<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, 2002

                         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



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

                                       1

<PAGE>

         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 for Komatsu's principal products, owing
    to changes in the economic conditions in Komatsu's principal markets;
    changes in exchange rates or the impact of increased competition;
    unanticipated costs or delays encountered in achieving Komatsu's objectives
    with respect to globalized product sourcing and new Information Technology
    tools; uncertainties as to the results of Komatsu's research and development
    efforts and its ability to access and protect certain intellectual property
    rights; the impact of regulatory changes and accounting principles and
    practices; and the introduction, success and timing of business initiatives
    and strategies.

                                     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


        The following data for each of the fiscal years ended March 31, 1998 -
        2002 has been derived from the Company's audited consolidated financial
        statements. It should be read in conjunction with the Company's audited
        consolidated balance sheets as of March 31, 2001 and 2002, the related
        consolidated statements of income, shareholders' equity and cash

                                       2

<PAGE>

        flows for the three years ended March 31, 2000 - 2002 and the notes
        thereto that appear elsewhere in this annual report

<TABLE>
<CAPTION>
                                                              (Yen in millions, except per share amounts)
                                                       1998          1999         2000          2001          2002
<S>                                                  <C>           <C>          <C>           <C>           <C>
Income Statement Data:
                Net Sales                            1,104,077     1,061,597    1,055,654     1,096,369     1,035,891
                Operating income                        43,098         4,281       17,318        27,815       (13,221)
                Income before income taxes              40,252        (9,604)      19,395        20,064      (106,724)
                Income taxes                            20,841         2,061        9,950        13,715       (21,930)
                Net income                              19,241       (12,378)      13,395         6,913       (80,621)
Per Share Data:
                Net income

                                _ Basic                  19.60        (12.77)       13.85          7.24        (84.46)
                                _ Diluted                19.32        (12.77)       13.76          7.24        (84.46)
                Cash dividends declared

                                                          8.00          7.00         6.00          6.00          6.00
                                US$                (5.90 cents)  (5.89 cents)  (5.77cents)  (5.09 cents)  (4.89 cents)
Depreciation and amortization                           48,629        52,150       61,500        63,915        59,894
Capital expenditures                                   123,026       114,874       57,728        79,310        74,468
Research and development expenses                       44,058        45,712       42,460        45,282        44,083
</TABLE>

<TABLE>
<CAPTION>
                                                    (Yen in millions, except per share amounts)
                                                                                                  March 31
                                                      1998       1999        2000        2001       2002
<S>                                            <C>         <C>         <C>         <C>         <C>
Balance
        Net working capital (a)                    212,096     256,039     221,517     203,233     167,581
        Long-term debt                             196,898     292,250     245,289     238,349     257,180
        Shreholders' equity                        524,201     495,643     490,454     474,257     395,143
        Total assets                             1,561,662   1,524,600   1,375,280   1,403,195   1,340,282
        Number of shares issued at year-end    969,842,701 968,921,701 968,921,701 958,921,701 958,921,701
        Shareholders' equity per share:             540.50      511.54      507.26      497.12      414.02

        (a) Includes receivables due after one year
</TABLE>

                                       3

<PAGE>

<TABLE>
<CAPTION>
                                                                                    (Yen)
                                                  Average*      High       Low   Period-End
<S>                                               <C>          <C>       <C>     <C>
Yen Exchange Rates per U.S. Dollar:
        Year ended March 31
               1998                                 123.57    111.42    133.99      133.29
               1999                                 128.10    108.83    147.14      118.43
               2000                                 110.02    101.53    124.45      102.73
               2001                                 111.65    104.19    125.54      125.54
               2002                                 125.63    115.89    134.77      132.70

        2002
               January                                        130.93    134.64      134.06
               February                                       132.26    134.77      133.96
               March                                          127.07    133.46      132.70
               April                                          128.13    133.40      128.45
               May                                            123.08    128.66      124.13
               June                                           119.38    125.64      119.85
</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 2002 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)119.85=U.S.$1 as of June 28, 2002.)

           B. Capitalization and indebtedness

              Not applicable

           C. Reasons for the offer and use of proceeds

             Not applicable

           D. Risk factors

Business Risk

         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).

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         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 Komatsu's 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 +81-3-5561-2629 (Corporate
Accounting 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.

         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 sold 65% of the outstanding shares of Komatsu
Soft Ltd. to Toyo Information Systems.

         In June 2000, the Company 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.

         In March 2002, the Company entered into a basic agreement with Volvo
Construction Equipment ("Volvo CE") for cooperation on production and
development of construction equipment components.

         In May 2002, the Company reached a global alliance agreement with Linde
AG ("Linde") of Germany, under which the agreement two companies will transform
Komatsu Forklift into their joint-venture company.

Principal capital expenditures

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         Komatsu's capital expenditures in the fiscal years ended March 31,
2000, 2001, and 2002, were (Yen)57,728 million, (Yen)79,310 million, and
(Yen)74,468 million, respectively.

         Capital expenditures in fiscal year ended March 31, 2002 ("fiscal
2002") decreased 6.1% from the previous year. The decrease resulted mainly from
the Company being highly focused on the level and specific need for capital
expenditures and limiting capital expenditures accordingly.

                     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 2002, Komatsu recorded worldwide net sales of
(Yen)1,035,891 million (US$7,789 million) and a net loss of (Yen)80,621 million
(US$606 million).

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

           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)731,340 million (US$5,499 million) for fiscal 2002, a 1.8% increase from
the previous year, and represented 70.6% of Komatsu's total net sales.

         While sales to customers in Japan decreased by 14.8% to (Yen)260,351
million (US$1,958 million), sales to customers outside Japan increased by 14.2%
to (Yen)470,989 million (US$3,541 million) in fiscal 2002. Sales to customers in
Japan represented 35.6% of total sales of construction and mining equipment,
down 7.0% from the previous year, while the proportion of sales to customers
outside Japan increased by 7.0% to 64.4% of total sales of construction and
mining equipment. Operating income from construction and mining equipment for
the year dropped sharply primarily due to reduced sales in the Japanese market.
Operating income was also reduced due to one-time expenses resulting from
reforms in the business structure. These reforms focused on reducing the number
of facilities and corporate entities in the Komatsu Group and the integration of
redundant functions in order to induce greater efficiency and the development of
a more cost efficient and responsive management structure.

         Komatsu anticipates an improvement in earnings for fiscal 2003 and
beyond, as a result of the positive effects from the reforms in business
structure, such as fewer expenses and a considerable reduction in the number of
personnel, largely by means of the voluntary retirement program implemented
toward the end of fiscal 2002. Additionally, Komatsu is working to improve
profits by implementing the Growth Strategy for the Construction and Mining
Equipment Business. In line with this move, the Company reorganized the
construction and mining equipment business to establish the Construction and
Mining Equipment Marketing Division in April 2002. The new division is taking a
central role in ensuring customer-driven attitudes among all employees,
reinforcing its involvement in the downstream markets after the sales of new
machines, expanding market shares and profits overseas, and enhancing the
productivity of overseas plants. At the same time, in order to achieve a
V-shaped recovery of profits the Company is striving to ensure the successful
progress of alliances with other industry participants that are designed to
reinforce its cost competitiveness and improve the efficiency of its management
resources. For example, with respect to the construction and mining equipment

                                       6

<PAGE>

business, Komatsu has reached an agreement with Volvo Construction Equipment for
cooperation on production and development of construction equipment components
under which, among other things, Komatsu designed wheel loader cabs will be
produced at a Volvo plant in Sweden.

     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.

     JAPAN. Japanese demand for construction equipment fell sharply from the
previous year, influenced by cutbacks in public investment as part of urgent
measures to accelerate structural reforms as well as by reduced private-sector
construction investment under the sluggish economy. In addition, customers'
reluctance to invest was compounded by uncertainty caused by the bankruptcies of
large-scale general contractors. In particular, with demand rapidly faltering in
the last half of the period, fiscal 2002 demand registered an over 50% drop in
terms of the value of factory shipments of construction equipment for the
Japanese market when compared to the last peak period of fiscal 1997.

     Komatsu worked to expand sales by teaming up with its distributors
nationwide for aggressive sales promotions simultaneous with the market
launchings of more than 20 new models in the GALEO series, including a renewed
model of its flagship PC200 hydraulic excavator. Komatsu also stepped up its
involvement in downstream markets. However, its efforts fell short of making up
for the sizable fall in demand for new equipment, and domestic sales declined
sharply from the previous year.

Accelerating Involvement in Downstream
Markets and Utilizing IT

     With domestic demand for construction equipment continuing to decline,
Komatsu is accelerating its involvement in downstream markets, working to
develop new demand for parts, services, and rental and used equipment businesses
to achieve a V-shaped recovery in its construction and mining equipment
business. The Company leads Japan in the number of machines being used by
customers and believes that it is thus well positioned to utilize IT to
strengthen its involvement and expand business in each downstream market.

     Regarding its GALEO-series equipment, Komatsu has included the KOMTRAX
machine operations management system as standard equipment in mainstay models.
The KOMTRAX system enables remote management of machine operations based on
information transmitted from the machines concerning their location and
operating and machine conditions. Utilizing KOMTRAX and other IT-based systems
and its nationwide service network, Komatsu is planning to provide contract
packaged products designed to meet a variety of customer needs. Komatsu is
working to expand the product mix of contract services, ranging from the
reduction of running costs and unexpected trouble, such as theft and accidents,
to a comprehensive plan to meet the diversified needs of customers.

                                       7

<PAGE>

     In the rental business, Komatsu is working to expand sales by promoting the
comprehensive rental of civil engineering equipment, which includes products
used in the construction site other than construction equipment, largely through
affiliated rental companies to meet more needs of customers. Komatsu is also
working to further improve earnings by reducing costs through streamlined
operations and concentrated purchasing.

     While sales of new equipment have been sluggish in Japan, the used
equipment business has been expanding year after year, reflecting Japanese
customers' attitudes toward maintaining excessive inventories and buoyant
overseas demand for used equipment. Komatsu is working to strengthen its power
to control the distribution of used equipment operations and build a global
circulation system as important tasks. The Company has established the Used
Equipment Business Department and reinforced the trading capabilities of Komatsu
Used Equipment Corp. ("Komatsu Used Equipment"), the major player in the Komatsu
Group in this area. Furthermore, the Company is working to secure high-quality
used equipment from affiliated rental companies and customers by utilizing the
KOMTRAX system in order to expand business.

Thriving Auctions for Used Equipment

     Since 1994, Komatsu Used Equipment has regularly held auctions for used
equipment by inviting broker companies from Japan and abroad. Held more than 40
times to date, these auctions have witnessed a steady increase in the numbers of
visitors, units exhibited and deals made. In March 2002, the company held
auctions in Kobe, Fukuoka and Yokohama, attracting a cumulative total of some
600 broker firms from Japan, Southeast Asia, North America and other regions,
and consummated record-high sales of some 1,800 units.

Deciding to Transform Komatsu Zenoah. into a Wholly Owned Subsidiary

     The Company resolved to transform Komatsu Zenoah into a wholly owned
subsidiary of Komatsu as of October 1, 2002, through a stock-for-stock exchange.

     Komatsu Zenoah occupies an important position in the Komatsu Group's global
strategy in the utility (compact) equipment business, which promises continued
growth. By transforming the company into a wholly owned subsidiary, Komatsu aims
to further enhance management efficiency while maintaining the cost
competitiveness of the business by facilitating the collaboration of development
and production capabilities.

     THE AMERICAS. In North America, while construction investment and housing
starts remained steady, demand for construction equipment declined for three
successive years. While carrying out well-defined measures focusing on products
and distributors, Komatsu implemented aggressive sales activities by introducing
new equipment in the GALEO series. As a result, sales in the Americas improved
compared with the previous year. The Company also facilitated inventory
reductions among its distributors and began to see their orders increase later
in the year. In the mining equipment business, demand for coal increased from
its low point in the first half of the year, reflecting increased prices and
other factors, and Komatsu expanded sales of large bulldozers to coal mines and
achieved steady sales of super-large, electric-drive dump trucks to copper
mines. In the utility (compact) equipment business, Komatsu embarked on the
production of backhoe loaders at a new plant in Newberry, South Carolina, during
the last half of the period, while launching sales of new skid steer loaders
developed by Komatsu Utility Europe S.p.A. ("Komatsu Utility Europe"). As a
result, the Company believes that it is now prepared to take advantage of a
future recovery of demand in North America, the world's largest market for
utility (compact) equipment.

                                       8

<PAGE>

Consolidating Local Subsidiaries for Lean Organization

     Following the consolidation of Komatsu Utility Corporation into Komatsu
America International Company in August 2001, Komatsu has initiated the
consolidation of five U.S. subsidiaries as part of the Reform of Business
Structure project in progress on a Group-wide basis. The five subsidiaries are:
Komatsu America Corp., Komatsu America International, Komatsu Mining Systems,
Inc., Komatsu Reman North America, Inc., and DataKom Publishing Corporation.
Through this consolidation, in which Komatsu America Corp. will be the surviving
company, Komatsu intends to facilitate a capacity cost cutback and thus improve
profitability by reducing the number of management and administrative personnel.
Komatsu also intends to ensure quicker decision making and reinforce sales and
services by unifying the construction, mining and utility (compact) equipment
businesses.

Demonstrating Future Business Orientation at CONEXPO 2002

     In March 2002, CONEXPO 2002, an international trade fair for construction
equipment, was held in Las Vegas, Nevada, with over 2,000 companies from around
the world participating. Komatsu exhibited 21 models including GALEO-series
equipment. Stressing the theme of "Focused on Your Success," Komatsu
demonstrated its future business orientation of delivering solutions, both
hardware and software, for customers' problems through not only construction
equipment but also a wide range of service programs.

     EUROPE. In Europe, demand remained strong in the United Kingdom and Italy
during the year under review. Meanwhile, in addition to a fall in demand in
Germany, the largest European market for construction equipment, demand turned
downward in France, Spain and other countries. As a result, the overall European
market for construction equipment, including utility (compact) equipment,
contracted after continued expansion for the last few years. In such an
environment, Komatsu secured sales at the same level as the previous year by
capitalizing on increased demand in Eastern European nations and introducing
improved models of skid steer and wheel loaders.

     In October 2001, Komatsu's new wheel loaders attracted keen attention at a
special launch event in Berlin, Germany. Komatsu distributors and many
journalists from Germany and other European countries appreciated the high
levels of productivity, fuel economy and operator comfort offered by the new
equipment.

     During the year, Komatsu Utility Europe began sales of two new models of
skid steer loaders jointly developed by the Company. Both SK714 and SK815 models
incorporate a double-speed motor and the Company-original Closed Center Load
Sensing System, realizing outstanding travel performance, maneuverability,
safety and ease of maintenance. These are among Komatsu's global strategic
equipment, and Komatsu is also launching these models in North America, the
world's largest market for utility (compact) equipment, and Japan.

Participating in Samoter 2002

     Komatsu's three European subsidiaries, Komatsu UK Ltd., Komatsu Hanomag AG
and Komatsu Utility Europe, exhibited their products at Samoter 2002, an
international earthmoving and building machinery exhibition held in Verona,
Italy, in February 2002. Held every three years, this exhibition is one of three
major exhibitions in Europe. Under the theme "Take the Lead," three Komatsu
companies successfully made a dynamic impression with their new machines, both
inside and outside the Komatsu exhibition building.

     Other Regions. Sales in other regions advanced compared with the previous
year,

                                       9

<PAGE>

supported by successful customer-driven sales and service activities. In
Southeast Asia, demand for equipment from the forestry industry slowed down,
although sales of mining equipment expanded in Indonesia. PT Komatsu Indonesia
Tbk continued to develop hydraulic excavator- based, application-specific
attachments and components for the forestry industry. The company also launched
the production and shipment of the PC200 model in the GALEO series in January
2002. Many customers from different regions of Indonesia came to the special
ceremony for the market introduction of the GALEO series, demonstrating great
interest in the series. The company expects that the GALEO-series equipment
should contribute to improved profits.

     In the Pacific region, Komatsu expanded sales for the year, largely due to
the delivery of 930E super-large dump trucks to a coal mine in Australia.

     In China, market demand continued to expand during the year, supported by
China's membership in the World Trade Organization and sponsorship of the
Beijing Olympic Games in 2008. Komatsu expanded sales in China, centering on
hydraulic excavators produced by Komatsu Shantui Construction Machinery Co.,
Ltd., a joint venture with a Chinese partner. To further expand its business in
China, Komatsu made concerted efforts to strengthen its distributors under the
leadership of Komatsu (China) Ltd.

     In the Middle East, the Company accelerated sales of large bulldozers for
use in agricultural land development. Sales in Africa were also buoyant,
centering on mining equipment.

     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 and in applications in the electronics
industry. The electronics segment also produces LCD manufacturing equipment,
excimer lasers and various electronic equipment and devices. Komatsu's
electronics segment accounted for (Yen)76,769 million (US$577 million), or 7.4%,
of total net sales for fiscal 2002, representing a 34.8% decrease in these sales
over the prior fiscal year. Sales in Japan dropped 42.1% to (Yen)43,085 million
(US$324 million), while sales outside Japan fell 22.2% to (Yen)33,684 million
(US$253 million).

     In Komatsu's silicon wafer business, Komatsu stepped up its restructuring
efforts to meet the drastic change in the business environment. Concerning
Komatsu Silicon America, Inc., which had discontinued its operations, Komatsu
decided not to reuse it as a manufacturing plant for silicon wafers and instead
to sell or dispose of the company's fixed assets. As to the polycrystalline
silicon business, Advanced Silicon Materials LLC (ASiMI) moved forward in
fundamentally reducing its production capacity by means of consolidating its
production lines. Accordingly, Komatsu reevaluated the fixed assets of Komatsu
Silicon America and ASiMI and recorded impairment losses of (Yen)24,983 million
and (Yen)27,259 million, respectively. Komatsu believes that these two
businesses will now be able to meet their business requirements, in light of
their business objectives, through their own available resources.

Komatsu Electronic Metals Co. ("Komatsu Electronic Metals"), Ltd.

     Komatsu Electronic Metals has tightened the focus of its production in
Japan and Taiwan since 1999 and enhanced its market presence in these two
regions as its basic policy. The company exerted all-out efforts on the
reinforcement of its corporate strengths by enhancing product competitiveness,
mainly for 200mm wafers, and production efficiency as well as by

                                       10

<PAGE>

reducing capacity costs. On a nonconsolidated basis, the company sustained
ordinary profit of (Yen)94 million (US$0.7 million). A drastic fall in demand
adversely affected sales, which declined 33.9%, to (Yen)48,732 million (US$366
million), for the year. Formosa Komatsu Silicon Corporation, a joint venture
with a local partner in Taiwan, met a sharp fall in demand at the time of its
full-scale production start-up and recorded poor business results. Komatsu
Electronic Metals registered consolidated sales of (Yen)52,323 million (US$393
million), a decline of 33.4% from the previous year, and an ordinary loss of
(Yen)5,157 million (US$39 million).

Working to Make a Difference in Technologies

     Komatsu Electronic Metals has been working jointly with the Company's
Research Division to enhance the product competitiveness of its 200mm silicon
wafers, its mainstay product line.

     Along with growing demand for high-performance semiconductor devices, the
quality requirements for silicon wafers are becoming more stringent in regards
to the flatness of their surfaces, light point defect (LPD) and purity. In
response, the company is researching high-precision crystal growth, wafer
processing and other technologies to develop and commercialize new products for
customers.

     With respect to 300mm silicon wafers, the company has a monthly production
capacity of 10,000 pieces at its Miyazaki Plant. In addition to further
expanding its technological development efforts, the company plans to gradually
increase the production capacity of the plant as it assesses future developments
in demand. The company will also consider alliance possibilities.

Advanced Silicon Materials LLC (ASiMI)

     Demand for polycrystalline silicon for semiconductors sharply dropped,
adversely affected by the inventory adjustments of silicon wafer manufacturers,
which had resulted from the worldwide decline in the market for semiconductors.

