
   Other.......................            80,342           80,330          64,430            637,635
-----------------------------------------------------------------------------------------------------
     Total.....................    (Yen)1,096,369   (Yen)1,055,654  (Yen)1,061,597      $   8,701,341
=====================================================================================================
Long-lived assets:
   Japan.......................    (Yen)  320,194   (Yen)  277,693  (Yen)  310,412      $   2,541,222
   U.S.A.......................           139,132          134,991         159,899          1,104,222
   Europe......................             9,664            9,032          17,997             76,699
   Other.......................            32,670           26,087          25,962            259,286
-----------------------------------------------------------------------------------------------------
     Total.....................    (Yen)  501,660   (Yen)  447,803  (Yen)  514,270      $   3,981,429
=====================================================================================================
</TABLE>

    No individual country within Europe or other areas had a material impact on
net sales or long-lived assets. There were no sales to a single major external
customer for the years ended March 31, 2001, 2000 and 1999.

    The following information shows net sales and operating income (loss)
recognized by geographic origin for the years ended March 31, 2001, 2000 and
1999. In addition to the disclosure requirements under SFAS No. 131, the Company
discloses this information as supplemental information in light of the
disclosure requirements of the Japanese Securities and Exchange Law, which a
Japanese public company is subject to:


<TABLE>
<CAPTION>
                                                                                                    Thousands of
                                                             Millions of Yen                         U.S. dollars
                                             -------------------------------------------------     --------------
                                                   2001             2000              1999              2001
-----------------------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>               <C>                 <C>
Net sales:
Japan--
   Customers...........................      (Yen)  662,025   (Yen)  615,580    (Yen)  601,583        $ 5,254,167
   Intersegment........................             142,645          143,569           152,148          1,132,103
-----------------------------------------------------------------------------------------------------------------
     Total.............................             804,670          759,149           753,731          6,386,270
Americas--
   Customers...........................             242,182          245,367           287,006          1,922,079
   Intersegment........................              10,194            8,624            12,778             80,905
-----------------------------------------------------------------------------------------------------------------
     Total.............................             252,376          253,991           299,784          2,002,984
Europe--
   Customers...........................             112,257          114,742           114,247            890,928
   Intersegment........................              13,551           14,665             7,267            107,548
-----------------------------------------------------------------------------------------------------------------
     Total.............................             125,808          129,407           121,514            998,476
Others--
   Customers...........................              79,905           79,965            58,761            634,167
   Intersegment........................               3,652            4,750             4,174             28,984
-----------------------------------------------------------------------------------------------------------------
     Total.............................              83,557           84,715            62,935            663,151
Elimination............................            (170,042)        (171,608)         (176,367)        (1,349,540)
-----------------------------------------------------------------------------------------------------------------
Consolidated...........................      (Yen)1,096,369   (Yen)1,055,654    (Yen)1,061,597        $ 8,701,341
=================================================================================================================
</TABLE>

                                     -58-
<PAGE>

<TABLE>
<CAPTION>
                                                                                                       Thousands of
                                                                 Millions of Yen                       U.S. dollars
                                                  --------------------------------------------        --------------
                                                       2001           2000             1999                2001
--------------------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>             <C>                  <C>
Operating income (loss):
   Japan................................       (Yen)   29,253  (Yen)      955   (Yen)  (10,052)         $   232,167
   Americas.............................               (2,302)         12,354            7,594              (18,270)
   Europe...............................                5,945           4,284            9,253               47,182
   Others...............................                  364           2,202              534                2,889
   Corporate and elimination............               (5,445)         (2,477)          (3,048)             (43,214)
--------------------------------------------------------------------------------------------------------------------
   Consolidated.........................       (Yen)   27,815  (Yen)   17,318   (Yen)    4,281          $   220,754
====================================================================================================================
Identifiable assets:
   Japan................................       (Yen)1,030,872  (Yen)  941,282   (Yen)  982,542          $ 8,181,524
   Americas.............................              343,967         289,123          341,301            2,729,897
   Europe...............................               83,389          73,560           90,810              661,817
   Others...............................               98,057          83,760           89,151              778,230
   Corporate assets and elimination.....             (153,090)        (12,445)          20,796           (1,215,000)
--------------------------------------------------------------------------------------------------------------------
   Consolidated.........................       (Yen)1,403,195  (Yen)1,375,280   (Yen)1,524,600          $11,136,468
====================================================================================================================
Overseas sales:
   Americas.............................       (Yen)  241,091  (Yen)  242,609   (Yen)  272,091          $ 1,913,421
   Europe...............................              126,479         123,633          119,270            1,003,801
   Others...............................              141,934         135,590          146,290            1,126,460
-------------------------------------------------------------------------------------------------------------------
   Total................................       (Yen)  509,504  (Yen)  501,832   (Yen)  537,651          $    43,682
====================================================================================================================
</TABLE>