     The business results of ASiMI worsened from the previous year, reflecting
primarily an extraordinary loss of (Yen)27,259 million resulting from the
impairment loss of its fixed assets in addition to reduced sales of
polycrystalline silicon. Concerning its Butte Plant in Montana, the company
concluded that it would be difficult to sustain a sufficient rate of operation
for the time being and recorded an impairment loss of (Yen)13,411 million. ASiMI
also decided to discontinue production at the Moses Lake Plant in Washington and
recorded a loss of (Yen)15,977 million for the year, including an impairment
loss on its fixed assets. The company has signed a letter of intent with
Renewable Energy Corporation AS of Norway to establish a joint venture to
convert the latter plant into one dedicated to producing polycrystalline silicon
for solar applications. The two companies have begun discussions on more
specific matters.

Komatsu Electronics, Inc. ("Komatsu Electronics")

     Demand for thermoelectric modules for use in fiber optic communication
networks surged in the previous fiscal year on the back of global
telecommunication network infrastructure development and the expanded use of the
Wavelength Division Multiplexing method for large-scale data transmission.
However, Komatsu Electronics experienced a sharp and drastic downturn in sales
of thermoelectric modules in fiscal 2002, due to the impact of reduced capital
investment and inventory adjustments among telecommunications equipment
manufacturers in North America. Demand also remained slack for
temperature-control semiconductor manufacturing equipment, and the company's
fiscal 2002 sales declined substantially. With respect to earnings, the company
strengthened its efforts to cut capacity costs through a substantial reduction
of employees and other means; however, it had to record a loss

                                       11

<PAGE>

for the year.

GIGAPHOTON INC. ("GIGAPHOTON")

     GIGAPHOTON, an affiliated company accounted for by the equity method, is
responsible for Komatsu's excimer laser business. In fiscal 2002, the company
continued its R&D into industry-leading, next- and post-next-generation
technologies, while restructuring and reinforcing its global sales and service
network. However, these efforts failed to compensate for reduced demand, and
sales for the year declined. In terms of earnings, despite reduced capacity and
production costs, fiscal 2002 turned out to be a difficult year for the company.

     Under such conditions, the company received an order for its KrF (Krypton
Fluorine) excimer laser from ASM Lithography B.V ("ASML"). of the Netherlands
for use as a light source in scanners. ASML's first scanner was installed at a
major DRAM manufacturer in South Korea.

     Also during the year, GIGAPHOTON launched sales of REDeeM, a new system
capable of remotely diagnosing excimer lasers. This system enables not only near
real-time monitoring of such major components as the laser chamber but also
information sharing among engineers of semiconductor manufacturers, stepper
makers and GIGAPHOTON. The company expects that the new system will contribute
significantly to its differentiation from competitors and facilitate sales of
excimer lasers as well.

     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 totaled (Yen)227,782 million (US$1,713 million)
for fiscal 2002, consisting of Japanese sales of (Yen)174,751 million (US$1,314
million) and overseas sales of (Yen)53,031 million (US$399 million), down 15.5%
and 1.2% from the previous year, respectively. The overall decline of 12.6%
reflects the reduced sales of Komatsu Forklift, in addition to the effect of
unconsolidating Komatsu Construction, after the sale of its equity. Meanwhile,
sales to Japan's Defense Agency remained steady in spite of a decrease in sales
resulting from the partial completion of commissioned projects. Sales in the
industrial machinery business improved from the previous year.

Komatsu Forklift.

     Sales of Komatsu Forklift for the year fell 14.1% from the previous year,
to (Yen)89,869 million (US$676 million), as the company faced a sharp drop in
demand for industrial-use vehicles in Japan and overseas.

     The company launched 17 renewed models in the battery-driven Arion Plus
series in response to growing battery-driven forklift trucks in the Japanese
market. Nevertheless, such efforts fell short of countering the reduced market
demand.

                                       12

<PAGE>

     In the U.S. market, the company's subsidiary facilitated a series of
rationalization measures, including a reduction in manpower and a consolidation
of business bases, while strengthening its sales network by acquiring a sales
company and restructuring distributors. While the company expanded its market
share, sales for the year declined. In Europe, the company completed the
transfer of production and sales functions to a subsidiary of Linde, preparing
for full-scale operations from next fiscal year. In Southeast Asia and China,
the company reinforced its sales networks. Despite these measures, overseas
sales for the year decreased, due to a substantial drop in demand in the United
States, the largest market of the world.

     Also during the year, Komatsu Forklift continued to forge its alliance with
Linde. Komatsu and Linde agreed to transform Komatsu Forklift into a
joint-venture company of Komatsu and Linde. Pursuant to this joint venture,
Komatsu and Linde will collaborate through reciprocal supply of products and
components, joint development that incorporates technological advantages of both
companies, licensed production and other arrangements. Pursuant to this
arrangement, the company's U.S. manufacturing subsidiary began the OEM supply of
forklift trucks to Linde's U.S. subsidiary, and Linde's Chinese subsidiary
embarked on the production of Komatsu Forklift trucks. To further sharpen its
competitiveness through an expanded product range and sales capability, the
company plans to consolidate the capabilities and product lineups of a Southeast
Asian subsidiary of STIL of Germany, a leading manufacturer of battery-driven
forklift trucks and member of the Linde Group, into its local subsidiary. The
company also intends to engage in the joint development of products,
incorporating its technological expertise with that of Linde, as well as the
reciprocal supply of cost-competitive components to heighten its product
competitiveness.

Deciding to Transform Komatsu Forklift into a Wholly Owned Subsidiary of the
Company

     The Company resolved to transform Komatsu Forklift into a wholly owned
subsidiary as of October 1, 2002, through a stock-for-stock exchange. As
competition intensifies worldwide in the forklift truck market, the Company and
Komatsu Forklift have concluded that it is necessary for the forklift truck
business to further strengthen its cooperation within Komatsu and manage Komatsu
Forklift more dynamically. The company's becoming a wholly owned subsidiary of
the Company is expected to further expand the forklift truck business. Following
the exchange, Komatsu Forklift will become the company through which the Company
and Linde operate their joint venture, which should reinforce its
competitiveness on a global basis and improve its earnings capability.

     Komatsu is determined to improve the earnings capability of each business
as well as its corporate value by optimizing the management structure of major
companies in the Komatsu Group and by improving management efficiency.

Industrial Machinery Business

     Komatsu Industries Corporation ("Komatsu Industries"), which produces sheet
metal machinery and medium-sized presses, continued to implement
customer-tailored, proposal-oriented sales and service activities for products
with unique features. These products include the transfer presses of the E2W
series and Twister Fine Plasma cutting machines as well as laser cutting
machines made by TRUMPH GmbH ("TRUMPH") of Germany, an alliance partner. As a
result, in spite of the extremely tough market conditions, the company expanded
both its sales and profits for the year, after similarly posting profits in the
previous year.

     During the year, the company became the first in the world to commercialize
a large,

                                       13

<PAGE>

fully closed AC servo press successfully and launched sales of these presses
under the name of H2F Hybrid AC Servo Press Series in February 2002. In addition
to its high productivity and processing precision, the H2F series features a
significant reduction in noise compared with other mechanical presses as well as
high economy. Orders for the series have already been increasing, and the
company expects the product will facilitate continued business improvement.

     Also during the year, Komatsu Industries forged cooperative relations with
TRUMPH and introduced a new service network. In Japan, some 400 cutting machines
made by TRUMPH are used by customers, and the company anticipates dynamic growth
in demand for TRUMPH models. By integrating the management resources of the two,
Komatsu Industries believes it will provide higher-quality services and customer
support. With three service centers and six service facilities in Japan, the
company is improving its support programs.

     Fiscal 2002 sales of large presses advanced, supported by expanded
investment by Japanese automobile manufacturers mainly in their overseas plants.
With customer demand for cost reductions and competitive pricing intensifying,
Komatsu is implementing the SS21 Campaign, designed to meet diversified customer
needs in a speedy and simplified manner. The campaign is in response to a
structural change in the market for large presses largely resulting from
expanding demand from manufacturing customers of automobile bodies and Chinese
and Eastern European markets. As part of this campaign, Komatsu is working to
enhance customer satisfaction by establishing Digital Engineering Technology,
which integrates all information from design to installation and after-sales
services, shortened lead times and prompter responses for after-sales services.
Komatsu is also working to facilitate a significant reduction in costs by
emphasizing capacity cost cutbacks.

Komatsu Zenoah.

     In agricultural and forestry equipment, Komatsu Zenoah worked to expand
sales of its mainstay outdoor equipment by launching the EZ Start brushcutter,
which features significantly improved ignition and is the world's most
lightweight hedge trimmer. Against the backdrop of reduced total demand, sales
in this market decreased from the previous year. Meanwhile, sales of
environmental equipment increased, supported by expanded sales to rental
companies. Overseas, while the company received substantially expanded orders
for blowers that were developed for the U.S. market and brushcutters for the
Chinese market, it was not able to cover the declined sales of hobby and OEM
engines. Overseas sales for the year declined slightly from the previous year.
As a result, total sales of forestry and other equipment declined slightly from
the previous fiscal year.

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, 2002, 2001, and 2000, respectively:

                                       14

<PAGE>

<TABLE>
<CAPTION>
                                 Net Sales by Category of Activity
                                 ---------------------------------

======================================================================================
                         Fiscal Year             Fiscal Year          Fiscal Year
                       Ended 3/31/2002         Ended 3/31/2001      Ended 3/31/2000
                       ---------------         ---------------      ---------------
---------------------------------------------------------------------------------------
                                          (Millions of Yen)
---------------------------------------------------------------------------------------
<S>                  <C>           <C>      <C>           <C>     <C>           <C>
Construction and
Mining Equipment   (Yen)  731,340   70.6%  (Yen)  718,147   65.5% (Yen)  747,647   70.8%
----------------------------------------------------------------------------------------
Electronics                76,769    7.4%         117,745   10.7%         90,335    8.6%
----------------------------------------------------------------------------------------
Other                     227,782   22.0%         260,477   23.8%        217,672   20.6%
----------------------------------------------------------------------------------------
Total              (Yen)1,035,891  100.0%  (Yen)1,096,369  100.0% (Yen)1,055,654  100.0%
========================================================================================
</TABLE>

    The following table sets forth Komatsu's net sales by geographic markets for
the years ended March 31, 2002, 2001, and 2000, respectively:

<TABLE>
<CAPTION>
                                 Net Sales by Geographic Markets
                                 -------------------------------

========================================================================================
                          Fiscal Year              Fiscal Year         Fiscal Year
                        Ended 3/31/2002          Ended 3/31/2001     Ended 3/31/2000
                        ---------------           ---------------    ---------------
----------------------------------------------------------------------------------------
                                         (Millions of Yen)
----------------------------------------------------------------------------------------
<S>                  <C>           <C>      <C>           <C>     <C>            <C>
Japan              (Yen)  478,187   46.2%  (Yen)  586,865   53.5%  (Yen)  553,822   52.5%
----------------------------------------------------------------------------------------
Americas                  262,341   25.3%         241,091   22.0%         242,609   23.0%
----------------------------------------------------------------------------------------
Europe                    128,029   12.4%         126,479   11.5%         123,633   11.7%
----------------------------------------------------------------------------------------
Asia (excluding
Japan) & Oceania          126,363   12.2%         117,136   10.7%          99,558    9.4%
----------------------------------------------------------------------------------------
Middle East &
Africa                     40,971    4.0%          24,798    2.3%          36,032    3.4%
----------------------------------------------------------------------------------------
Total              (Yen)1,035,891  100.0%  (Yen)1,096,369  100.0%  (Yen)1,055,654  100.0%
========================================================================================
</TABLE>

Sales and Distribution

    Komatsu's international and domestic 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.

                                       15

<PAGE>

     Overseas Markets:

Global Sales and Service Operations

     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 while
facilitating the delivery of emergency spare parts.

Parts Supply Operations

     To ensure smooth and efficient parts supply to customers, Komatsu operates
P-WINS, a worldwide information network. The service is available on an
around-the-clock basis. Each system is information by a dedicated line to permit
on-line real-time processing of customer orders for parts as the key to fast
delivery.

Reman (Re-manufacturing)

     Komatsu offers speedy on-site replacement of major components of
construction and mining equipment that have reduced rate of operation as a
result of failure or aging, with high-quality and reasonably priced
remanufactured "CR units." At our eight Reman centers around the world, major
components and engines for generators are reconditioned into CR units under
rigorous quality control and delivered to many customers.

Training Centers

     To fully utilize the potential of Komatsu equipment, Komatsu maintains
training centers around the world. These centers provide diversified, advanced
training to customers and their operators, Komatsu distributors and Komatsu
Group employees.

     Domestic Market:

Sales Operations

     Komatsu's construction equipment is sold directly or through distributors
or dealers. In response to strong rental needs from customers, Komatsu also has
been committed to enhancing customer satisfaction through rental companies of
distributors and dealers in the Komatsu Group.

Service Operations

     The Komatsu service network covers 500,000 units of equipment sold in
Japan. Distributors and dealers form the core of the service network providing
total customer-support service that involves before- and after-sales service.

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.

                                       16

<PAGE>

     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

     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. Since then, Komatsu
has made progress in our efforts like reduction of industrial waste, energy
saving (reduction of CO2 emission), and recycling of materials. Komatsu has
started publication of these achievements in our "Environmental Report" in
fiscal 2000. Komatsu has also introduced "Environmental Accounting.

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
manufacturers who specialize in manufacturing these, and the

                                       17

<PAGE>

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. The Company believes that it has adequate and reliable
supply sources for its material parts and raw materials, and that it has
appropriate alternate sources available consistent with prudent business
practices. The Company does not believe that prices for material parts and raw
materials are particularly volatile.

     C. Organizational Structure

     The following list shows the principal subsidiaries:

Name of Company                      Country of            Ownership
                                    Incorporation             (%)

Komatsu Electronic Metals               Japan                 63.2
Co., Ltd.
Komatsu Forklift                        Japan                 51.9
Komatsu Zenoah Co.                      Japan                 55.7
Komatsu Castex Ltd.                     Japan                100.0
Komatsu House, Ltd                      Japan                 88.5
Komatsu Logistics Corp.                 Japan                 97.1
Komatsu Industries                      Japan                100.0
Corporation
Komatsu Tokyo Ltd.                      Japan                100.0
Komatsu Machinery                       Japan                100.0
Corporation
Komatsu Hokkaido Ltd.                   Japan                100.0
Komatsu Electronics, Inc.               Japan                100.0
Komatsu America Corp.                   U.S.A.               100.0
Komatsu America                         U.S.A.               100.0
International Company
Komatsu do Brasil Ltda.                 Brazil               100.0
Advanced Silicon                        U.S.A.               100.0
Materials LLC.
Komatsu Europe                         Belgium               100.0
International N.V.
Komatsu UK Ltd.                          UK                  100.0
Komatsu Hanomag AG                     Germany                98.4
Komatsu Mining Germany                 Germany               100.0
GmbH
Komatsu Utility Europe                  Italy                100.0
S.p.A.
Komatsu Asia & Pacific                Singapore              100.0
Pte Ltd
P T Komatsu Indonesia                 Indonesia               55.1
Tbk
Bangkok Komatsu Co.,                   Thailand               74.8
Ltd.

                                       18

<PAGE>

Name of Company                      Country of              Ownership
                                    Incorporation               (%)

Komatsu (China) Ltd.              Republic of China            100.0
Komatsu (Changzhou)               Republic of China             85.0
Construction Machinery
Corp.


     D. Property, Plants and Equipment

     Komatsu's manufacturing operations are conducted in 30 principal plants, 12
of which are located in Japan. As of March 31, 2002, the 30 plants had an
aggregate manufacturing floor space of 1,494 thousand square meters (16,087
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 except the Moses lake Plant (ASiMI) and
Komatsu Silicon America 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 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, 2002, the net book value of the
property owned by Komatsu was (Yen)405,301 million, of which (Yen)27,852 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, 2002, are as follows:


    Name and Location         Floor Space             Principal products
                           Square   thousand
                            meter    sq. ft

In Japan
Awazu Plant               244,000      2,626  Small and medium-sized bulldozers
Komatsu                                       (under 20 tons), 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, vehicles,
                                              Ammunition

Komatsu Plant              44,000        474  Large presses, Underground
Komatsu                                       machinery

Osaka Plant               138,000      1,485  Large bulldozers (20 tons and
                                              over),

                                       19

<PAGE>

Hirakata                                      Medium-sized 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
Oyama                                         and industrial vehicles, Diesel
                                              generators, Marine engines,
                                              Rolling stock engines,
                                              Low-pollution methanol engines,
                                              Hydraulic equipment

Mooka Plant                  66,000      710  Rough-terrain cranes, Dump trucks,
Mooka                                         large wheel loaders, Motor
                                              graders, Road construction
                                              machinery, Towing tractors

Komatsu Castex Ltd.          56,000      603  Steel casting, Iron castings,
Himi                                          Pattern for casting

Komatsu Zenoah Co.           44,100      475  Mini-sized hydraulic excavators,
Kawagoe and Koriyama                          Skid steer loaders, Mini-sized
                                              agricultural and forestry
                                              equipment, General purpose
                                              engines, Hydraulic equipment

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

Komatsu Electronic           72,000      775  High-purity silicon wafers
Metals Co., Ltd.
Nagasaki and Miyazaki

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

Overseas

Komatsu America             145,600    1,568  Hydraulic excavators, Wheel
International Company                         loaders, Motor graders, Cranes,
Tennessee, USA and                            Backhoe Loaders Large wheel
Quebec, Canada                                loaders, Large dump trucks.
South Carolina, USA and
Illinois, USA

Hensley Industries, Inc.     20,000      215  Buckets, Teeth, Adapters
Texas, USA

Komatsu Mexicana S.A.        22,000      237  Small-sized presses, Attachments

                                       20

<PAGE>

de C.V.                                       for construction equipment, and
Sahagun, Mexico                               others


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

Advanced Silicon             62,927      678  Polycrystalline silicon products,
Materials LLC.                                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       34,000      366  Mini and small hydraulic
S.p.A.                                        excavators, Backhoe loaders,
Este, Italy                                   Skidsteer loaders

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

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

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

Komatsu (Changzhou)          16,000      172  Iron castings and parts for
Foundry Corporation                           construction equipment and
Jiangsu, China                                industrial vehicles, Foundry molds

Bangkok Komatsu Co.          13,464      145  Hydraulic excavators
Ltd.
Chonburi, Thailand

Formosa Komatsu Silicon      12,080      130  Silicon wafers
Corporation
Mailiao, Yunlin, Taiwan


     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.

                                       21

<PAGE>

Item 5.   Operating and Financial Review and Prospects

Critical Accounting Policies

     Komatsu prepares the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America. As
such, Komatsu is required to make certain estimates, judgments and assumptions
that Komatsu believes are reasonable based upon the information available. These
estimates and assumptions affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of expenses
during the periods presented. The significant accounting policies which Komatsu
believes are the most critical to aid in fully understanding and evaluating
Komatsu's reported financial results include the following:

Allowance for doubtful receivables

     Komatsu estimates the collectibility of its trade receivables. A
considerable amount of judgment is required in assessing the final realization
of these receivables including the current financial position of each customer.
Komatsu has attempted to reserve for expected losses based on the credit
information including past experience and believes that the reserve to be
adequate. However, it is possible that accuracy of the estimation process could
be materially impacted due to change in the composition of the receivables.

Deferred tax assets

     During the process of preparing the consolidated financial statements,
Komatsu estimates income taxes in each of the jurisdictions in which Komatsu
operates. This process involves Komatsu estimating the current tax exposure and
assessing net operating loss carryforwards and temporary differences resulting
from differing treatment of items for tax and accounting purposes. These
carryforwards and temporary differences result in deferred tax assets and
liabilities, which are included within Komatsu's consolidated balance sheet.
Komatsu must then assess the likelihood that Komatsu's deferred tax assets will
be recovered from future taxable income and available tax planning strategies,
and, to the extent Komatsu believes that recovery is not likely, Komatsu must
establish a valuation allowance. When the actual results differ from these
estimates, Komatsu may need to adjust the valuation allowance which could
materially affect Komatsu's financial position and results of operations.

Valuation of long-lived assets

     Komatsu's long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to management's best estimate of
future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment loss to be recognized
is measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. The undiscounted cash flow
projections used to make assessment involves significant judgments. Fair value
is measured based on the discounted cash flow model or independent appraisal. In
the event that there are changes in strategy and market conditions, the
assessment of the ability to recover the carrying amount of long-lived assets
would change.

                                       22

<PAGE>

Fair value of 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.

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

Pension liabilities and expenses

     The amounts of Komatsu's pension obligation and net period pension cost are
dependent on certain assumptions used to calculate such amounts. Those
assumptions are described in Note 10 to the consolidated financial statements
and include the discount rate, expected rate of return on plan assets and rates
of increase in compensation. In accordance with generally accepted accounting
principles, actual results that differ from the assumptions are accumulated and
amortized over future service years of employees and therefore, generally affect
Komatsu's recognized expense and recorded obligation in such future periods.
While Komatsu believes that its assumptions are appropriate, in the event that
there are significant differences in the actual results or significant changes
in the assumptions, the pension obligation and the future expenses would be
impacted.

      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 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.

     During fiscal 2002, ended March 31, 2002, the business environment for
construction and mining equipment became grave in Japan, with an over 20%
decline in demand from the previous year, as it was impacted by reduced
construction investment. Overseas, while the Chinese market continued to expand
during the year, demand in the major markets of North America and Europe
declined. As a result, overall overseas demand was slack for the year under
review.

     With respect to electronics, the international semiconductor market
registered a record drop in 2001, resulting in a drastic fall in demand for
silicon wafers and their raw material, polycrystalline silicon. Demand for
thermoelectric modules for use in fiber optic communication networks took a
sharp downturn during the year, partly in reaction to skyrocketing demand in the
previous year.

     The Company embarked on its Reform of Business Structure project, centering
on capacity cost reduction, substantial cutbacks in production costs and new
growth in its mainstay

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<PAGE>

construction and mining equipment business, to transform its corporate structure
into a new one capable of expanding profits. As part of this reform, the Company
consolidated some operations, restructured its organizations, improved
operational efficiency and cut back expenses. In Japan, the Company implemented
voluntary retirement and transferred employees to affiliated companies.

     In its construction and mining equipment business, the Company aggressively
made an initial domestic launch of its GALEO-series equipment, which features IT
and other cutting-edge technologies. The Company also worked to accelerate
involvement in after-sales downstream markets such as those for rental
equipment, used equipment, parts and services. Overseas, Komatsu made concerted
efforts to secure profits by carrying out programs that differed according to
regions and products.

     In response to deteriorated profitability in its electronics business,
Komatsu made a thorough reassessment of the segment's business structure and
recorded impairment losses on the fixed assets of two subsidiaries in the United
States.

     Foreign Exchange Rate Fluctuations. Sales to customers located outside
Japan represented approximately 54% and 47% of Komatsu's net revenues in fiscal
2002 and fiscal 2001, 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 2002 with Fiscal 2001

     Net Sales

     Net sales in fiscal 2002 ended March 31, 2002 decreased 5.5% from the
previous fiscal year, to (Yen)1,035,891 million (US$7,789 million at
US$1=(Yen)133). Sales in Japan dropped 18.5%, to (Yen)478,187 million (US$3,595
million) and overseas sales rose 9.5%, to (Yen)557,704 million (US$4,193
million). As a result, the ratio of overseas sales to consolidated net sales for
the year rose to 53.8% from 46.5% in the previous fiscal year.

     Japanese demand for construction equipment fell sharply from the previous
fiscal year, as customers' desire for equipment investment was critically
influenced by cutbacks in public investment by the government. Expanded sales
from introducing renewed main models fell short of compensating for the large
fall in overall demand in the market. In North America, a leading market for
construction equipment, demand has been declining for three consecutive years.
In Europe, the market for construction equipment contracted after continued
expansion for the last few years. In spite of the declined sales in these
markets, overseas sales improved over the previous fiscal year, supported by
expanded sales generated in other regions and strong sales of mining equipment.
As a result, sales of construction and mining equipment increased 1.8% from

                                       24

<PAGE>

the previous fiscal year, to (Yen)731,340 million (US$5,499 million).

     In the electronics business, reflecting the severe conditions of the
international IT-related market, demand for silicon wafers and polycrystalline
silicon as the raw material for silicon wafers drastically decreased both in
Japan and overseas. Sales of FA equipment and LAN-related peripherals were
sluggish, sales of thermoelectric modules for use in fiber optic communication
networks suffered from a drastic drop in demand and those of temperature-control
semiconductor manufacturing equipment were adversely affected by reduced capital
investment in the industry. As a result, sales from the electronics business
dropped 34.8% from the previous fiscal year, to (Yen)76,769 million (US$577
million).

     With respect to other operations, sales of large presses advanced in the
industrial machinery business, supported by expanded investment by Japanese
automobile manufacturers mainly in their overseas plants. In the business of
sheet metal forming machinery and agricultural and forestry machines, sales grew
centering on products with unique features despite the difficult business
conditions. On the other hand, sales of forklift trucks declined considerably
from the previous fiscal year due to reduced demand for industrial vehicles in
Japan and overseas.

     As a result, sales from other operations declined 12.6% from the previous
fiscal year, to (Yen)227,782 million (US$1,713 million). This decline was also
affected by the exclusion of sales of Komatsu Construction, which became
unconsolidated in October 2000.

     Overseas sales by region in fiscal 2002 were as follows: sales in the
Americas reached (Yen)262,341 million (US$1,972 million), up 8.8%; sales in
Europe increased 1.2%, to (Yen)128,029 million (US$963 million); sales in Asia
(excluding Japan) and Oceania advanced 7.9%, to (Yen)126,363 million (US$950
million); and sales in the Middle East and Africa climbed 65.2%, to (Yen)40,971
million (US$308 million).

     Earnings

     Cost of sales in fiscal 2002 decreased 1.5% from the previous fiscal year,
to (Yen)792,748 million (US$5,961 million). The ratio of cost of sales to net
sales grew 3.1 percentage points, to 76.5%. Selling, general and administrative
(SG&A) expenses for the year declined 2.8%, to (Yen)256,364 million (US$1,928
million), keeping the ratio of SG&A expenses to net sales to 24.7%,a minimal
increase of 0.6 percentage points over the previous fiscal year, in spite of the
big drop in net sales. As a result, operating loss for fiscal 2002 amounted to
(Yen)13,221 million (US$99 million), compared to profits of (Yen)27,815 million
in fiscal 2001. This deterioration was brought about primarily by worsened
conditions in the domestic construction and mining equipment business and in the
electronics business.

     Net interest and other income and expenses in fiscal 2002 generated a loss
of (Yen)93,503 million (US$703 million), compared with a loss of (Yen)7,751
million in the previous fiscal year. This resulted from the fact that net other
expenses in fiscal 2002 included the large cost of reform of business structure,
such as the impairment losses of fixed assets of electronics business related
subsidiaries in the United States as well as the cost of early retirement
program and transfers of employees to affiliated companies in Japan.

     As a result, loss before income taxes, minority interests and equity in
earnings for the fiscal year totaled (Yen)106,724 million (US$802 million),
compared with profits of (Yen)20,064 million for the previous fiscal year, and
the percentage of loss before income taxes, minority interests

                                       25

<PAGE>

and equity in earnings to net sales was minus 10.8% in fiscal 2002.

     Equity in earnings of affiliated companies in fiscal 2002 amounted to
(Yen)398 million (US$3 million).

         As a result, Komatsu's net loss in fiscal 2002 was (Yen)80,621 million
(US$606 million).

     On a per share basis, net loss amounted to (Yen)84.46 (US63.5c). Dividends
per share were maintained at (Yen)6.00 (US4.5c), as positive effects from the
reform of business structure should improve the business results of the Company
in fiscal 2003 and thereafter. The corresponding figures for fiscal 2001 were
(Yen)7.24 and (Yen)6.00, respectively.

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 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

                                       26

<PAGE>

     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.

     In addition in fiscal 2002, Komatsu recorded impairment losses on
long-lived assets of (Yen)52,242 million which relates to production facilities
that are being sold or significantly reduced in operations due to the poor
market conditions 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.

     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.

Performance by Segment

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

     Construction and Mining Equipment. Fiscal 2002 net sales of construction
and mining equipment totaled (Yen)731,340 million (US$5,499 million), an
increase of 1.8% compared to (Yen)718,147 million in fiscal 2001, which
represented a decrease of 3.9% compared to (Yen)747,647 million in fiscal 2000.
Construction and mining equipment net sales accounted for 70.6% of Komatsu's
worldwide net sales in fiscal 2002. While sales in Japan decreased 14.8% to
(Yen)260,351 million (US$1,958 million) in fiscal 2002 from (Yen)305,593 million
in fiscal 2001, sales outside Japan increased 14.2% to (Yen)470,989 million
(US$3,541 million) in fiscal 2002. Sales in Japan represented 35.6% of total
sales of construction and mining equipment, down 7% from the

                                       27

<PAGE>

previous fiscal, while the proportion of sales outside Japan increased to 64.4%.
Overall, net sales of construction and mining equipment comprised 70.6% of
Komatsu's total net sales in fiscal 2002, up 5.1% from 65.5% in fiscal 2001 and
down 0.2% from 70.8% in fiscal 2000.

     Operating income from the construction and mining equipment segment for
fiscal 2002 decreased 96% compared to the previous fiscal to (Yen)881 million
(US$7 million) primarily due to reduced sales in Japanese market and due to
one-time expenses resulting from reforms in the business structure. In fiscal
2001 operating income decreased 22.1% to (Yen)22,203 million from (Yen)28,489
million in fiscal 2000.

     Electronics. In the electronics business, fiscal 2002 net sales from
electronics operations decreased 34.8% to (Yen)76,769 million (US$577 million)
from (Yen)117,745 million in fiscal 2001 as sales in Japan decreased 42.1% to
(Yen)43,085 million (US$324 million), and sales outside Japan decreased 22.2% to
(Yen)33,684 million (US$253 million). Fiscal 2001 net sales increased 30.3% to
(Yen)117,745 million from (Yen)90,335 million in fiscal 2000. Electronics
accounted for 7.4% of Komatsu's net sales in fiscal 2002, compared with 10.7% in
fiscal 2001 and 8.6% in fiscal 2000.

     KEM, a 61.9%-owned subsidiary of the Company engaged in the manufacture of
silicon wafers, had sales of (Yen)52,323 million (US$393 million) for fiscal
2002, a decrease of 33.4% from sales of (Yen)78,525 million the previous fiscal
year.

     Operating income from the electronics segment for fiscal 2002 was an
operating loss of (Yen)14,925 million (US$ 112 million).

     Other Operations. Fiscal 2002 sales from Komatsu's other operations
decreased 12.6% to (Yen)227,782 million (US$1,713 million) from (Yen)260,477
million in fiscal 2001.Sales of large presses advanced in the industrial
machinery business, supported by expanded investment by Japanese automobile
manufactures mainly in their overseas plants. In the business of sheet metal
forming machinery and agricultural and forestry machines, sales grew centering
on products with unique features despite the difficult business conditions. On
the other hand, sales of forklift trucks declined considerably from the previous
fiscal year due to reduced demand for industrial vehicles in Japan and overseas.
Operating income from other operating segments for fiscal 2002 decreased 22.9%,
to (Yen)4,976 million (US$37 million) compared to (Yen)6,450 million the
previous fiscal year.

Performance by Region

     Japan. Net sales to customers in Japan decreased 18.5% from (Yen)586,865
million in fiscal 2001 to (Yen)478,187 million (US$3,595 million) in fiscal
2002. Operating income (loss) for Komatsu's operations in Japan decreased from
an income of (Yen)29,253 million in fiscal 2001 to an income of (Yen)130 million
(US$1 million) in fiscal 2002. The decrease in sales came from reduction of the
demand for construction equipment in Japan and affected by the exclusion of
sales of Komatsu Construction. Compared to fiscal 2000, net sales to customers
in Japan and operating income (loss) recorded by Komatsu's operations in Japan
in fiscal 2001 increased by 6.0% (from (Yen)553,822 million) and increased by
(Yen)28,298 million from an operating income of (Yen)955 million, respectively.

     Asia (Excluding Japan) and Oceania. Net sales to customers in the rest of
Asia and Oceania increased 7.9% to (Yen)126,363 million (US$950 million) in
fiscal 2002 compared to (Yen)117,136 million in fiscal 2001. Net sales in fiscal
2001 increased 17.7% from (Yen)99,558 million

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<PAGE>

in fiscal 2000. The increase in net sales in fiscal 2002 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 12.2% of Komatsu's worldwide net sales
in fiscal 2002, up from 10.7% in fiscal 2001 and up from 9.4% in fiscal 2000.

     Americas. Net sales to customers in North America, Central America and
South America increased 8.8% in fiscal 2002 to (Yen)262,341 million (US$1,972
million) from (Yen)241,091 million in fiscal 2001. Fiscal 2001 net sales
decreased 0.6% from net sales of (Yen)242,609 million in fiscal 2000. North
American, Central American and South American net sales accounted for 25.3% of
Komatsu's net sales worldwide in fiscal 2002, up from 22.0% in fiscal 2001 and
23.0% in fiscal 2000.

     Operating loss for Komatsu's operations in the Americas increased over a
loss of (Yen)2,302 million in fiscal 2001 and an income of (Yen)12,354 million
in fiscal 2000 to a loss of (Yen)10,562 million (US$79 million) in fiscal 2002.

     Europe. Net sales to customers in Europe in fiscal 2002 increased 1.2% to
(Yen)128,029 million (US$963 million) from (Yen)126,479 million in fiscal 2001.
Fiscal 2001 net sales increased 2.3% over (Yen)123,633 million in fiscal 2000.
Net sales to customers in Europe comprised 12.4% of Komatsu's net sales
worldwide in fiscal 2002, up from 11.5% in fiscal 2001 and 11.7% in fiscal 2000.

     In fiscal 2002, operating income from Komatsu's operations in Europe
decreased to (Yen)3,077 million (US$23 million) from (Yen)5,945 million in
fiscal 2001. Compared to fiscal 2000, operating income recorded in fiscal 2001
increased by (Yen)1,661 million from (Yen)4,284 million.

     Middle East and Africa. In the Middle East and Africa, Komatsu's net sales
increased 65.2% to (Yen)40,971 million (US$308 million) in fiscal 2002 compared
to (Yen)24,798 million in fiscal 2001, which represented a 31.2% decrease from
net sales of (Yen)36,032 million in fiscal 2000. Net sales to customers in the
Middle East and Africa comprised 4.0% of Komatsu's net sales worldwide in fiscal
2002, up from 2.3% in fiscal 2001 and 3.4% in fiscal 2000.

     B. Liquidity and capital resources

     Cash and cash equivalents as of March 31, 2002 were (Yen)45,392 million
(US$341 million), an increase of (Yen)5,632 million over the previous fiscal
year end. Net cash provided by operating activities was (Yen)60,321 million
(US$454 million) for fiscal 2002, a decrease of (Yen)9,655 million from the
previous year.

     Net cash used in investing activities in fiscal 2002 was (Yen)16,933
million (US$127 million) and decreased by (Yen)18,209 million from (Yen)35,142
million used in fiscal 2001. This decrease was principally due to an increase in
the proceeds from sales of property by (Yen)11,925 million in fiscal 2002
compared to fiscal 2001. Net cash used in financing activities decreased to
(Yen)40,455 million (US$304 million) in fiscal 2002, a decrease of (Yen)35,408
million from (Yen)75,863 million used by financing activities in fiscal 2001,
principally reflecting the decrease of repayment of long term debt obligations
by (Yen)31,013 million compared to fiscal 2001.

     Working capital in fiscal 2002 decreased 17.5% from the previous year, to
(Yen)167,581 million (US$1,260 million) resulting from declined sales and
reduced assets. The current ratio (current assets divided by current
liabilities) in fiscal 2002 decreased by 6.6% from the previous year to 128.3%,
compared with 134.9% in fiscal 2001.

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<PAGE>

     Capital expenditures in fiscal 2002 decreased 6.1% from the previous year
to (Yen)74,468 million (US$560 million). The decrease resulted mainly from
highly focused capital expenditures. Commitments for capital expenditures
outstanding as of March 31, 2002 totaled (Yen)2,900 million (US$22 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.

     Komatsu intends to meet its future capital expenditures, debt service and
working capital requirements mainly from cash flow from operating activities and
roll over of short-term loans. Net cash provided by operating activities was
(Yen)60,321 million (US$454 million) for fiscal 2002. A continuing sluggish
economy in Komatsu's principal markets and a sustained decrease in demand for
Komatsu's products would reduce cash flow from operations.

     While Komatsu expects cash flow from operations to be its primary source of
funding, Komatsu also intends to use, to a lesser extent, borrowings, including
under new lines of credit, securitization of accounts receivable, and capital
markets funding, including commercial paper.

     At March 31, 2002, Komatsu had a cash balance of (Yen)45,392 million
(US$341 million). At that date, Komatsu's consolidated total debt was
(Yen)476,897 million (US$3,586 million), (Yen)219,717 million (US$1,652 million)
of which was short-term debt (including current portions of long-term debt). As
of March 31, 2002, (Yen)44,778 million of Komatsu's long-term debt was scheduled
to mature in fiscal 2003, (Yen)96,945 million in fiscal 2004, and (Yen)48,902
million in fiscal 2005 and thereafter.

     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 of March 31, 2002, Komatsu had securitized accounts
receivable totaling (Yen)159,393 million (US$1,198 million) (or 32.1% of total
accounts receivable at that date). Of this amount, (Yen)41,441 million related
to receivables generated by Komatsu's Japanese operations and (Yen)117,952
million related to receivables generated by Komatsu's North American operations.
As of March 31, 2001, Komatsu had securitized accounts receivable totaling
(Yen)127,155 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.

     Komatsu has several receivable securitization programs of account
receivable. The balance as of the end of fiscal 2002 is mentioned above. The
receivables are deducted from the consolidated balance sheet when they are sold.
Komatsu has the contract of securitization with special purpose companies but
does not have any relationship with them except the securitization program.

     A downgrading or worsening of the quality of Komatsu's receivables
portfolio could prevent it from using the receivables securitization program.

     As of May 31, 2002, the Company had outstanding (Yen)12,000 million of
commercial paper issued under its (Yen)50,000 million commercial paper program,
scheduled to mature in July 2002. As of May 31, 2002, Komatsu Finance America
Inc. ("KFA") had outstanding US$538 million

                                       30

<PAGE>

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 notes issued under the EMTN
Program are scheduled to mature on various dates through September 2009. As of
May 31, 2002, Komatsu Finance (Netherlands) B.V. had EUR117 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. And (Yen)27,447 million of 1.8% convertible
unsecured bonds scheduled to mature in 2004.

     The Company and certain consolidated subsidiaries have unused committed
lines of credit amounting to (Yen)72,626 million ($546 million) with certain
financial institutions at the end of fiscal 2002.

     Komatsu's ability to use external sources of financing will depend, to some
extent, on its credit rating. Komatsu believes that it is well positioned to
raise capital in the public markets. However, a downgrade of any of the ratings
of Komatsu's debt may increase the cost of future borrowings or may make it more
difficult to access the public debt markets. In connection with a credit rating
agency's review of Komatsu's debt ratings, a credit rating agency may give
considerable weight to the continued sluggish economy in Japan and general
economic conditions and the lack of growth in Komatsu's principal markets.

Commercial and Contractual Obligations

     For information on Komatsu's outstanding obligations, please refer to notes
9 and 17 of the audited financial statements.

     C. Research and development, patents and licenses

Corporate Policy

     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 2002 decreased 2.6%
from the previous year, to (Yen)44,083 million (US$331 million), representing
4.3% of net sales. Komatsu's consolidated R&D expenditures for the years ended
March 31, 2001 and 2000 amounted to (Yen)45,282 million and (Yen)42,460 million,
respectively. The construction and mining equipment segment accounted for R&D
expenses of (Yen)27,667 million in fiscal 2002 compared to (Yen)26,992

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<PAGE>

million in fiscal 2001. The electronics segment recorded R&D expenses of
(Yen)5,585 million in fiscal 2002 compared to (Yen)7,047 million in fiscal 2001.