     Transfer between segments are made at arm's-length prices. Operating income
(loss) is sales less costs and operating expenses. Identifiable assets are those
assets used in the operations of each segment. Unallocated corporate assets
consist primarily of cash and cash equivalents and marketable investment
securities maintained for general corporate purposes.

                                     -59-
<PAGE>

Report of Independent Public Accountants


To the Shareholders and the Board of Directors of Komatsu Ltd.:

We have audited the accompanying consolidated balance sheets of KOMATSU LTD. (a
Japanese corporation) and consolidated subsidiaries as of March 31, 2001 and
March 31, 2000-as restated (see Note 1.(3)) and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended March 31, 2001, expressed in yen. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Komatsu Ltd. and
consolidated subsidiaries as of March 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 2001, in conformity with accounting principles generally
accepted in the United States of America (see Note 1).

In our opinion, the amounts translated into U.S. dollars in the accompanying
consolidated financial statements have been computed on the basis set forth in
Note 1.

/s/ Arthur Andersen

Tokyo, Japan
June 28, 2001

                                     -60-
<PAGE>

                  KOMATSU LTD. AND CONSOLIDATED SUBSIDIARIES
                  ------------------------------------------


            SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        TO CONFORM WITH REGULATION S-X
          -----------------------------------------------------------


A.   TRADE NOTES AND ACCOUNTS RECEIVABLE

     Interest charged on installment receivables ranges principally from 2.6% to
     5.3% annually.

     At March 31, 2001 and 2000 trade notes and accounts receivable were
     comprised of the following:

<TABLE>
<CAPTION>
                                                                                                Thousands of
                                                                Millions of Yen                 U.S. dollars
                                                       ----------------------------------      --------------
                                                            2001                 2000                2001
                                                       --------------      --------------      --------------
<S>                                                    <C>                 <C>                 <C>
     Notes:
      Affiliated companies                               (Yen)  1,154        (Yen)  1,184      $        9,159
      Other                                                   137,933             137,205           1,094,706
                                                         ------------        ------------      --------------
          Total                                               139,087             138,389           1,103,865
                                                         ------------        ------------      --------------

     Accounts:
      Affiliated companies                                     46,573              42,866             369,627
      Other                                                   222,934             204,256           1,769,317
                                                         ------------        ------------      --------------
          Total                                               269,507             247,122           2,138,944
                                                         ------------        ------------      --------------

     Unearned interest                                         (2,938)             (4,851)            (23,317)
     Allowance for doubtful receivables                       (10,998)            (12,208)            (87,286)
                                                         ------------        ------------      --------------
          Total                                          (Yen)394,658        (Yen)368,452      $    3,132,206
                                                         ============        ============      ==============
</TABLE>

B.   DEFERRED INCOME TAXES AND OTHER CURRENT ASSETS

     At March 31, 2001 and 2000 deferred income taxes and other current assets
     were comprised of the following:

<TABLE>
<CAPTION>
                                                                                              Thousands of
                                                                 Millions of Yen              U.S. dollars
                                                       ---------------------------------     -------------
                                                            2001               2000                2001
                                                       --------------     --------------     -------------
<S>                                                    <C>                <C>                <C>
     Prepaid expenses                                    (Yen)  3,909       (Yen)  2,744     $      31,024
     Short-term loans receivable:
      Affiliated companies                                     16,447             19,200           130,532
      Other                                                    21,093             26,083           167,405
                                                       --------------     --------------     -------------
          Total                                                37,540             45,283           297,937
                                                       --------------     --------------     -------------