Spirit of Manufacturers

     Komatsu believes the "Spirit of Manufacturers," is the power to challenge
and constantly produce the best possible products in quality, specification and
cost. This power is the foundation of Komatsu's competitive strength. By
reinforcing the original system of manufacturing, Komatsu will strive to develop
products, services and systems with outstanding features which overwhelm the
competitors, and the production bases worldwide will strive to achieve top-level
product competitiveness in respective regions.

Core Technologies

     Komatsu concentrates on the following five core technologies that have been
cultivated through the development and manufacture of construction, and mining
equipment and industrial machinery. The expansion of Group operations in the
future will be focused on these technologies.

     The five core technologies

     .    Mechanical Eng. & Mechatronics
     .    Electronics & Silicon Material
     .    Basic (Analysis, Thermal, Optical, etc.)
     .    Material and Manufacturing
     .    System & Information

Mid- and Long-term R&D Strategy

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

Information Technology (IT)

     R&D to improve the products and services with IT will be one of the top
priority issues for the coming years. By doing this, Komatsu plans to be able to
offer system-integrated products and services, and furthermore, `talk' with the
machines in the field to support our customers faster and more accurately.

For construction equipment, Komatsu has projects such as:

..    Unmanned hauling system for mining (offering relief from physically
     demanding conditions)
..    Dispatch and fleet control of construction sites

Combining various sensing technologies and a communications network system,
Komatsu believes Komatsu will be able to run a remote machine diagnosis/support
system for the machines working in the field. More accurate PM (preventive
maintenance) can be performed for timely parts upgrade and replacement to
improve machine availability. This approach will be applied not only to
construction equipment, but to all products and services Komatsu is engaged in.

Technology Assessment and Development for Environmental Conservation

     As a corporate citizen, being environment-friendly is a bottomline
requirement. Komatsu will diligently work to produce low emission engine-powered
vehicles, with lower energy consumption. Komatsu intends to use more recycled
parts and material/components. In the future, Komatsu intends that its coolant
will have a longer life, and hydraulic oil will be bio-degradable. All Komatsu
product designs will be based on LCA (life cycle assessment).

     Especially for machines to operate in urban areas, Komatsu intends to
develop core technologies to further reduce noise and vibration of the
equipment.

                                       32

<PAGE>

     Komatsu is also devoted to using the engineering resources in developing
recycling equipment and services, such as mobile crushers and recycle plants.

Material and Equipment Technology to Support Semiconductor Die Shrink

     The acceleration of semiconductor geometry shrink has brought the
0.13(miu)m generation right around the corner. This 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 silicon wafers) side, R&D efforts in silicon material and wafer
manufacturing technology are directed to improve crystal quality and flatness of
wafers.

     Komatsu believes that impressive progress in semiconductor process, and
equipment technology is on the way, too. Komatsu believes that years of
experience in R&D of diesel engines and construction equipment has ensured its
excellence in technology areas such as optics/laser technology, and thermal
technology. These can make significant contributions to semiconductor
manufacturing of the next technology node.

     In addition, Komatsu develops high-quality thermo-modules, that are
indispensable for precision cool/heat control (wavelength control) of laser
diodes for high-speed fiberoptic data communication.

     D. Trend information

Development and Results of Business Operations

     During the period under review, it is projected that the Japanese economy
will register real negative growth, due to drastic decrease in capital
investment and industrial production as well as record high unemployment rate,
caused by the sluggish IT related markets and deflationary trend of the economy.
The United States began to generate steady momentum for recovery later in the
year. Nevertheless, it was on a declining trend when viewed for the whole year.
European economies also weakened for the year. All combined, world economies
slowed down simultaneously.

     The business environment for construction and mining equipment business was
seriously affected by decline in demand of over 20% in Japan from the previous
period. In overseas markets, the Chinese market continued to expand during the
year, however, demand declined in our major markets of North America and Europe
reflecting economic slowdown in these regions. Overseas demand was slack for the
year under review.

     In the electronics business, Komatsu witnessed a record-breaking drop in
the international semiconductor market for the year 2001, resulting in a drastic
fall in the demand for silicon wafers and their raw materials, and
polycrystalline silicon. Demand for thermo-modules (thermoelectric elements) for
use in fiber optic communication network also dropped sharply for this period,
which is seen as a reaction to surging growth in demand during the previous
year.

     Under these difficult conditions, in order to transform its corporate
structure into a new one capable of expanding profits, Komatsu has embarked on
the Reform of Business Structure which underscores cutback of capacity costs,
substantial reduction of production costs, and new growth for its mainstay
business of construction and mining equipment.

     In cutting costs, Komatsu consolidated some operations, restructured its
organizations, improved operational efficiency and reduced costs. Particularly
in Japan, the Company

                                       33

<PAGE>

solicited voluntary retirees and transferred employees to affiliated companies
in order to reduce personnel expenses.

     In its construction and mining equipment business, Komatsu made aggressive
launchings of the new "GALEO" series machines equipped with IT and other latest
technological features in Japan, prior to other markets of the world. On the
other hand, Komatsu also strengthened its business in the downstream fields such
as rental, used equipments, components and after-sales services. Overseas,
Komatsu carried out various measures designed for each region and product to
improve profits.

     In the electronics business, in order to improve deteriorated profits,
Komatsu made thorough reassessment of the business structure and recorded
impairment losses on fixed assets of two U.S. subsidiaries.

     While Komatsu is determined to bring about positive results from these
measures, the Company recorded an extraordinary loss by including expenses
associated with voluntary retirement, transfers to affiliates and impairment
losses of fixed assets for the electronics business for the year under review.

Forward Looking Information

     Komatsu believes that there are signs of recovery in market demand for
construction equipment in North America along with economic signs of bottoming
out as a result of the inventory adjustment in progress. While it is projected
that demand for construction equipment will remain sluggish in Europe, Komatsu
believes there are signs of recovery in overall overseas markets with the
rapidly growing Chinese market and other regions with promising potential
demand. Meanwhile, in Japan, where almost half of Komatsu's sales takes place,
it is difficult to anticipate definite developments for economic recovery, and
it is projected that reduction of construction investment will continue. In this
light, Komatsu anticipates a difficult and challenging business environment for
fiscal 2003.

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 one year 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 may investigate

                                       34

<PAGE>

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 26, 2002), 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>
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
                     Supervising Corporate         Jun. 1999 Executive Vice President
                     Administration,               Jun. 1999 Rep. Director
                     Related Businesses, and
                     Management Structure Reform

Kazuhiro Aoyagi      Executive Managing Director   Jun. 1993 Director
(Apr. 14, 1943)      President, Construction &     Jun. 1998 Managing Director
                     Mining Equipment              Jun. 1999 Senior Executive Officer
                     Marketing Division.           Jun. 2001 Executive Managing Director

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

Kunihiko Komiyama    Managing Director             Jun. 1996 Director
(May. 5, 1945)       General Manager,              Jun. 1999 Senior Executive Officer
                     Corporate Planning,           Jun. 2002 Managing Director
                     Supervising Engines
                     & Hydraulics Business
</TABLE>

                                       35

<PAGE>

<TABLE>
<S>                  <C>                           <C>
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 Corporation

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

Masafumi Kanemoto    Statutory Auditor             Jun. 2002 Statutory Auditor
(May. 11, 1947)

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>

     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.

                                       36

<PAGE>

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.

       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 2002 to all Directors and Statutory
Auditors as a group for services in all capacities, was (Yen)374 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)63 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 2002 fiscal year, as approved by the Company's
Shareholders at the General Meeting of Shareholders held on June 27, 2001.

Retirement Allowance

                                       37

<PAGE>

       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, 2002 was (Yen)103
million.

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.

<TABLE>
<CAPTION>
                                    Number of                                       Number of
           Name                       shares                   Name                  shares
<S>                                 <C>                <C>                          <C>
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
</TABLE>

The following table shows the common stock option plan.

<TABLE>
<CAPTION>
Years granted           Total number of shares to be     Exercise price per share
(Year ended March 31)    called for common stock (in
                                  thousands)
<S>                     <C>                              <C>
              1999                  1,000                            700
              2000                  1,200                            820
              2001                  1,200                            758
              2002                  1,100                            559
</TABLE>

Option to exercise the issuance of common stocks warrant

       On June 26, 2002, the shareholders of the Company authorized the Company
to issue rights to acquire new shares to the Directors and certain employees in
the form of stocks options. This issuance of common stocks warrant of the
Company up to a maximum of 950 rights, that will result in 950,000 shares by
granting the right to convert 1,000 stocks per a stock warrant.

    C. Board practices

       See Item 6A "Directors and senior management"

                                       38

<PAGE>

    D. Employees

Number of employees by business segment

<TABLE>
<CAPTION>
                Total      Construction and Mining Equip.      Electronics        Other       Corporate
<S>            <C>         <C>                                 <C>                <C>         <C>
    2002       30,760                  20,407                     3,227           6,721          405
    2001       32,002                  20,345                     3,578           7,625          454
    2000       31,785
</TABLE>

Segment information for 2000 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, 2002. This table does not
include the shares related to unexercised stock options.

<TABLE>
<CAPTION>
Name                            Position                              Number of shares (in thousands)
<S>                             <C>                                   <C>
Satoru Anzaki                   Chairman of the Board                                 134
Masahiro Sakane                 President                                              49
Toshitaka Hagiwara              Executive Vice President                               47
Kazuhiro Aoyagi                 Executive Managing Director                            35
Kunio Noji                      Managing Director                                      25
Kunihiko Komiyama               Managing Director                                      28
Tetsuya Katada                  Director                                               81
Norimichi Kitagawa              Statutory Auditor                                      29
Masafumi Kanemoto               Statutory Auditor                                      12
Masahiro Yoshiike               Statutory Auditor                                       2
</TABLE>

Item 7.       Major Shareholders and Related Party Transactions

    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,
2002.

 Name of major shareholders             Shares owned            Percentage

                                       39

<PAGE>

                                          (in thousands)
The Taiyo Mutual Life Insurance Co.           55,224             5.8%
NATS CUMCO                                    55,056             5.7%

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, 2001 and 2000 are as follows,

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%

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

         The Company's major shareholders do not have different voting rights.

         As of March 31, 2002, 86 residents of the United States held
approximately 14.0% 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, except as
described below.

Brandes Investment Partners

         Brandes Investment Partners filed a substantial share holding report
with the Director of the Kanto Local Finance Bureau of the Ministry of Finance
in Japan on May 24, 2001 in accordance with Paragraph 1 of Article 27-25 of the
Securities and Exchange Law of Japan. Their report showed that they held
116,471,776 shares, or 12.1% of the Company's shares, as of April 27, 2001.

Franklin Templeton Investment Group

         Franklin Templeton Group, which consists of 6 investment institutions,
filed as a group a substantial share holding report with the Director of the
Kanto Local Finance Bureau of the Ministry of Finance in Japan on July 19, 2001,
in compliance with Paragraph 1 of Article 27-25 of the Securities and Exchange
Law of Japan.

Their report showed that they held 52,489,437 shares, or 5.5% of the Company's
shares, as of May 1, 2001.

         The number and the percentage of the Company shares held by Brandes
Investment Partners and Franklin Templeton Investment Group who are beneficial
owners of 5% or more of the Company shares are not contained in the foregoing
table because we are unable to identify the owners of record of the shares held
by them.

      B. Related party transactions

                                       40

<PAGE>

         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 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 known 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.

      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 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
2002 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.

      B. Significant changes

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

                                       41

<PAGE>

Item 9   The Offer and Listing

      A. Offer and listing details

         The shares of common stock of the Company 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.

        European Depositary Receipts are listed on the Luxemburg Stock Exchange.
        Global Bearers Certificates are listed on the Frankfurt Stock Exchange.

         As of June 30, 2002, 958,921,701 shares of common stock were
outstanding. On the same date, 15,045,925 ADS's (equivalent to 60,183,700 shares
of common stock, or approximately 6.3% 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, 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    820       444      27.490     16.700
  The fiscal year ended March 31, 2001
      1/st/ quarter                       759       488      28.750     19.240
      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
  The fiscal year ended March 31, 2002
      1/st/ quarter                       705       516      22.900     17.000
      2/nd/ quarter                       582       355      18.250     12.100
      3/rd/ quarter                       469       369      14.300     11.900
      4/th/ quarter                       500       375      14.700     11.250

  2002 January                            500       401      14.700     12.000
  2002 February                           464       375      12.900     12.250
  2002 March                              485       409      14.500     12.750
  2002 April                              493       422      15.000     13.050
  2002 May                                479       431      15.000     13.750
  2002 June                               444       393      14.200     13.000

      B. Plan of distribution

                                       42

<PAGE>

     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).

     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.

(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.

(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.

(4)   In September 2000, the Company entered into an 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.

(5)   In March 2002, the Company entered into an agreement with Volvo
      Construction Equipment for cooperation on production and development of
      construction equipment components.

(6)   In May 2002, the Company entered into agreements with Komatsu Forklift and
      Komatsu Zenoah for an exchange of stock with minority shareholders. They
      will become wholly owned subsidiaries of the Company on October 1, 2002
      through the stock for stock exchanges.

     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

                                       43

<PAGE>

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 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 voting rights 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 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.

                                       44

<PAGE>

         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

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, 2004) 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

                                       45

<PAGE>

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 (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 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 after the
amendment of the Commercial Code in 2001.

     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.

                                       46

<PAGE>

     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

     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 bonds and loans.

                                       47

<PAGE>

     The following table provides information concerning the derivative
financial instruments of Komatsu in relation to foreign currency exchange
transactions existing as of March 31, 2002, 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, 2002. As of March 31, 2002 the notional amount of
option contracts is (Yen)3,171 million (US$24 million).

<TABLE>
<CAPTION>
                                               Millions of yen (except average contractual rates)
Forwards to sell               US$/Yen         EUR/EUR        GBP/Yen        US$/EUR     Others       Total
Foreign currencies
<S>                          <C>             <C>             <C>           <C>         <C>          <C>
Contract amounts            (Yen)17,944     (Yen)5,444      (Yen)3,366    (Yen)1,083  (Yen)1,033   (Yen)28,870
Average contractual rates        129.75         113.72            1.63          1.14           -             -

<CAPTION>
Forwards to buy                 GBP/EUR       Yen/ZAR       Yen/EUR     US$/EUR      US$/Yen     Others     Total
foreign currencies
<S>                          <C>            <C>           <C>        <C>         <C>         <C>         <C>
Contract amounts             (Yen)8,902     (Yen)4,881   (Yen)2,994  (Yen)2,691  (Yen)2,131  (Yen)5,729  (Yen)27,328
Average contractual rates          0.62          11.40       113.46        0.88      100.13           -            -

<CAPTION>
                                               Thousands of U.S. dollars
Forwards to sell                US$/Yen       EUR/Yen   GBP/EUR    US$/EUR    Others   Total
foreign currencies:
<S>                          <C>            <C>       <C>        <C>        <C>       <C>
Contract amounts               $134,917       $40,932   $25,308    $8,143     $7,767  $217,067

<CAPTION>
Forwards to buy                 GBP/EUR       Yen/ZAR   Yen/EUR   US$/EUR    US$/Yen   Others     Total
foreign currencies
<S>                          <C>            <C>        <C>       <C>        <C>       <C>       <C>
Contract amounts                $66,932       $36,699   $22,511   $20,233    $16,023   $43,075   $205,473
</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
(losses) 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
following tables present notional amounts and weighted average receive and pay
interest rates. As of March 31, 2002, the notional amount and its average strike
rate of interest cap transactions are (Yen)63,238 million (US$475 million) and
5.70%, respectively.

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

<TABLE>
<CAPTION>
                                                                             Millions of yen
                                   Average                                Expected maturity date
                                Interest rate     Total        2003        2004       2005         2006       2007     Thereafter
<S>                             <C>            <C>           <C>       <C>         <C>         <C>          <C>        <C>
U.S. dollar bonds                   6.97%      (Yen)25,051   (Yen) -  (Yen)15,590   (Yen) -    (Yen)9,461    (Yen) -     (Yen) -
Japanese yen convertible
Debentures/debentured bonds         1.86%           62,447         -       27,447         -        35,000          -           -
Euro medium-term notes              2.46%           74,056    24,767       11,924    23,663         6,351      6,190       1,161
Loans, principally from banks       2.68%          125,402    14,872       37,784    22,193         6,060     10,119      34,374
</TABLE>

                                       48

<PAGE>

<TABLE>
<S>                               <C>           <C>          <C>           <C>          <C>          <C>          <C>
Total                             (Yen)286,956  (Yen)39,639  (Yen)92,745   (Yen)45,856  (Yen)56,872  (Yen)16,309  (Yen)35,535

<CAPTION>
Interest rate and cross-currency swaps                                         Millions of yen
                               Average interest rate                        Expected maturity date
                               Receive    Pay     Total          2003          2004        2005        2006     2007     Thereafter
<S>                            <C>        <C>   <C>          <C>           <C>        <C>         <C>         <C>         <C>

Japanese yen interest rate       0.32%    0.91% (Yen)65,081   (Yen)22,156  (Yen)7,474 (Yen)30,369  (Yen)5,082     (Yen)-      (Yen)-
swap
U.S. dollar interest rate        1.77%    4.76%      92,781        48,533      29,125      11,902       2,762          -         459
swap
Australian dollar interest       4.33%    4.92%       5,323         5,323           -           -           -          -           -
rate swap
Yen/US$ cross-currency swap      0.90%    2.48%      65,972        20,500      11,818      20,918       6,118      5,618       1,000
Yen/EUR cross-currency swap      0.42%    3.64%       9,300         6,600       1,200       1,500           -          -           -
Others                                                6,782         2,753       2,894       1,086          21         28           -
Total                                          (Yen)245,239  (Yen)105,865 (Yen)52,511 (Yen)65,775 (Yen)13,983 (Yen)5,646  (Yen)1,459

<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       2003     2004       2005      2006      2007     Thereafter
<S>                       <C>            <C>          <C>       <C>       <C>        <C>       <C>         <C>
U.S. dollar bonds              6.97%     $  188,353   $      -  $117,218  $      -   $ 71,135  $      -    $      -
Japanese yen convertible
debentures/debentured
bonds                          1.86%        469,526          -   206,368         -    263,158         -           -
Euro medium-term notes         2.46%        556,812    186,218    89,655   177,917     47,752    46,541       8,729
Loans, principally from
banks                          2.68%        942,873    111,820   284,090   166,865     45,564    76,083     258,451
Total                                    $2,157,564   $298,038  $697,331  $344,782   $427,609  $122,624    $267,180

<CAPTION>
Interest rate and cross-currency swaps                                Thousands of U.S. dollars
                              Average interest rate                            Expected maturity date
                              Receive   Pay       Total       2003     2004      2005     2006      2007    Thereafter
<S>                           <C>       <C>       <C>        <C>       <C>      <C>       <C>      <C>       <C>
Japanese yen interest rate
swap                           0.32%   0.91%   $  489,330   $166,586 $ 56,195  $228,338 $ 38,211   $     -   $     -
U.S. dollar interest rate
swap                           1.77%   4.76%      697,602    364,910  218,985    89,489   20,767         -     3,451
Australian dollar interest
rate swap                      4.33%   4.92%       40,023     40,023        -         -        -         -         -
Yen/US$ cross-currency swap    0.90%   2.48%      496,030    154,135   88,857   157,278   46,000    42,241     7,519
Yen/EUR cross-currency swap    0.42%   3.64%       69,925     49,624    9,023    11,278        -         -         -
Others                                             50,992     20,699   21,759     8,165      158       211         -
Total                                          $1,843,902   $795,977 $394,819  $494,548 $105,136   $42,452   $10,970
</TABLE>


Item 12  Description of Securities Other than Equity Securities

Not Applicable

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

                                       49

<PAGE>

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
(99) Assurances letter concerning the audit by Arthur Andersen.

                                   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:  July 23, 2002                 By:        /s/ Kenji Kinoshita
                                          -------------------------------------
                                                Kenji Kinoshita
                                                Executive Officer

                                       50

<PAGE>

                                  KOMATSU LTD.

                                  CONSOLIDATED
                       FINANCIAL STATEMENTS AND SCHEDULES
                FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000


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

* * * * * * * * * *

                                       51

<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, 2002 Attached Hereto and Incorporated
      Herein by Reference:

      Consolidated Balance Sheets, March 31, 2002 and 2001 .....................         34 and 35

      Consolidated Statements of Income for the
        Years Ended March 31, 2002, 2001and 2000 ...............................            36

      Consolidated Statements of Shareholders' Equity for the
        Years Ended March 31, 2002, 2001 and 2000 ..............................            37

      Consolidated Statements of Cash Flows for the
           Years Ended March 31, 2002, 2001 and 2000 ...........................            38

      Notes to Consolidated Financial Statements ...............................         39 to 61

      Report of Independent Public Accountants .................................            62
</TABLE>

                                       52

<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
           to Conform with Regulation S-X ..............................................       A-1 to A-3

        Schedule for the Years Ended March 31, 2002, 2001 and 2000:

           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>

                                       53

<PAGE>

Ten-Year Summary

Komatsu Ltd. and Consolidated Subsidiaries
Years ended March 31

<TABLE>
<CAPTION>
                                                                                              Millions of yen
                                                                                         (except per share amounts)
                                                                          ---------------------------------------------------------
                                                                                  2002            2001            2000
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                <C>             <C>
For the fiscal period
Net sales .............................................................   (Yen)1,035,891     (Yen)1,096,369  (Yen)1,055,654
Cost of sales .........................................................          792,748            804,700         796,820
Income (loss) before income taxes, minority interests, equity
   in earnings and cumulative effect of accounting changes ............         (106,724)            20,064          19,395
Net income (loss) .....................................................          (80,621)             6,913          13,395
     As percentage of sales ...........................................             (7.8)%              0.6%            1.3%
Capital expenditures ..................................................           74,468             79,310          57,728
-----------------------------------------------------------------------------------------------------------------------------------

At fiscal period-end
Total assets ..........................................................   (Yen)1,340,282     (Yen)1,403,195  (Yen)1,375,280
Working capital .......................................................          167,581            203,233         221,517
Property, plant and equipment .........................................          405,301            438,795         397,534
Long-term debt--less current maturities ...............................          257,180            238,349         245,289
Shareholders' equity ..................................................          395,143            474,257         490,454
     As percentage of total assets ....................................             29.5%              33.8%           35.7%
-----------------------------------------------------------------------------------------------------------------------------------

Per share data
Net income (loss) per share:
     Basic ............................................................   (Yen)   (84.46)    (Yen)     7.24  (Yen)    13.85
     Diluted ..........................................................           (84.46)              7.24           13.76
Cash dividends per share ..............................................             6.00               6.00            6.00
Shareholders' equity per share ........................................           414.02             497.12          507.26
-----------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                                             Yen per U.S. dollar
                                                                          ---------------------------------------------------------
                                                                                  2002            2001            2000
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>               <C>             <C>
Other information
Exchange rate into U.S. dollars
   (per the Federal Reserve Bank of New York):
     At fiscal period-end .............................................   (Yen)      133     (Yen)      126  (Yen)      103
     Average for the fiscal period ....................................              126                112             110
     Range:
        High ..........................................................              134                126             121
        Low ...........................................................              119                106             102
-----------------------------------------------------------------------------------------------------------------------------------
</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 includes receivables due after one year.

32

<PAGE>

                                 Millions of yen
                           (except per share amounts)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
         1999            1998            1997            1996           1995             1994           1993
-----------------------------------------------------------------------------------------------------------------
<S>              <C>              <C>              <C>             <C>               <C>              <C>
(Yen)1,061,597   (Yen)1,104,077   (Yen)1,098,916  (Yen)  999,327   (Yen)  918,910  (Yen)  845,853  (Yen)  869,928
       807,255          826,627          827,665         763,045          702,416         649,512         662,408

        (9,604)          40,252           45,769          32,431           24,482          13,933          30,757
       (12,378)          19,241           18,160          14,291           10,225           1,303           3,037
          (1.2)%            1.7%             1.7%            1.4%             1.1%            0.2%            0.3%
       114,874          123,026           70,604          47,499           41,492          30,032          47,156
-----------------------------------------------------------------------------------------------------------------

(Yen)1,524,600   (Yen)1,561,662   (Yen)1,512,730  (Yen)1,593,003   (Yen)1,541,972  (Yen)1,375,966  (Yen)1,323,960
       256,039          212,096          228,404         260,296          254,992         221,274         249,419
       440,706          393,603          299,098         264,842          257,219         260,720         260,999
       292,250          196,898          163,590         140,208          140,550         142,578         207,027
       495,643          524,201          541,933         606,444          575,534         505,871         516,409
          32.5%            33.6%            35.8%           38.1%            37.3%           36.8%           39.0%
-----------------------------------------------------------------------------------------------------------------

 (Yen)  (12.77)  (Yen)    19.60    (Yen)   18.26  (Yen)    14.24   (Yen)    10.19  (Yen)     1.30  (Yen)     3.03
        (12.77)           19.32            18.02           14.10            10.19            1.30            3.03
          7.00             8.00             8.00            8.00             8.00            8.00            8.00
        511.54           540.50           550.79          604.07           573.29          504.28          515.05
-----------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                Yen per U.S. dollar
-----------------------------------------------------------------------------------------------------------------
         1999            1998            1997            1996           1995             1994           1993
-----------------------------------------------------------------------------------------------------------------
<S>                     <C>             <C>             <C>             <C>              <C>            <C>
 (Yen)     118   (Yen)      133   (Yen)      124  (Yen)      107   (Yen)       87  (Yen)      102  (Yen)      115
           128              124              113              96               99             107             124

           145              133              124             107              105             114             135
           113              115              105              84               87             101             115
-----------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              33

<PAGE>

Consolidated Balance Sheets

Komatsu Ltd. and Consolidated Subsidiaries
March 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                                                 Thousands of
                                                                                                                 U.S. dollars
                                                                                     Millions of yen               (Note 1)
                                                                           ----------------------------------    ------------
Assets                                                                             2002              2001             2002
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>                 <C>
Current assets

Cash and cash equivalents (Note 1) ....................................... (Yen)    45,392   (Yen)    39,760     $    341,293
Time deposits ............................................................           1,076             1,110            8,090
Trade notes and accounts receivable, less allowance
 for doubtful receivables of (Yen)15,221 million ($114,444 thousand)
 in 2002 and (Yen)10,998 million in 2001 (Notes 3 and 8) .................         337,093           394,658        2,534,534
Inventories (Notes 1 and 4) ..............................................         266,952           255,801        2,007,158
Deferred income taxes and other current assets (Notes 1 and 13) ..........         109,429            94,799          822,774
-----------------------------------------------------------------------------------------------------------------------------
Total current assets .....................................................         759,942           786,128     $  5,713,849
-----------------------------------------------------------------------------------------------------------------------------



Investments

Investments in and advances to affiliated companies (Notes 1 and 6) ......          23,169            24,531          174,203
Investment securities (Notes 1, 5 and 19) ................................          50,651            68,788          380,835
Other ....................................................................             272             1,860            2,045
-----------------------------------------------------------------------------------------------------------------------------
Total investments ........................................................          74,092            95,179          557,083
-----------------------------------------------------------------------------------------------------------------------------



Land and buildings held for sale--at the lower of cost or market
 (including projects in progress) ........................................          12,461            12,809           93,692
-----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment--less accumulated depreciation
 (Notes 1, 7, 8 and 14) ..................................................         405,301           438,795        3,047,376
-----------------------------------------------------------------------------------------------------------------------------
Deferred income taxes (Notes 1 and 13) ...................................          35,507            20,228          266,970
-----------------------------------------------------------------------------------------------------------------------------
Other assets (Notes 1, 10, 18 and 19) ....................................          52,979            50,056          398,338
-----------------------------------------------------------------------------------------------------------------------------
                                                                           (Yen) 1,340,282   (Yen) 1,403,195     $ 10,077,308
=============================================================================================================================
</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                                              2002               2001             2002
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>                 <C>
Current liabilities

Short-term debt (Notes 8 and 9) .......................................... (Yen)   177,098   (Yen)   196,111     $  1,331,564
Current maturities of long-term debt (Notes 8, 9, 14 and 19) .............          42,619            34,026          320,444
Trade notes and accounts payable .........................................         196,069           209,526        1,474,203
Income taxes payable (Note 13) ...........................................           6,011            11,598           45,195
Deferred income taxes and other current liabilities (Notes 1 and 13) .....         170,564           131,634        1,282,436
-----------------------------------------------------------------------------------------------------------------------------
Total current liabilities ................................................         592,361           582,895        4,453,842
-----------------------------------------------------------------------------------------------------------------------------

Long-term debt (Notes 8, 9, 14 and 19) ...................................         257,180           238,349        1,933,684
-----------------------------------------------------------------------------------------------------------------------------
Liability for pension and postretirement benefits (Notes 1 and 10) .......          40,465            54,110          304,248
-----------------------------------------------------------------------------------------------------------------------------
Deferred income taxes (Notes 1 and 13) ...................................           1,650             4,317           12,406
-----------------------------------------------------------------------------------------------------------------------------
Other liabilities (Notes 1, 18 and 19) ...................................           7,230                --           54,361
-----------------------------------------------------------------------------------------------------------------------------
Minority interests .......................................................          46,253            49,267          347,767
-----------------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Note 17)


Shareholders' equity (Notes 1 and 11)
Common stock:
  Authorized, 3,955,000,000 shares in 2002 and 2001;
  Issued and outstanding, 958,921,701 shares in 2002 and 2001 ............          67,870            67,870          510,301
Capital surplus ..........................................................         117,439           117,418          883,000
Retained earnings:
  Appropriated for legal reserve .........................................          20,852            20,718          156,782
  Unappropriated .........................................................         210,309           300,499        1,581,270
Accumulated other comprehensive income (loss) (Notes 1, 5, 10 and 12) ....         (18,393)          (29,204)        (138,293)
Treasury stock at cost, 4,519,972 shares in 2002
 and 4,911,812 shares in 2001 (Note 11) ..................................          (2,934)           (3,044)         (22,060)
-----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ...............................................         395,143           474,257        2,971,000
-----------------------------------------------------------------------------------------------------------------------------
                                                                           (Yen) 1,340,282   (Yen) 1,403,195     $ 10,077,308
=============================================================================================================================
</TABLE>

                                                                              35

<PAGE>

Consolidated Statements of Income

Komatsu Ltd. and Consolidated Subsidiaries
Years ended March 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                                                Thousands of
                                                                                                                U.S. dollars
                                                                         Millions of yen                          (Note 1)
                                                           ---------------------------------------------          --------
                                                                  2002           2001            2000               2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>            <C>                   <C>
Revenues

Net sales (Notes 1 and 6) ..............................   (Yen)1,035,891  (Yen)1,096,369 (Yen)1,055,654        $ 7,788,654
Interest and other income ..............................           34,278          30,718         55,857            257,729
------------------------------------------------------------------------------------------------------------------------------------
Total ..................................................        1,070,169       1,127,087      1,111,511          8,046,383
------------------------------------------------------------------------------------------------------------------------------------

Costs and expenses (Notes 14 and 15)
Cost of sales ..........................................          792,748         804,700        796,820          5,960,511
Selling, general and administrative ....................          256,364         263,854        241,516          1,927,549
Interest ...............................................           16,842          22,194         24,392            126,631
Impairment loss on long-lived assets (Note 1) ..........           52,242           4,337          4,474            392,797
Special termination benefit (Note 10) ..................           30,131              --             --            226,549
Other ..................................................           28,566          11,938         24,914            214,782
------------------------------------------------------------------------------------------------------------------------------------
Total ..................................................        1,176,893       1,107,023      1,092,116          8,848,819
------------------------------------------------------------------------------------------------------------------------------------

Income (loss) before income taxes, minority
 interests and equity in earnings ......................         (106,724)         20,064         19,395           (802,436)
------------------------------------------------------------------------------------------------------------------------------------
Income taxes (Notes 1 and 13)
Current ................................................            3,914          20,952         18,158             29,429
Deferred ...............................................          (25,844)         (7,237)        (8,208)          (194,316)
------------------------------------------------------------------------------------------------------------------------------------
Total ..................................................          (21,930)         13,715          9,950           (164,887)
------------------------------------------------------------------------------------------------------------------------------------

Income (loss) before minority interests and equity
 in earnings ...........................................          (84,794)          6,349          9,445           (637,549)

Minority interests in income (loss) of consolidated
 subsidiaries ..........................................            3,775             179            (88)            28,384

Equity in earnings of affiliated companies .............              398             385          4,038              2,992
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) ......................................     (Yen)(80,621)     (Yen)6,913     (Yen)13,395       $  (606,173)
------------------------------------------------------------------------------------------------------------------------------------

                                                                                Yen                                 U.S. cents
                                                          ----------------------------------------------   -------------------------
Net income (loss) per share (Notes 1 and 16):
  Basic ................................................      (Yen)(84.46)      (Yen)7.24      (Yen)13.85             (63.5)c
  Diluted ..............................................           (84.46)           7.24           13.76             (63.5)
Dividends per share (Note 1) ...........................             6.00            6.00            6.00               4.5
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

36

<PAGE>

Consolidated Statements of Shareholders' Equity

Komatsu Ltd. and Consolidated Subsidiaries
Years ended March 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                                                       Thousands of
                                                                                                                       U.S. dollars
                                                                                         Millions of yen                 (Note 1)
                                                                         -------------------------------------------     --------
                                                                             2002           2001             2000          2002
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>           <C>              <C>             <C>
Common stock

Balance, beginning of year ..........................................    (Yen) 67,870  (Yen) 68,370     (Yen) 68,370    $  510,301
Purchase and retirement of common stock:
   10,000,000 shares in 2001 ........................................              --          (500)              --            --
----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year ................................................    (Yen) 67,870  (Yen) 67,870     (Yen) 68,370    $  510,301
----------------------------------------------------------------------------------------------------------------------------------

Capital surplus

Balance, beginning of year ..........................................    (Yen)117,418  (Yen)117,366     (Yen)117,083    $  882,842
Sales of treasury stock .............................................              21            52              283           158
----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year ................................................    (Yen)117,439  (Yen)117,418     (Yen)117,366    $  883,000
----------------------------------------------------------------------------------------------------------------------------------

Retained earnings
Appropriated for legal reserve

Balance, beginning of year ..........................................    (Yen) 20,718  (Yen) 20,431     (Yen) 20,200    $  155,774
Transfer from unappropriated retained earnings ......................             134           287              231         1,008
----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year ................................................    (Yen) 20,852  (Yen) 20,718     (Yen) 20,431    $  156,782
----------------------------------------------------------------------------------------------------------------------------------

Unappropriated retained earnings

Balance, beginning of year ..........................................    (Yen) 300,49  (Yen)305,483     (Yen)298,122    $2,259,391
Adjustments for change of fiscal period on consolidated                        (3,705)           --               --       (27,857)
subsidiaries (Note 1) ...............................................
Net income (loss) ...................................................         (80,621)        6,913           13,395      (606,173)
Cash dividends paid .................................................          (5,730)       (5,770)          (5,803)      (43,083)
Transfer to retained earnings appropriated for legal reserve ........            (134)         (287)            (231)       (1,008)
Purchase and retirement of common stock .............................              --        (5,840)              --            --
----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year ................................................    (Yen)210,309  (Yen)300,499     (Yen)305,483    $1,581,270
----------------------------------------------------------------------------------------------------------------------------------

Accumulated other comprehensive income (loss)

Balance, beginning of year ..........................................    (Yen)(29,204) (Yen)(19,590)    (Yen) (7,436)   $ (219,579)
Adjustments for change of fiscal period on consolidated .............           9,447            --               --        71,030
subsidiaries (Note 1) ...............................................
Other comprehensive income (loss) for the year, net of tax ..........           1,364        (9,614)         (12,154)       10,256
----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year ................................................    (Yen)(18,393) (Yen)(29,204)    (Yen (19,590)   $ (138,293)
----------------------------------------------------------------------------------------------------------------------------------

Treasury stock

Balance, beginning of year ..........................................    (Yen) (3,044) (Yen) (1,606)    (Yen)   (696)   $  (22,887)
Purchase of treasury stock ..........................................            (643)       (1,956)            (925)       (4,835)
Sales of treasury stock .............................................             753           518               15         5,662
----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year ................................................    (Yen) (2,934) (Yen) (3,044)    (Yen) (1,606)   $  (22,060)
----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ..........................................    (Yen)395,143  (Yen)474,257     (Yen)490,454    $2,971,000
----------------------------------------------------------------------------------------------------------------------------------

Disclosure of comprehensive income (loss)

Net income (loss) for the year ......................................    (Yen)(80,621) (Yen)  6,913     (Yen) 13,395    $ (606,173)
Other comprehensive income (loss) for the year, net of tax ..........           1,364        (9,614)         (12,154)       10,256
----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) for the year ............................    (Yen)(79,257) (Yen) (2,701)    (Yen)  1,241    $ (595,917)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                                                              37

<PAGE>

Consolidated Statements of Cash Flows

Komatsu Ltd. and Consolidated Subsidiaries
Years ended March 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                                               Thousands of
                                                                                                               U.S. dollars
                                                                                   Millions of yen               (Note 1)
                                                                        -------------------------------------- -------------
                                                                           2002         2001          2000         2002
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>           <C>          <C>           <C>
Operating activities

Net income (loss) ..................................................... (Yen)(80,621)  (Yen)6,913  (Yen)13,395   $ (606,173)
Adjustments to reconcile net income (loss) to net cash
 provided by operating activities:
  Depreciation and amortization .......................................       61,581       65,106       63,690      463,015
  Deferred income taxes ...............................................      (25,844)      (7,237)      (8,208)    (194,316)
  Net loss (gain) from marketable securities and investments ..........        8,696      (11,991)     (16,993)      65,383
  Gain on sale of property ............................................      (16,454)      (3,440)     (23,777)    (123,714)
  Loss on disposal or sale of fixed assets ............................        7,202        5,565       14,367       54,150
  Impairment loss on long-lived assets ................................       52,242        4,337        4,474      392,797
  Provision (reversal) for pension and postretirement benefits, net ...       10,364        5,467      (10,920)      77,925
Changes in assets and liabilities:
  Decrease (increase) in trade receivables ............................       62,551        3,874      (13,448)     470,308
  Decrease (increase) in inventories ..................................       20,611       (3,899)      13,683      154,970
  Increase (decrease) in trade payables ...............................      (37,942)       8,652        4,065     (285,278)
  Increase (decrease) in income taxes payable .........................       (3,491)       2,641       (1,075)     (26,248)
Other, net ............................................................        1,426       (6,012)      (5,029)      10,722
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities .............................       60,321       69,976       34,224      453,541
---------------------------------------------------------------------------------------------------------------------------
Investing activities

Capital expenditures ..................................................      (54,118)     (60,046)     (57,728)    (406,902)
Proceeds from sales of property .......................................       32,377       20,452       37,584      243,436
Proceeds from sales of marketable securities and investments ..........        7,866       54,621      137,278       59,143
Purchases of marketable securities and investments ....................       (4,848)     (42,222)     (98,218)     (36,451)
Acquisition or sale of subsidiaries, net ..............................           --       (8,994)          --           --
Collection of loan receivables ........................................        8,729        3,034        5,066       65,631
Disbursement of loan receivables ......................................       (7,112)      (1,983)      (4,930)     (53,474)
Decrease (increase) in time deposits ..................................          173           (4)        (172)       1,301
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities ...................      (16,933)     (35,142)      18,880     (127,316)
---------------------------------------------------------------------------------------------------------------------------
Financing activities

Proceeds from long-term debt ..........................................       47,927       29,503       19,798      360,353
Repayments on long-term debt ..........................................      (49,110)     (80,123)     (21,663)    (369,248)
Decrease in short-term debt ...........................................      (28,391)      (7,385)     (52,987)    (213,466)
Repayments of capital lease obligations ...............................       (5,331)      (4,411)          --      (40,083)
Sales (repurchase) of common stock, net ...............................          180       (7,677)        (910)       1,354
Dividends paid ........................................................       (5,730)      (5,770)      (5,803)     (43,083)
---------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities .................................      (40,455)     (75,863)     (61,565)    (304,173)
---------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate change on cash and cash equivalents ...........          881          313        1,636        6,625
---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents ..................        3,814      (40,716)      (6,825)      28,677
Cash and cash equivalents, beginning of year ..........................       39,760       80,476       87,301      298,947
Adjustment for change of fiscal period on consolidated subsidiaries ...        1,818           --           --       13,669
---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year ................................  (Yen)45,392  (Yen)39,760  (Yen)80,476   $  341,293
---------------------------------------------------------------------------------------------------------------------------
</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, 2002, consisted of the following:

     Construction and mining equipment--70.6%, Electronics--7.4%, Others--22.0%.