     Deferred income taxes                                     26,937             29,346           213,786
     Other                                                     26,413             15,974           209,626
                                                       --------------     --------------     -------------
          Total                                          (Yen) 94,799       (Yen) 93,347     $     752,373
                                                       ==============     ==============     =============
</TABLE>

                                      A-1
<PAGE>

C.   DEFERRED INCOME TAXES AND OTHER CURRENT LIABILITIES

     At March 31, 2001 and 2000 deferred income taxes and other current
     liabilities comprised of the following:

<TABLE>
<CAPTION>
                                                                                              Thousands of
                                                                 Millions of Yen              U.S. dollars
                                                         -------------------------------     --------------
                                                             2001              2000                 2001
                                                         ------------       ------------     --------------
<S>                                                      <C>                <C>                <C>
     Accrued expenses                                    (Yen)113,161       (Yen) 97,577     $      898,103
     Customers' advances and employees' deposits               17,897             15,816            142,040
     Deferred income taxes                                        576              4,983              4,571
                                                         ------------       ------------     --------------
          Total                                          (Yen)131,634       (Yen)118,376     $    1,044,714
                                                         ============       ============     ==============
</TABLE>

D.   UNAPPROPRIATED RETAINED EARNINGS

     At March 31, 2001 consolidated unappropriated retained earnings included
     the companies' share of undistributed earnings of 50% or less owned
     companies accounted for by the equity method amounting to (Yen)6,352
     million ($50,413 thousand).


E.   INTEREST AND OTHER INCOME

     Interest and other income for the years ended March 31, 2001, 2000 and 1999
     were comprised of the following:

<TABLE>
<CAPTION>
                                                                                                        Thousands of
                                                                 Millions of Yen                        U.S. dollars
                                                 -----------------------------------------------       --------------
                                                    2001              2000              1999                 2001
                                                 -----------       -----------       -----------       --------------
<S>                                              <C>               <C>               <C>               <C>
     Interest and other income:
      Interest-
        Installment receivables                  (Yen) 6,755       (Yen) 6,842       (Yen) 7,521       $     53,611
        Other                                          3,622             5,028             6,020             28,746
      Dividends                                        1,073             1,062             1,880              8,516
      Net gain on sale of marketable securities
       and investments                                11,991            16,993                --             95,167
      Gain on sale of property                         3,440            23,777             7,912             27,302
      Insurance commission                               533               504               613              4,230
      Miscellaneous                                    3,304             1,651             1,709             26,222
                                                 -----------       -----------       -----------       ------------
          Total                                  (Yen)30,718       (Yen)55,857       (Yen)25,655       $    243,794
                                                 ===========       ===========       ===========       ============
</TABLE>

                                      A-2
<PAGE>

F.   OTHER EXPENSE

     Other expense for the years ended March 31, 2001, 2000 and 1999 were
     comprised of the following:

<TABLE>
<CAPTION>
                                                                                                         Thousands of
                                                                  Millions of Yen                        U.S. dollars
                                                  -----------------------------------------------       --------------
                                                     2001              2000              1999                2001
                                                  -----------      ------------      ------------       --------------
<S>                                         <C>              <C>               <C>                <C>
     Other expense:
      Loss on marketable securities               (Yen)     -       (Yen)     -       (Yen) 4,679       $            -
      Loss on disposal or sale of fixed assets          5,565            14,367             6,418               44,167
      Impairment loss on long-lived assets              4,337             4,474                 -               34,421
      Amortization of Goodwill                            164             1,735             1,726                1,301
      Exchange gain or loss, net                            -             4,323             2,596                    -
      Other                                            11,137             4,489             2,902               88,389
                                                  -----------      ------------      ------------       --------------
               Total                              (Yen)21,203       (Yen)29,388       (Yen)18,321       $      168,278
                                                  ===========      ============      ============       ==============
</TABLE>

                                      A-3
<PAGE>

                                                                     SCHEDULE II

                  KOMATSU LTD. AND CONSOLIDATED SUBSIDIARIES
                  ------------------------------------------

                       VALUATION AND QUALIFYING ACCOUNTS
                       ---------------------------------

<TABLE>
<CAPTION>
                                                                                                                       Thousands of
                                                                       Millions of Yen                                 U.S. dollars
                                    -------------------------------------------------------------------------------- ---------------
            Column A                    Column B                Column C                Column D         Column E        Column E
----------------------------------- ---------------  ----------------------------- ----------------- --------------- ---------------
                                                                Additions
                                                     -----------------------------
                                      Balance at      Charged to                                        Balance at      Balance at
                                     beginning of     costs and      Charged to                           end of          end of
           Description               fiscal period     expenses    other accounts      Deductions     fiscal period   fiscal period
----------------------------------- ---------------  ------------ ---------------- ----------------- --------------- ---------------
<S>                                 <C>              <C>          <C>              <C>               <C>             <C>
Valuation and qualifying accounts
 deducted from assets to which
 they apply:
 Allowance for doubtful receivables
   Year ended March 31, 2001          (Yen)12,208               -            -      (Yen) 1,210  (a)  (Yen)10,998        $ 87,286
                                     =============   =============  ============   =============     =============     ============
   Year ended March 31, 2000          (Yen)12,535     (Yen) 1,150            -      (Yen) 1,477  (a)  (Yen)12,208
                                     =============   =============  ============   =============     =============
   Year ended March 31, 1999          (Yen)11,644     (Yen) 1,571            -      (Yen)   680  (a)  (Yen)12,535
                                     =============   =============  ============   =============     =============

 Valuation allowance of deferred
  tax assets
   Year ended March 31, 2001          (Yen)20,551     (Yen) 8,621            -      (Yen) 9,196  (b)  (Yen)19,976        $158,540
                                     =============   =============  ============   =============     =============     ============
   Year ended March 31, 2000          (Yen)20,412     (Yen)11,322            -      (Yen)11,183  (b)  (Yen)20,551
                                     =============   =============  ============   =============     =============
   Year ended March 31, 1999          (Yen)18,417     (Yen) 6,466            -      (Yen) 4,471  (b)  (Yen)20,412
                                     =============   =============  ============   =============     =============

 Reserve for recource
   Year ended March 31, 2001          (Yen) 2,226     (Yen)   782            -      (Yen)   215       (Yen) 2,757  (c)   $ 21,881
                                     =============   =============  ============   =============     =============     ============

 Reserve for Prepayment risk
   Year ended March 31, 2001          (Yen)   664     (Yen)   691            -      (Yen)   396       (Yen)   959  (c)   $  7,611
                                     =============   =============  ============   =============     =============     ============

 Reserve for servicing liabilities
   Year ended March 31, 2001          (Yen)   849     (Yen)   786            -      (Yen)   496       (Yen) 1,139  (c)   $  9,040
                                     =============   =============  ============   =============     =============     ============
</TABLE>


(a)  Principally uncollectible accounts and notes charged to the allowance
(b)  Realization or expiration of net operating loss carryforwards
(c)  The adoption of SFAS 140 was made from the fiscal year ended March 31, 2001

                                      A-4
<PAGE>

Report of Independent Public Accountants


To the Shareholders and the Board of Directors
of Komatsu Ltd.:

We have audited the accompanying consolidated balance sheets of KOMATSU LTD. (a
Japanese corporation) and consolidated subsidiaries as of March 31, 2001 and
2000-as restated (see Note 1(3)), and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended March 31, 2001, expressed in yen.  These financial statements and
the schedules referred to below are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
in the United States of America.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Komatsu Ltd. and
consolidated subsidiaries as of March 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 2001, in conformity with accounting principles generally
accepted in the United States of America (see Note 1).

In our opinion, the translated amounts in the accompanying consolidated
financial statements translated into U.S. dollars have been computed on the
basis set forth in Note 1.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The information in the supplemental
notes and a schedule listed in the index to consolidated financial statements
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements.  These
supplemental notes and the schedule have been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly state, in all material respects, the financial data required to
be set forth therein, in relation to the basic financial statements taken as a
whole.



/s/ Arthur Andersen



Tokyo, Japan
June 28, 2001

                                      B-1
<PAGE>

                                 EXHIBIT INDEX

                                 Subsequently

<TABLE>
<CAPTION>

Exhibit number                         Title                                Numbered Page
--------------                         -----                                -------------
<S>               <C>                                                       <C>

Exhibit (1)       Articles of Incorporation of Komatsu Ltd. (Translation)         1

Exhibit (2)       Certificate of English Translations                             7
</TABLE>