     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
2002, 53.8% were generated outside Japan, with 25.3% in the Americas, 12.4% in
Europe, 12.2% in Asia (excluding Japan) and Oceania, and 3.9% 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, 2002, is included solely for the
convenience of readers outside Japan and has been made at the rate of (Yen)133
to $1, the approximate rate of exchange prevailing at the Federal Reserve Bank
of New York on March 29, 2002. 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,
impairment losses of long-lived assets, derivatives and accruals of certain
expenses. Certain reclassifications have been made to prior year amounts to
conform with current year presentation.

Summary of Significant Accounting Policies

(1)  Consolidation and Investments in Affiliated Companies

The consolidated financial statements include the accounts of the Company and
all of its majority-owned domestic and foreign subsidiaries, except for certain
immaterial subsidiaries.

     During fiscal 2002, Komatsu Cummins Chile Ltda., which was previously
accounted for using the equity method, became a consolidated subsidiary. The
Company established Komatsu (China) Ltd. and one other company, both of which
are treated as consolidated subsidiaries. In addition, KEM America Inc. was
excluded from consolidated subsidiaries due to its liquidation in this period.

     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 a major part of the 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.

     At the beginning of fiscal 2002, the Company changed the consolidated
closing date for certain overseas subsidiaries from December 31 to March 31. As
a result, unappropriated retained earnings decreased by (Yen)3,705 million
($27,857 thousand) and other comprehensive income (loss) increased by (Yen)9,447
million ($71,030 thousand).

     Investments in 20% to 50%-owned affiliated companies and certain immaterial
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 consolidated 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.

     However, according to the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," the Company
does not amortize goodwiil resulting from a business combination initiated after
June 30, 2001.

(2)  Translation of Foreign Currency Accounts

Under the provisions of 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

                                                                              39

<PAGE>

prevailing during each fiscal year in consolidating the financial statements of
overseas subsidiaries. The resulting translation adjustments are included in a
separate component of 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 sale which
are stated at fair value. Changes in fair values are included in a separate
component of accumulated other comprehensive income (loss) in the accompanying
consolidated balance sheets.

(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, 2002, 2001 and 2000, are
as follows:

                                               2002      2001      2000
------------------------------------------------------------------------

Buildings ...................................     9%        8%        8%
Machinery and equipment .....................    23%       24%       25%
------------------------------------------------------------------------

     Certain leased machinery and equipment are accounted for as capital leases
in conformity with SFAS No. 13, "Accounting for Leases." The aggregate cost
included in property, plant and equipment and related accumulated depreciation
as of March 31, 2002 and 2001 are as follows:

                                                                 Thousands of
                                       Millions of yen           U.S. dollars
                                    ---------------------       ---------------
                                    2002           2001             2002
-------------------------------------------------------------------------------
Aggregate cost ..............   (Yen)26,509    (Yen)19,264        $199,316
Accumulated depreciation ....        10,048          4,430          75,549
-------------------------------------------------------------------------------

     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.

     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.

(9)  Free Share Distribution

The Commercial Code of Japan ("the Code") permits Japanese companies, upon
approval by the Board of Directors, to issue shares, in the form of a stock
split, to shareholders. The Code requires no accounting recognition for such
free share distribution (Note 11).

40

<PAGE>

(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 purpose of the consolidated statements of cash flows, cash and cash
equivalents include highly liquid investments with an original maturity of three
months or less.

(12) Derivative Financial Instruments

The companies use various derivative financial instruments to manage their
interest rate and foreign exchange exposure.

     Effective April 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an amendment of
FASB Statement No. 133." SFAS No. 133 as amended requires that all derivatives,
including derivatives embedded in other financial instruments, be measured at
fair value and recognized as either assets or liabilities on the consolidated
balance sheet. Changes in the fair values of derivative instruments not
qualifying as hedges under SFAS No. 133 as amended or any ineffective portion of
hedges are recognized in earnings in the current period. Changes in the fair
values of derivative instruments used effectively as fair value hedges are
recognized in earnings, along with changes in the fair value of the hedged item.
Changes in the fair value of the effective portions of cash flow hedges are
reported in other comprehensive income (loss), and recognized in earnings when
the hedged item is recognized in earnings.

     The cumulative effect adjustment upon the adoption of SFAS No. 133 and 138,
net of the related tax effect, resulted in immaterial impact to net income and a
decrease to other comprehensive income (loss) of (Yen)670 million ($5,038
thousand).

     Prior to April 1, 2001, in determing whether these instruments qualify as a
hedge, the companies used hedge criteria that include their effectiveness to
reduce risk, specific identification of the asset or liability being hedged and
the time horizon being hedged.

   Interest differentials on interest rate swap contracts were accrued as
interest rate change over the contract period. Premiums paid for interest rate
caps were amortized over the life of contracts and were expensed as a part of
interest expense.

     Gains and losses on the foreign exchange contracts were recognized based on
changes in exchange gains and losses on such assets and liabilities being
hedged. Gains and losses on the forward exchange contracts to hedge foreign
currency commitments were deferred and included in the measurement of the
related transactions, unless it was estimated that such deferral would lead to
recognizing losses in later periods.

     In addition, the companies entered into certain interest rate swap
contracts as a means of managing the Company and its group companies' interest
rate exposures that did not meet the hedge criteria. Accordingly, those interest
rate swap contracts were recorded in the consolidated balance sheet at their
fair value and the changes in fair value were recognized currently in the
consolidated statements of income.

(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 of
(Yen)4,337 million and (Yen)4,474 million, respectively, on long-lived assets
related to certain production facilities, which were temporarily idled due to
the sluggish market, at its wholly owned subsidiary, Komatsu Silicon America,
Inc. in the electronics segment. Such impairment losses were calculated using
the best estimate of discounted future cash flows based on the intention of the
Company to use the facilities in its operation.

     However, due to continued negative market conditions in fiscal 2002,
management has changed its policy now to sell or dispose of these facilities
instead of holding them for future use. In connection therewith, the Company has
recorded an impairment loss of (Yen)24,983 million ($187,842 thousand) for these
facilities in fiscal 2002. The impairment loss was calculated based on an
estimated fair value less cost to sell of the facilities under current market
conditions utilizing independent appraisal of the facilities.

     Additionally, the Company, also due to the decline in the market demand,
has recorded an impairment loss of (Yen)27,259 million ($204,955 thousand) in
fiscal 2002 on production facilities currently being operated by a consolidated
subsidiary, Advanced Silicon Materials LLC in the electronics segment.
Specifically, an impairment loss of (Yen)13,411 million ($100,835 thousand) for
its Butte plant in Montana was calculated using the best estimate of discounted
future cash flows based on the decision to continue its operation, and one of
(Yen)13,848 million ($104,120 thousand) for its Moses Lake plant in Washington

                                                                              41

<PAGE>

was calculated using the estimate of realizable value based on the decision to
discontinue its production.

(14) Comprehensive Income

Comprehensive income consists of net income, changes in foreign currency
translation adjustments, net unrealized holding gains (losses) on securities
available for sale, pension liability adjustments and net unrealized holding
gains (losses) on certain derivative financial instruments, and is included in
the consolidated statements of shareholders' equity.

(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 to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from the estimates and
assumptions.

     The Company has identified five areas where it believes assumptions and
estimates are particularly critical to the financial statements. These are the
determination of the allowance for doubtful receivables, impairment on
long-lived assets and goodwill, pension liabilities and expenses, fair value of
financial instruments and realization of deferred income tax assets.

(16) New Accounting Standards

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires the use of the purchase method of accounting for
business combinations and prohibits the use of the pooling of interests method
for all business combinations initiated after June 30, 2001. SFAS No. 141 also
defines the types of acquired intangible assets that are required to be
recognized and reported separately from goodwill and those acquired intangible
assets that are required to be included in goodwill. SFAS No. 142 eliminates the
amortization of goodwill but instead requires annual impairment testing of
goodwill. In addition, intangible assets that do not have finite lives will not
be amortized and will be reviewed for impairment annually. The Company is
required to adopt SFAS No. 142 for the fiscal year beginning April 1, 2002, with
the exception that certain provisions of the statement should be applied to
goodwill and the intangible assets acquired after June 30, 2001. In accordance
with SFAS No. 142, the Company is currently in the process of performing the
transitional goodwill impairment tests and evaluating the impact of these tests
on its financial position and results of operations.

     In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The Company will adopt SFAS No. 143 for the
fiscal year beginning April 1, 2003. The effect, if any, of adopting this
statement has not been determined.

     In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The statement retains the previously existing accounting
requirements related to the recognition and measurement of the impairment of
long-lived assets to be held and used, however, this statement develops a single
accounting model for long-lived assets to be disposed by sale. This statement
also modifies the accounting and disclosure rules for discontinued operations.
The Company is required to adopt SFAS No. 144 for the fiscal year beginning
April 1, 2002. The effect of adopting this statement is not expected to be
material to the consolidated financial position or result of operations.

     In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections," was issued.
This statement updates, clarifies and simplifies existing accounting
pronouncements. While the technical corrections to existing pronouncements are
not substantive in nature, in some instances, they may change accounting
practice. The provisions of this statement related to SFAS No. 13 are effective
for transactions occurring after May 15, 2002. All other provisions of this
statement must be applied for financial statements issued on or after May 15,
2002, with early application encouraged. The Company is currently evaluating the
effects of SFAS No. 145.

42

<PAGE>

2.  Supplemental Cash Flow Information

Additional cash flow information and noncash investing and financing activities
for the years ended March 31, 2002, 2001 and 2000, are as follows:

<TABLE>
<CAPTION>
                                                                                                                    Thousands of
                                                                                  Millions of yen                   U.S. dollars
                                                                         -------------------------------------      ------------
                                                                          2002           2001           2000            2002
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>            <C>            <C>              <C>
Additional cash flow information:
   Interest paid ..................................................   (Yen)17,091   (Yen)  22,385  (Yen)25,007     $ 128,504
   Income taxes paid ..............................................        13,139          18,311       20,922        98,789
--------------------------------------------------------------------------------------------------------------------------------
Noncash investing and financing activities:
   Assets and liabilities of newly consolidated
     subsidiaries in fiscal 2001 and 2000 (Note 6):
        Fair value of assets acquired .............................   (Yen)    --   (Yen)(131,913) (Yen)(9,021)    $      --
        Liabilities assumed .......................................            --          92,628        6,478            --
        Less: Carrying amount of investment .......................            --          13,083        1,501            --
              Minority interest ...................................            --          17,930           97            --
        Net assets exceeding the carrying value ...................            --          (8,272)        (945)           --
   Sale of subsidiaries:
        Proceed from sale of subsidiaries .........................            --           9,526           --            --
   Cash and cash equivalent balance of subsidiaries newly
    consolidated or sold ..........................................            --         (10,248)         945            --
                                                                      ----------------------------------------------------------
   Net effect on consolidated cash flow statements ................            --          (8,994)          --            --
--------------------------------------------------------------------------------------------------------------------------------
   Transfer of securities to pension fund .........................            --          11,250           --            --
   Decrease of postretirement obligation ..........................            --         (11,250)          --            --
--------------------------------------------------------------------------------------------------------------------------------
   Capital lease obligations incurred .............................   (Yen) 9,203   (Yen)  19,264  (Yen)    --     $  69,195
================================================================================================================================
</TABLE>

3.  Trade Notes and Accounts Receivable

The Company and certain of its consolidated subsidiaries follow the practice of
including the portion of 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)67,017 million ($503,887 thousand) and
(Yen)67,243 million at March 31, 2002 and 2001, respectively.

     Lease receivables represent receivables from customers for equipment leased
by Komatsu Forklift Co., Ltd., which has become 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, 2002 and 2001, lease receivables comprised the following:

                                                                  Thousands of
                                         Millions of yen          U.S. dollars
                                  ----------------------------    -----------
                                      2002            2001             2002
------------------------------------------------------------------------------
Minimum lease payments
  receivable ...................  (Yen)16,415     (Yen)16,624       $ 123,421
Unearned income ................       (1,429)         (1,536)        (10,744)
-----------------------------------------------------------------------------
Net lease receivables ..........  (Yen)14,986     (Yen)15,088       $ 112,677
=============================================================================

     The Company adopted SFAS No. 140 in its entirety in fiscal 2002, the effect
of which was not material to the accompanying financial statements. The Company
and its consolidated subsidiaries sold trade notes and accounts receivable of
(Yen)332,008 million ($2,496,301 thousand) and (Yen)282,431 million in
securitization transactions during fiscal 2002 and 2001, respectively, and the
related balance of outstanding sold notes and accounts receivable as of March
31, 2002 and 2001 amount to (Yen)159,393 million ($1,198,444 thousand) and
(Yen)127,155 million, respectively. 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
resulting 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)373 million ($2,805 thousand) and (Yen)539
million under the following key economic assumptions for fiscal 2002 and 2001,
respectively.

                                                       2002          2001
--------------------------------------------------------------------------------
Weighted-average life ............................   48 months    48 months
Prepayment speed over the life ...................   1.3%         1.4%
Expected credit losses over the life .............   1.5%         1.3%
Discount rate on cash flow .......................   1.0%         6.6%
Variable returns to transferee ...................   1.4%         5.9%
================================================================================

                                                                              43

<PAGE>

     In fiscal 2002 and 2001, the Company and its consolidated subsidiaries
recognized net gains or losses from these securiti-zations of receivables, which
were not material.

     The fair value of the retained interest is subject to volatility as a
result of changes in assumptions on credit losses, prepayments and market
interest rates. The impact of any such potential volantility would not be
material to the accompanying consolidated financial statements as of March 31,
2002 and 2001 based on the above amounts.

4. Inventories

At March 31, 2002 and 2001, inventories comprised the following:

<TABLE>
<CAPTION>
                                                                                                    Thousands of
                                                                           Millions of yen          U.S. dollars
                                                                       -----------------------      ------------
                                                                           2002          2001            2002
----------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>               <C>
Finished products, including finished parts held for sale ........   (Yen)184,364  (Yen)171,600       $1,386,196
Work in process ..................................................         48,763        52,162          366,639
Materials and supplies ...........................................         33,825        32,039          254,323
----------------------------------------------------------------------------------------------------------------
Total ............................................................   (Yen)266,952  (Yen)255,801       $2,007,158
================================================================================================================
</TABLE>

5. Investment Securities

Investment securities at March 31, 2002 and 2001, 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, 2002 and 2001, are as
follows:

<TABLE>
<CAPTION>
                                                                                        Millions of yen
                                                                     -------------------------------------------------------
                                                                                      Gross unrealized holding
                                                                                      ------------------------
                                                                         Cost          Gains        Losses      Fair value
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>             <C>          <C>
At March 31, 2002
Investment securities available for sale:
   Marketable debt securities ....................................    (Yen)   981    (Yen)    --  (Yen)   --    (Yen)   981
   Marketable equity securities ..................................         26,094          8,345         971         33,468
   Other investment securities ...................................         16,202             --          --         16,202
----------------------------------------------------------------------------------------------------------------------------
                                                                      (Yen)43,277    (Yen) 8,345  (Yen)  971    (Yen)50,651
============================================================================================================================
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>

<TABLE>
<CAPTION>
                                                                                    Thousands of U.S.  dollars
                                                                     -------------------------------------------------------
                                                                                      Gross unrealized holding
                                                                                      ------------------------
                                                                          Cost          Gains          Losses     Fair value
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>           <C>           <C>
At March 31, 2002
Investment securities available for sale:
   Marketable debt securities ....................................      $   7,376     $      --       $    --      $   7,376
   Marketable equity securities ..................................        196,195        62,745         7,301        251,639
   Other investment securities ...................................        121,820            --            --        121,820
----------------------------------------------------------------------------------------------------------------------------
                                                                        $ 325,391     $  62,745       $ 7,301      $ 380,835
============================================================================================================================
</TABLE>

     Maturities of marketable debt securities at March 31, 2002 and 2001
primarily fall within five years.

     Unrealized holding gains and losses are included as a component of
accumulated other comprehensive income (loss) until realized.

     Proceeds from the sales of marketable securities and investment securities
available for sale were (Yen)7,866 million ($59,143 thousand), (Yen)54,621
million and (Yen)137,278 million for the years ended March 31, 2002, 2001 and
2000, respectively.

     Net realized gains (losses) on the sales of marketable securities and
investment securities available for sale during the years ended March 31, 2002,
2001 and 2000, amounted to (Yen)(8,696) million ($(65,383) thousand),
(Yen)11,991 million and (Yen)16,993 million, respectively. They were included in
the determination of net

44

<PAGE>

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, and the net realized gain of (Yen)1,955
million 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, 2002 and 2001, investments in and advances to affiliated companies
comprised the following:

<TABLE>
<CAPTION>
                                                                               Thousands of
                                                  Millions of yen              U.S. dollars
                                           ----------------------------     ---------------
                                                2002              2001            2002
-------------------------------------------------------------------------------------------
<S>                                       <C>          <C>                   <C>
Investments in capital stock ...........  (Yen)16,775       (Yen)19,603         $ 126,128
Advances ...............................        6,394             4,928            48,075
-------------------------------------------------------------------------------------------
Total ..................................  (Yen)23,169       (Yen)24,531         $ 174,203
-------------------------------------------------------------------------------------------
</TABLE>

     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)1,234 million
($9,278 thousand), (Yen)515 million and (Yen)324 million during the years ended
March 31, 2002, 2001 and 2000, respectively.

     Trade notes and accounts receivable from affiliated companies at March 31,
2002 and 2001, were (Yen)28,804 million ($216,571 thousand) and (Yen)47,712
million, respectively.

     Short-term loans receivable from affiliated companies at March 31, 2002 and
2001, were (Yen)12,574 million ($94,541 thousand) and (Yen)16,447 million,
respectively.

     Trade notes and accounts payable to affiliated companies at March 31, 2002
and 2001, were (Yen)4,015 million ($30,188 thousand) and (Yen)5,819 million,
respectively.

     Net sales for the years ended March 31, 2002, 2001 and 2000, included net
sales to affiliated companies in the amounts of (Yen)53,359 million ($401,195
thousand), (Yen)75,634 million and (Yen)83,001 million, respectively.

     Intercompany profits (losses) have been eliminated in the consolidated
financial statements.

     Summarized financial information for affiliated companies at March 31, 2002
and 2001, and for the years ended March 31, 2002, 2001 and 2000, is as follows:

<TABLE>
<CAPTION>
                                                                                                Thousands of
                                                                       Millions of yen          U.S. dollars
                                                                 --------------------------   --------------
                                                                      2002             2001         2002
------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>        <C>
Current assets .............................................  (Yen)129,775     (Yen)149,589    $   975,752
Net property, plant and equipment ..........................        42,656           45,669        320,722
Other assets ...............................................        13,816           13,914        103,879
------------------------------------------------------------------------------------------------------------
Total assets ...............................................  (Yen)186,247     (Yen)209,172    $ 1,400,353
------------------------------------------------------------------------------------------------------------
Current liabilities ........................................  (Yen)125,982     (Yen)145,629    $   947,233
Noncurrent liabilities .....................................        22,767           23,734        171,180
Shareholders' equity .......................................        37,498           39,809        281,940
------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity .................  (Yen)186,247     (Yen)209,172    $ 1,400,353
------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                                      Thousands of
                                                                        Millions of yen               U.S. dollars
                                                           --------------------------------------  ----------------
                                                                 2002         2001         2000           2002
-------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>          <C>           <C>              <C>
Net sales ................................................ (Yen)203,490  (Yen)240,256  (Yen)271,831     $ 1,530,000
-------------------------------------------------------------------------------------------------------------------
Net income ............................................... (Yen)    129  (Yen)  2,424  (Yen)  8,259     $       970
-------------------------------------------------------------------------------------------------------------------
</TABLE>

   The summarized financial information for the year ended March 31, 2000
included the accounts of Komatsu Forklift Co., Ltd. and three other companies,
which were newly consolidated in fiscal 2001. The aggregated net sales of these
companies for the year ended March 31, 2000 amounted to (Yen)63,369 million, and
the aggregated net loss of these companies amounted to (Yen)323 million.

   Also, the summarized financial information as of and for the years ended
March 31, 2002 and 2001 included the accounts of Komatsu Soft Ltd., which became
an affiliated company from a consolidated subsidiary at the beginning of fiscal
2001. The aggregated net sales and net income for the year ended March 31, 2002
and 2001 amounted to (Yen)21,668 million ($162,917 thousand) and (Yen)20,322
million and (Yen)439 million ($3,301 thousand) and (Yen)367 million,
respectively.

                                                                              45

<PAGE>

7. Property, Plant and Equipment

The major classes of property, plant and equipment at March 31, 2002 and 2001,
are as follows:

<TABLE>
<CAPTION>
                                                                                            Thousands of
                                                                 Millions of yen            U.S. dollars
                                                            -------------------------    -----------------
                                                                 2002          2001             2002
----------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>                <C>
Land ...............................................  (Yen)    78,334  (Yen)   75,135      $   588,978
Buildings ..........................................          309,407         304,925        2,326,368
Machinery and equipment ............................          610,917         602,767        4,593,361
Construction in progress ...........................           31,669          44,736          238,113
----------------------------------------------------------------------------------------------------------
Total ..............................................        1,030,327       1,027,563        7,746,820
Less: accumulated depreciation .....................         (625,026)       (588,768)      (4,699,444)
----------------------------------------------------------------------------------------------------------
Net property, plant and equipment ..................  (Yen)   405,301  (Yen)  438,795      $ 3,047,376
----------------------------------------------------------------------------------------------------------
</TABLE>

8. Pledged Assets

At March 31, 2002, 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>
Trade notes and accounts receivable .............................   (Yen)   759        $   5,707
Property, plant and equipment--less accumulated depreciation ....        27,852          209,413
-------------------------------------------------------------------------------------------------
Total ...........................................................   (Yen)28,611        $ 215,120
-------------------------------------------------------------------------------------------------
</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) 1,180           $   8,872
   Long-term debt ................................................       26,799             201,496
Guarantee for debt ...............................................          632               4,752
----------------------------------------------------------------------------------------------------
Total ............................................................  (Yen)28,611           $ 215,120
----------------------------------------------------------------------------------------------------
</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, 2002 and 2001, were 2.5% and 4.1%, respectively. The Company and
certain consolidated subsidiaries have unused committed lines of credit
amounting to (Yen)72,626 million ($546,060 thousand) with certain financial
institutions at the end of fiscal 2002. Long-term debt at March 31, 2002 and
2001, consisted of the following:

<TABLE>
<CAPTION>
                                                                                                           Thousands of
                                                                                      Millions of yen      U.S. dollars
                                                                                    -------------------  ---------------
                                                                                      2002       2001           2002
------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>          <C>            <C>
Long-term debt with collateral (Note 8):
 Banks, insurance companies and other financial institutions, maturing
  serially through 2002-2014, weighted-average rate 2.9%
   Government-owned banks and government agencies ............................ (Yen) 16,047 (Yen) 14,035    $   120,654
   Other .....................................................................        4,834        7,196         36,346
Long-term debt without collateral:
   Banks, insurance companies and other financial institutions,
     maturing serially through 2002-2022, weighted-average rate 2.7% .........      103,696       85,824        779,669
   Euro Medium-Term Notes with various interest rates maturing
    serially through 2002-2009 ...............................................       66,235       65,020        498,008
   6.9% Senior Notes due 2003 (payable in U.S. dollars) ......................       15,590       13,426        117,218
   1.8% Convertible Unsecured Bonds due 2004 .................................       27,447       27,447        206,368
   7.0% Senior Notes due 2005 (payable in U.S. dollars) ......................        9,461        8,147         71,135
   1.9% Unsecured Bonds due 2006 .............................................       35,000       35,000        263,158
   Capital lease obligations (Note 14) .......................................       20,678       15,193        155,474
   Other .....................................................................          811        1,087          6,098
-----------------------------------------------------------------------------------------------------------------------
Total ........................................................................      299,799      272,375      2,254,128
Less: current maturities .....................................................      (42,619)     (34,026)      (320,444)
-----------------------------------------------------------------------------------------------------------------------
Long-term debt ............................................................... (Yen)257,180 (Yen)238,349    $ 1,933,684
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


46

<PAGE>

     The conversion price per share of the 1.8% convertible unsecured bonds at
March 31, 2002, was (Yen)971.20, which was subject to adjustments under certain
conditions. These bonds are redeemable anytime before maturity at the option of
the Company, at the redemption price of 102% of the initial principal as of
March 31, 2002.

     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 ("the Program") on the London Stock Exchange. On April
1, 1999, the registered amounts of the 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)12,000 million ($90,226 thousand) during fiscal
2002, and (Yen)7,000 million and US$0 million during fiscal 2001 of Euro
Medium-Term Notes with various interest rates and maturity dates. Komatsu
Finance (Netherlands) B.V. issued (Yen)1,707 million during fiscal 2001 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,
2002 and 2001, respectively, depending upon the contracts. The floating interest
rates for fiscal 2002 and 2001 ranged from 1.64% to 6.00% and 6.39% to 7.34%,
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, 2002, excluding
SFAS No. 133 market value adjustments of (Yen)7,835 million ($58,910 thousand)
are as follows:

                                                           Thousands of
Year ending March 31                    Millions of yen    U.S. dollars
-------------------------------------------------------    ------------
2003 .............................      (Yen) 44,778       $   336,677
2004 .............................            96,945           728,910
2005 .............................            48,902           367,684
2006 .............................            61,135           459,662
2007 .............................            17,799           133,827
2008 and thereafter ..............            38,075           286,278
----------------------------------------------------------------------
Total ............................      (Yen)307,634       $ 2,313,038
======================================================================

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, 2002,
2001 and 2000, included the following components:

<TABLE>
<CAPTION>
                                                                                                                    Thousands of
                                                                                     Millions of yen                U.S. dollars
                                                                       ----------------------------------------     ------------
                                                                            2002            2001           2000         2002
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>             <C>            <C>           <C>
Service cost--Benefits earned during the year .....................    (Yen) 4,537     (Yen) 4,768    (Yen) 5,122      $  34,113
Interest cost on projected benefit obligation .....................          3,737           3,826          3,907         28,098
Expected return on plan assets ....................................         (1,502)         (1,521)        (1,294)       (11,293)
Net amortization and deferral .....................................          2,368           1,782          2,834         17,804
Settlement loss ...................................................          6,419              --             --         48,263
--------------------------------------------------------------------------------------------------------------------------------
Net periodic cost .................................................    (Yen)15,559     (Yen) 8,855    (Yen)10,569      $ 116,985
================================================================================================================================
</TABLE>

                                                                              47

<PAGE>

     The reconciliation 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
                                                                                       -----------------------------    ------------
                                                                                             2002          2001             2002
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>              <C>             <C>
Change in benefit obligation:
  Benefit obligation, beginning of year ...........................................    (Yen) 120,833    (Yen) 123,429    $  908,518
  Service cost ....................................................................            4,537            4,768        34,113
  Interest cost ...................................................................            3,737            3,826        28,098
  Actuarial loss (gain) ...........................................................            5,245             (526)       39,436
  Benefits paid ...................................................................          (34,771)         (10,664)     (261,436)
-----------------------------------------------------------------------------------------------------------------------------------
  Benefit obligation, end of year .................................................    (Yen)  99,581    (Yen) 120,833    $  748,729
===================================================================================================================================

Change in plan assets:
  Fair value of plan assets, beginning of year ....................................    (Yen)  78,245    (Yen)  72,435    $  588,308
  Actual return on plan assets ....................................................           (6,808)          (5,499)      (51,188)
  Employer contribution ...........................................................            5,297           16,193        39,827
  Benefits paid ...................................................................           (5,951)          (4,884)      (44,744)
-----------------------------------------------------------------------------------------------------------------------------------
  Fair value of plan assets, end of year ..........................................    (Yen)  70,783    (Yen) (78,245)   $  532,203
===================================================================================================================================

Funded status .....................................................................    (Yen) (28,798)   (Yen) (42,588)   $ (216,526)
Unrecognized net loss .............................................................           32,513           26,854       244,458
Unrecognized net obligation at transition being recognized over 15 years ..........            1,569            2,351        11,797
Unrecognized prior service cost being recognized over 15 years ....................            3,626            4,172        27,263
-----------------------------------------------------------------------------------------------------------------------------------
Net amount recognized .............................................................    (Yen)   8,910    (Yen)  (9,211)   $   66,992
===================================================================================================================================

Net amounts recognized in the consolidated balance sheets consist of:
  Liability for postretirement benefits ...........................................    (Yen) (16,189)   (Yen) (28,532)   $ (121,722)
  Intangible assets included in other assets ......................................            5,195            6,523        39,060
  Amount included in accumulated other comprehensive income, gross of tax .........           19,904           12,798       149,654
-----------------------------------------------------------------------------------------------------------------------------------
   Net amount recognized ..........................................................    (Yen)   8,910    (Yen)  (9,211)   $   66,992
===================================================================================================================================
</TABLE>


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

                                                        2002     2001    2000
-----------------------------------------------------------------------------
Weighted-average discount rate ......................   2.8%     3.1%    3.1%
Rate of increase in future
 compensation levels ................................   2.3%     2.3%    2.1%
Expected long-term rate of
 return on plan assets ..............................   1.9%     1.9%    2.3%
=============================================================================

     As a result of the changes in the discount rate in fiscal 2002, the benefit
obligation as of March 31, 2002, was approximately (Yen)2,559 million ($19,241
thousand) more than it would have been using the previous 3.1% discount rate.
The effect of those changes had an immaterial impact on the net periodic costs.

     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, 2002 and 2001, was approximately (Yen)14,873 million ($111,827 thousand) and
(Yen)12,634 million, respectively, and the projected benefit obligations as of
March 31, 2002 and 2001, were approximately (Yen)16,015 million ($120,414
thousand) and (Yen)10,767 million, respectively. Discount rates of 3.0% to 13.0%
and expected long-term rates of return on plan assets of 5.5% to 10.0% were used
as assumptions in determining the actuarial value of benefit obligations for the
years ended March 31, 2002, 2001 and 2000.

     Certain domestic subsidiaries also have unfunded severance payment plans
and/or pension plans similar to those of the Company for their employees. The
aggregated fair value of plan assets as of March 31, 2002 and 2001, was
approximately (Yen)10,614 million ($79,805 thousand) and (Yen)10,765 million,
respectively, and the projected benefit obligations as of March 31, 2002 and
2001, were approximately (Yen)24,140 million ($181,504 thousand) and (Yen)28,608
million, respectively. The amounts of net periodic costs of certain foreign and
domestic subsidiaries for the years ended March 31, 2002, 2001 and 2000, were
(Yen)5,653 million ($42,504 thousand), (Yen)5,476 million and (Yen)2,945
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.

48

<PAGE>

   In November 2001, the Company announced a reorganization plan to reduce
operating costs primarily through personnel reductions and relocation to
affiliates. Voluntary early retirement and relocation to affiliates programs
were established to encourage reduction of personnel, primarily the Company's
office personnel. Such programs expired on February 28, 2002. In connection
therewith, approximately 1,300 employees agreed to take early retirement and
relocation to affiliates. During fiscal 2002, certain domestic subsidiaries also
offered retirement incentive programs. As a result of these actions, the Company
and certain subsidiaries charged the related cost of (Yen)23,712 million
($178,286 thousand) as special termination benefits in the consolidated
statement of income for fiscal 2002. As of March 31, 2002, the remaining unpaid
balance of accrued early termination benefits was (Yen)12,437 million ($93,511
thousand). In connection with the early retirement program, the Company recorded
a settlement loss of (Yen)6,419 million ($48,263 thousand) in accordance with
SFAS No. 88 "Employer's Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits" for the year ended March 31,
2002 and included in special termination benefit.

   Total expenses of all severance payment and pension plan premiums charged to
income for the years ended March 31, 2002, 2001 and 2000, were (Yen)42,779
million ($321,647 thousand), (Yen)15,033 million and (Yen)14,140 million,
respectively. Total expenses of all severance payments for the year ended March
31, 2002 included the additional severance payment under the retirement
incentive programs.

   Certain foreign subsidiaries have postretirement benefit plans other than
pensions, which are primarily not funded. The accumulated postretirement benefit
obligation at March 31, 2002 and 2001, was (Yen)8,880 million ($66,767 thousand)
and (Yen)6,413 million, respectively, and the accrued postretirement benefit
obligation at March 31, 2002 and 2001, was (Yen)4,375 million ($32,895 thousand)
and (Yen)3,512 million, respectively. The amounts of net periodic postretirement
benefits other than pensions for the years ended March 31, 2002, 2001 and 2000,
were not material.

11. Shareholders' Equity

(1) Common Stock and Capital Surplus

Under the Commercial Code of Japan ("the Code"), certain issuance of common
stock, including conversions of debt issued and exercises of warrants, are
required to be credited to the common stock account for at least 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). Prior to October 2001, such free distributions were
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, amended effective on October 2001, the Code requires no accounting
recognition for such free share distribution. Publicly owned corporations in the
United States issuing shares in similar transactions would be required to
account for them as stock dividends as of the shareholders' record date by
reducing retained earnings and increasing appropriate capital accounts by an
amount equal to the fair value of the shares issued.

   If such United States practice had been applied to the cumulative free
distributions made by the Company, capital surplus at March 31, 2002, would have
been increased by (Yen)103,189 million ($775,857 thousand) with a corresponding
decrease in unappropriated retained earnings. If all convertible bonds were
converted at March 31, 2002, 28,260,914 shares of the Company's common stock
would be issuable. At March 31, 2002 and 2001, affiliated companies owned
1,581,432 and 1,575,357 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 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 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 based on the resolution of the Board of Directors on May 2,
2000.

(3) Retained Earnings Appropriated for Legal Reserve

Effective October 1, 2001, 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
the total amount of capital surplus and legal reserve equals 25% of the stated
amount of common stock. Capital surplus and 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. On
condition that the total amount of capital surplus and legal reserve remains
being equal to or exceeding 25% of common stock, they are available for
distribution and certain other purposes by the resolution of the shareholders'
meeting.

                                                                              49

<PAGE>

(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)216,706 million ($1,629,368 thousand),
included in the Company's general books of account as of March 31, 2002, 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 common 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.

   The Board of Directors intends to recommend to the shareholders, at the next
general meeting to be held on June 26, 2002, payment of a cash dividend totaling
(Yen)2,863 million ($21,526 thousand) to shareholders of record on March 31,
2002. In accordance with the Code, the intention of this dividend has not been
reflected in the consolidated financial statements as of March 31, 2002.
Dividends are reported in the Consolidated Statements of Shareholders' Equity
when paid.

(5) Stock Option Plan

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 ($7,519 thousand) during the period up to the close of the
following annual general shareholders' meeting in fiscal 2002. 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 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. 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 27,
2001, June 28, 2000 and June 29, 1999, the Company acquired 1,100,000 shares,
1,200,000 shares and 1,200,000 shares of its common stock from the market for
the plan during the years ended March 31, 2002, 2001 and 2000, respectively. The
options vest 100% on each of the grant dates and were and will be exercisable
from August 1, 2002, July 1, 2001 and July 1, 2000.

   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 2002, 2001 and 2000. 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,
2002, 2001 and 2000 would have been as follows:

<TABLE>
<CAPTION>
                                                                                           Thousands of
                                                         Millions of yen                   U.S. dollars
                                          --------------------------------------------     ------------
                                               2002              2001          2000             2002
------------------------------------------------------------------------------------------------------------
<S>                                       <C>                <C>           <C>             <C>
Net income (loss) ...................     (Yen)(80,756)      (Yen)6,637    (Yen)13,451      $ (607,188)
------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                               yen                          U.S. cents
                                          --------------------------------------------     ------------
                                               2002              2001          2000             2002
------------------------------------------------------------------------------------------------------------
<S>                                       <C>                <C>           <C>             <C>
Net income (loss) per share
   Basic ............................     (Yen) (84.60)      (Yen) 6.95    (Yen) 13.60           (63.6)c
   Diluted ..........................           (84.60)            6.95          13.51           (63.6)
------------------------------------------------------------------------------------------------------------
</TABLE>

   1.8% Japanese Yen convertible bonds, due 2004, were excluded from the diluted
net income (loss) per share calculation for fiscal 2002 and 2001 because the
effect would have been antidilutive.

50

<PAGE>

The following table summarizes information about stock option activity for
fiscal 2002 and 2001:

<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, 2000 ..........    2,180,000      (Yen)765
Granted ................................    1,200,000           758
Exercised ..............................      (10,000)          700
Cancelled or Expired ...................           --            --
--------------------------------------------------------------------------------------------------------------------------------
Outstanding at March 31, 2001 ..........    3,370,000      (Yen)763
Granted ................................    1,100,000           559        $ 4.20
Exercised ..............................           --            --
Canceled or Expired ....................           --            --
--------------------------------------------------------------------------------------------------------------------------------
Outstanding at March 31, 2002 ..........    4,470,000      (Yen)713        $ 5.36         3.73 years       (Yen)559     (Yen)820

[Exercisable at March 31, 2001] ........    2,170,000      (Yen)765
[Exercisable at March 31, 2002] ........    3,370,000      (Yen)763        $ 5.74
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       2002            2001       2000
------------------------------------------------------------------------
Grant-date fair value .........  (Yen)123 ($0.92)    (Yen)230   (Yen)207
Expected life .................           6 years     6 years    6 years
Risk-free rate ................             0.64%       1.47%      1.23%
Expected volatility ...........            30.00%      32.00%     29.00%
Expected dividend yield .......             1.15%       0.79%      0.63%
------------------------------------------------------------------------

   The Board of Directors intends to recommend to the shareholders, at the next
general meeting to be held on June 26, 2002, the free issuance of common stock
warrant of the Company up to a maximum of 950 rights, that will result in
950,000 shares by granting the right to convert 1,000 stocks per a stock
warrant.

12. Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) at March 31, 2002, 2001 and 2000,
is as follows:

<TABLE>
<CAPTION>
                                                                                                                       Thousands of
                                                                                         Millions of yen               U.S. dollars
                                                                           ------------------------------------------  ------------
                                                                                2002           2001           2000          2002
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>            <C>           <C>
Foreign currency translation adjustments:
   Balance, beginning of year ...........................................  (Yen)(29,340)  (Yen)(39,724)  (Yen)(24,159)   $(220,602)
   Adjustment for change of fiscal period on consolidated subsidiaries ..         9,444             --             --       71,008
   Aggregate adjustment for the year resulting from
     translation of foreign currency financial statements ...............         9,552         10,384        (15,565)      71,820
-----------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year .................................................  (Yen)(10,344)  (Yen)(29,340)  (Yen)(39,724)   $ (77,774)
-----------------------------------------------------------------------------------------------------------------------------------
Net unrealized holding gains on securities available for sale:
   Balance, beginning of year ...........................................  (Yen)  7,249   (Yen) 23,467   (Yen) 25,650    $  54,504
   Net decrease .........................................................        (4,194)       (16,218)        (2,183)     (31,534)
-----------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year .................................................  (Yen)  3,055   (Yen)  7,249   (Yen) 23,467    $  22,970
-----------------------------------------------------------------------------------------------------------------------------------
Pension liability adjustments:
   Balance, beginning of year ...........................................  (Yen) (7,113)  (Yen) (3,333)  (Yen) (8,927)   $ (53,481)
   Adjustment for change of fiscal period on consolidated subsidiaries ..             3             --             --           22
   Adjustment for the year ..............................................        (3,817)        (3,780)         5,594      (28,699)
-----------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year .................................................  (Yen)(10,927)  (Yen) (7,113)  (Yen) (3,333)   $ (82,158)
-----------------------------------------------------------------------------------------------------------------------------------
Net unrealized holding gains (losses) on derivative instruments:
   Balance, beginning of year ...........................................  (Yen)     --   (Yen)     --   (Yen)     --    $      --
   Cummulative effect of accounting change ..............................          (670)            --             --       (5,038)
   Net decrease .........................................................           493             --             --        3,707
-----------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year .................................................  (Yen)   (177)  (Yen)     --   (Yen)     --    $  (1,331)
-----------------------------------------------------------------------------------------------------------------------------------
Total accumulated comprehensive income (loss)
   Balance, beginning of year ...........................................  (Yen)(29,204)  (Yen)(19,590)  (Yen) (7,436)   $(219,579)
   Adjustment for change of fiscal period on consolidated subsidiaries ..         9,447             --             --       71,030
   Adjustment for the year ..............................................         1,364         (9,614)       (12,154)      10,256
-----------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year .................................................  (Yen)(18,393)  (Yen)(29,204)  (Yen)(19,590)   $(138,293)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              51

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                              Millions of yen
                                                                                -------------------------------------------
                                                                                   Pretax      Tax (expense)    Net of tax
                                                                                   amount       or benefit        amount
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>             <C>            <C>
2002:
Foreign currency translation adjustments .................................      (Yen)  9,552    (Yen)    --    (Yen)  9,552
Net unrealized holding gains on securities available for sale:
   Unrealized holding gains or (losses) arising during the year ..........            (6,159)         2,571          (3,588)
   Less: reclassification adjustment for (gains) or losses
     included in net income (loss) .......................................            (1,183)           577            (606)
---------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) ............................................            (7,342)         3,148          (4,194)
Pension liability adjustments ............................................            (6,551)         2,734          (3,817)
---------------------------------------------------------------------------------------------------------------------------
Net unrealized holding gains (losses) on derivative instruments:
   Cumulative effect of accounting change ................................            (1,150)           480            (670)
   Changes in fair value of derivatives ..................................                24            (10)             14
   Net (gains) or losses reclassified into earnings ......................               822           (343)            479
---------------------------------------------------------------------------------------------------------------------------
   Net unrealized gains (losses) .........................................              (304)           127            (177)
---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) ........................................      (Yen) (4,645)   (Yen) 6,009    (Yen)  1,364
---------------------------------------------------------------------------------------------------------------------------

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)
---------------------------------------------------------------------------------------------------------------------------

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)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                         Thousands of U.S. dollars
                                                                                -------------------------------------------
                                                                                   Pretax      Tax (expense)    Net of tax
                                                                                   amount       or benefit        amount
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>             <C>            <C>
2002:
Foreign currency translation adjustments .................................      $     71,820    $        --    $     71,820
Net unrealized holding gains on securities available for sale:
   Unrealized holding gains or (losses) arising during the year ..........           (46,308)        19,330         (26,978)
   Less: reclassification adjustment for (gains) or losses
     included in net income (loss) .......................................            (8,895)         4,339          (4,556)
---------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) ............................................           (55,203)        23,669         (31,534)
Pension liability adjustments ............................................           (49,256)        20,557         (28,699)
---------------------------------------------------------------------------------------------------------------------------
Net unrealized holding gains (losses) on derivative instruments:
   Cumulative effect of accounting change ................................            (8,647)         3,609          (5,038)
   Changes in fair value of derivatives ..................................               180            (75)            105
   Net (gains) or losses reclassified into earnings ......................             6,181         (2,579)          3,602
---------------------------------------------------------------------------------------------------------------------------
   Net unrealized gains (losses) .........................................            (2,286)           955          (1,331)
---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) ........................................      $    (34,925)   $    45,181    $     10,256
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

52

<PAGE>

13. Income Taxes

Income (loss) before income taxes, minority interests and equity in earnings for
the years ended March 31, 2002, 2001 and 2000, is as follows:

<TABLE>
<CAPTION>
                                                                                                                  Thousands of
                                                                                Millions of yen                   U.S. dollars
                                                                  --------------------------------------------    ------------
                                                                        2002           2001            2000           2002
------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>             <C>             <C>
Income (loss) before income taxes:
   Domestic ...................................................   (Yen) (26,553)   (Yen)32,703     (Yen)13,431     $  (199,647)
   Foreign ....................................................         (80,171)       (12,639)          5,964        (602,789)
------------------------------------------------------------------------------------------------------------------------------
                                                                  (Yen)(106,724)   (Yen)20,064     (Yen)19,395     $  (802,436)
==============================================================================================================================
Income taxes:
   Current--
     Domestic .................................................   (Yen)   3,196    (Yen)21,331     (Yen)11,542     $    24,030
     Foreign ..................................................             718           (379)          6,616           5,399
------------------------------------------------------------------------------------------------------------------------------
                                                                          3,914         20,952          18,158          29,429
------------------------------------------------------------------------------------------------------------------------------
   Deferred--
     Domestic .................................................         (15,511)        (4,691)         (9,403)       (116,624)
     Foreign ..................................................         (10,333)        (2,546)          1,195         (77,692)
------------------------------------------------------------------------------------------------------------------------------
                                                                        (25,844)        (7,237)         (8,208)       (194,316)
------------------------------------------------------------------------------------------------------------------------------
Total .........................................................   (Yen) (21,930)   (Yen)13,715     (Yen) 9,950     $  (164,887)
==============================================================================================================================
</TABLE>

Total income taxes recognized for the years ended March 31, 2002, 2001 and 2000
were applicable to the following:

<TABLE>
<CAPTION>
                                                                                                                 Thousands of
                                                                                    Millions of yen              U.S. dollars
                                                                        ---------------------------------------  ------------
                                                                             2002          2001         2000           2002
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>           <C>         <C>
Income (loss) before income taxes, minority interests and equity
  in earnings ......................................................... (Yen)(21,930)  (Yen)13,715   (Yen)9,950    $ (164,887)
Other comprehensive income (loss):
   Net unrealized holding gains on securities available for sale ......       (3,148)      (13,182)      (2,080)      (23,669)
   Pension liability adjustments ......................................       (2,734)       (2,708)       4,961       (20,557)
   Net unrealized holding gains (losses) on derivative instruments ....         (127)           --           --          (955)
-----------------------------------------------------------------------------------------------------------------------------
Total income taxes .................................................... (Yen)(27,939)  (Yen)(2,175) (Yen)12,831    $ (210,068)
=============================================================================================================================
</TABLE>

   Temporary differences and tax loss carryforwards which gave rise to deferred
tax assets and liabilities at March 31, 2002 and 2001, are as follows:

<TABLE>
<CAPTION>
                                                                                                                 Thousands of
                                                                                         Millions of yen         U.S. dollars
                                                                                    --------------------------   ------------
                                                                                        2002          2001           2002
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>            <C>           <C>
Deferred tax assets:
   Unrealized intercompany profit ..............................................    (Yen)22,261    (Yen)30,881    $   167,376
   Allowances provided, not yet recognized for tax .............................          4,752          4,336         35,729
   Accrued expenses ............................................................         22,499         15,559        169,165
   Impairment loss on long-lived assets ........................................         23,844          3,235        179,278
   Inventories .................................................................          6,555          6,060         49,286
   Net operating loss carryforwards ............................................         58,143         30,309        437,166
   Research and development expenses ...........................................          4,502          8,559         33,850
   Other .......................................................................         10,635          2,503         79,962
   Less valuation allowance ....................................................        (47,847)       (19,976)      (359,752)
-----------------------------------------------------------------------------------------------------------------------------
                                                                                   (Yen)105,344    (Yen)81,466    $   792,060
=============================================================================================================================

Deferred tax liabilities:
   Unrealized holding gains on securities available for sale ...................     (Yen)3,090     (Yen)4,604    $    23,233
   Deferral of profit from installment sales ...................................          2,398          5,126         18,030
   Deferred gains on sales of property for tax purposes ........................         15,287         21,156        114,940
   Other .......................................................................          7,409          8,308         55,707
-----------------------------------------------------------------------------------------------------------------------------
                                                                                    (Yen)28,184    (Yen)39,194    $   211,910
=============================================================================================================================
</TABLE>

   The net change in the total valuation allowance for the years ended March 31,
2002 and 2001, was an increase of (Yen)27,871 million ($209,556 thousand) and a
decrease of (Yen)575 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, 2002,
2001 and

                                                                              53

<PAGE>

2000, and such a rate was used in calculating the deferred taxes at March 31,
2002, 2001 and 2000.

   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, 2002,
2001 and 2000, were (20.6)%, 68.4% and 51.3%, respectively.

   The differences between the normal tax rates and the effective tax rates for
the years ended March 31, 2002, 2001 and 2000, are summarized as follows:

<TABLE>
<CAPTION>
                                                                                      2002      2001    2000
------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>        <C>     <C>
Normal tax rate ...................................................................  (41.7)%    41.7%   41.7%
Increase (decrease) in tax rates resulting from:
   Operating losses of subsidiaries ...............................................   13.3      23.1     6.1
   Expenses not deductible for tax purposes .......................................    1.6       6.6    11.1
   Realization of tax benefits on operating losses of subsidiaries ................     --      (1.3)   (0.4)
   Income of foreign subsidiaries taxed at lower than Japanese normal rate ........    3.9      (5.0)   (5.9)
   Other, net .....................................................................    2.3       3.3    (1.3)
------------------------------------------------------------------------------------------------------------
Effective tax rate ................................................................  (20.6)%    68.4%   51.3%
============================================================================================================
</TABLE>

   Foreign subsidiaries are subject to income taxes of the countries in which
they operate.

   At March 31, 2002 and 2001, no deferred tax liabilities were recognized for
undistributed earnings of foreign subsidiaries and affiliated companies
aggregating (Yen)48,028 million ($361,113 thousand) and (Yen)36,161 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, 2002, certain subsidiaries had operating loss carryforwards
aggregating approximately (Yen)154,234 million ($1,159,654 thousand), which may
be used as a deduction in determining taxable income in future periods. The
operating loss carryforwards of (Yen)134,495 million ($1,011,241 thousand)
expire through March 31, 2022, while the remainder has an indefinite
carryforward period.

14. Rent Expenses

The companies lease office space and equipment, employees' housing, etc., under
cancelable and noncancelable operating lease agreements. Rent expenses under
such leases amounted to (Yen)16,915 million ($127,180 thousand), (Yen)16,128
million and (Yen)13,468 million, respectively, for the years ended March 31,
2002, 2001 and 2000. Certain lease contracts for equipment that would be
classified as capital lease in conformity with SFAS No. 13 were capitalized. At
March 31, 2002, the future minimum lease payments under these leases are as
follows:

<TABLE>
<CAPTION>
                                                                   Millions of yen                    Thousands of U.S. dollars
                                                       ---------------------------------------  ------------------------------------
                                                         Capital   Operating lease               Capital   Operating lease
Year ending                                               leases     commitments       Total     leases      commitments     Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>         <C>              <C>         <C>        <C>             <C>
2003 .................................................  (Yen)5,941   (Yen)1,665     (Yen)7,606  $ 44,669      $ 12,519     $  57,188
2004 .................................................       4,826        1,447          6,273    36,286        10,880        47,166
2005 .................................................       3,577        1,230          4,807    26,895         9,248        36,143
2006 .................................................       4,744        1,051          5,795    35,669         7,902        43,571
2007 .................................................       1,745          822          2,567    13,120         6,180        19,300
Thereafter ...........................................       2,900        2,556          5,456    21,805        19,218        41,023
------------------------------------------------------------------------------------------------------------------------------------
Total minimum lease payments ......................... (Yen)23,733   (Yen)8,771    (Yen)32,504  $178,444      $ 65,947     $ 244,391
------------------------------------------------------------------------------------------------------------------------------------
Less: amounts representing interest ..................      (3,055)                              (22,970)
------------------------------------------------------------------                              --------
Present value of net minimum capital lease payments .. (Yen)20,678                              $155,474
==================================================================                              ========
</TABLE>

15. Research and Development and Advertising Expenses

Research and development expenses charged to costs and expenses for the years
ended March 31, 2002, 2001 and 2000, amounted to (Yen)44,083 million ($331,451
thousand), (Yen)45,282 million and (Yen)42,460 million, respectively.

   Advertising expenses charged to costs and expenses as incurred for the years
ended March 31, 2002, 2001 and 2000, amounted to (Yen)5,119 million ($38,489
thousand), (Yen)5,369 million and (Yen)4,327 million, respectively.

54

<PAGE>

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
                                                                  --------------------------------------------      ----------------
                                                                       2002           2001             2000               2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>             <C>              <C>
Net income (loss) .............................................   (Yen)(80,621)    (Yen)6,913      (Yen)13,395      $ (606,173)
Effect of dilutive securities:
   1.8% Japanese yen convertible bonds, due 2004 ..............             --             --              300              --
------------------------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) .....................................   (Yen)(80,621)    (Yen)6,913      (Yen)13,695      $ (606,173)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                Number of shares
                                                                  --------------------------------------------
                                                                       2002           2001             2000
--------------------------------------------------------------------------------------------------------------
<S>                                                                <C>            <C>              <C>
Average common shares outstanding, less treasury stocks .......    954,530,062    955,250,229      967,057,543
Dilutive effect of:
   1.8% Japanese yen convertible bonds, due 2004 ..............             --             --       28,260,914
--------------------------------------------------------------------------------------------------------------
Diluted common shares outstanding .............................    954,530,062    955,250,229      995,318,457
--------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                          Yen                          U.S. cents
                                                                         -------------------------------------      ----------------
                                                                             2002          2001          2000             2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>          <C>                 <C>
Net income (loss) per share:
   Basic ..............................................................  (Yen)(84.46)   (Yen)7.24    (Yen)13.85          (63.5)c
   Diluted ............................................................       (84.46)        7.24         13.76          (63.5)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   1.8% Japanese yen convertible bonds, due 2004, were excluded from the net
diluted income (loss) per share calculation for fiscal 2002 and 2001 because the
effect would have been antidilutive.

17. Commitments and Contingent Liabilities

At March 31, 2002, the companies were contingently liable for discounted and
transferred receivables on a recourse basis with the financial institutions of
(Yen)16,764 million ($126,045 thousand) (Note 3) and also as guarantors of
indebtedness of others, including letters of awareness and keep-well agreements
aggregating (Yen)27,247 million ($204,865 thousand), including (Yen)1,948
million ($14,647 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 ($32,015 thousand) as of March 31, 2002 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, 2002,
aggregated approximately (Yen)2,900 million ($21,805 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

Risk Management Policy

The companies are exposed to market risk primarily from changes in foreign
currency exchange rates and interest rates with respect to debt obligations,
international operations and foreign currency denominated credits and debts. In
order to manage these risks that arise in the normal course of business, the
companies enter into various derivative transactions for hedging pursuant to
their policies and procedures. The companies do not enter into derivative
financial transactions for trading or speculative purposes.

   The companies have entered into interest rate swap and cap agreements, partly
concurrent with currency swap agreements for the purpose of managing the risk
resulting from changes in cash flow or fair value that arise in their interest
rate and foreign currency exposure with respect to certain short-term and
long-term debts and investment securities.

   The companies operate internationally which expose the companies to the
foreign exchange risk against existing assets and liabilities and transactions
denominated in foreign currencies (principally the U.S. dollar and the euro). In
order to reduce

                                                                              55

<PAGE>

these risks, the companies execute forward exchange contracts and option
contracts (purchased) based on their projected cash flow in foreign currencies.

   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.

Fair Value Hedges

The companies use derivative financial instruments designated as fair value
hedges to manage primarily interest rate and foreign exchange risks associated
with debt obligations. Principally cross-currency swap, interest rate swap and
foreign exchange contracts are used to hedge such risk for debt obligations.
Changes in fair value of the hedged debt obligations and derivative instruments
designated as fair value hedge are offset and recognized in other expense. For
the year ended March 31, 2002, hedge ineffectiveness resulting from fair value
hedging activities was not material to the companies' result of operations.
During the same period, no fair value hedges were discontinued.

Cash Flow Hedges

The companies use derivative financial instruments designated as cash flow
hedges to manage the companies' foreign exchange risks associated with
forecasted transactions and the companies' interest risks associated with debt
obligations. For transactions denominated in foreign currencies, the companies
typically hedges forecasted and firm commitment exposures to the variability in
cash flow basically up to one year. For the variable rate debt obligations, the
companies enter into interest rate swap contracts to manage the changes in cash
flows. The companies record the changes in fair value of derivative instruments
designated as cash flow hedges in other comprehensive income (loss). These
amounts are reclassified into earnings through interest and other income or
expense when the hedged items impact earnings. Approximately (yen)81 million
($609 thousand) of existing gains included in accumulated other comprehensive
income (loss) at March 31, 2002 will be reclassified into earnings within twelve
months from that date. No cash flow hedges were discontinued during the year
ended March 31, 2002 as a result of anticipated transactions that are no longer
probable of occurring.

Undesignated Derivative Instruments

The companies have entered into interest rate swap contracts not designated as
hedging instruments under SFAS No. 133 as a means of managing the Company and
its group companies' interest rate exposures for short-term and long-term debts.
Forward contracts and option contract (purchased) not designated as hedging
instruments under SFAS No. 133 are also used to hedge certain foreign currency
exposures. The changes in fair value of such instruments are recognized
currently in earnings.

   Notional principal amounts of derivative financial instruments outstanding at
March 31, 2002 and 2001 are as follows.

<TABLE>
<CAPTION>
                                                                                  Thousands of
                                                     Millions of yen              U.S. dollars
                                             ------------------------------       ------------
                                                  2002              2001              2002
----------------------------------------------------------------------------------------------
<S>                                          <C>               <C>                <C>
Forwards and options:
   Sale of foreign currencies ...........    (Yen) 28,870      (Yen) 33,074        $  217,068
   Purchase of foreign currencies .......          27,328            28,528           205,474
   Option contracts (purchased) .........           3,171             3,395            23,842
Interest swap, currency swap and
 interest rate cap agreement ............         308,477           295,448         2,319,376
----------------------------------------------------------------------------------------------
</TABLE>

   Net foreign currency transaction gains of (Yen)1,109 million ($8,338
thousand), gains of (Yen)2,908 million, and losses of (Yen)4,323 million for the
years ended March 31, 2002, 2001 and 2000, respectively, were included in the
determination of net income (loss).

56

<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, 2002 and 2001, are summarized as follows:

<TABLE>
<CAPTION>
                                                                       Millions of yen                    Thousands of U.S. dollars
                                                --------------------------------------------------------  -------------------------
                                                           2002                         2001                        2002
                                                ---------------------------   --------------------------  -------------------------
                                                  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) 50,651   (Yen) 50,651   (Yen) 68,788  (Yen) 68,788   $  380,835  $   380,835
Long-term debt, including current portion .....      299,799        296,143        272,375       272,645    2,254,128    2,226,639
Derivatives:
  Foreign exchange contracts
    Assets ....................................          983            983            574         1,544        7,391        7,391
    Liabilities ...............................          657            657            549         1,912        4,940        4,940
  Interest rate swap, cross currency swap
   and cap agreements
     Assets ...................................          786            786            312         4,312        5,910        5,910
     Liabilities ..............................       10,872         10,872          1,050         4,876       81,744       81,744
==================================================================================================================================
</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.

                                                                              57

<PAGE>

   The following tables present certain information regarding the companies'
operating segments and geographic information at March 31, 2002, 2001 and 2000,
and for the years then ended:

Operating segments:

<TABLE>
<CAPTION>
                                                                                                                   Thousands of
                                                                                Millions of yen                    U.S. dollars
                                                          ---------------------------------------------------      ------------
                                                             2002               2001                2000               2002
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                <C>                <C>                  <C>
Net sales:
  Construction and mining equipment--
    Customers ........................................  (Yen)   731,340    (Yen)   718,147    (Yen)   747,647     $   5,498,797
    Intersegment .....................................            7,018              7,400             12,485            52,767
-------------------------------------------------------------------------------------------------------------------------------
       Total .........................................          738,358            725,547            760,132         5,551,564
  Electronics--
    Customers ........................................           76,769            117,745             90,335           577,210
    Intersegment .....................................              236                492                 80             1,775
-------------------------------------------------------------------------------------------------------------------------------
       Total .........................................           77,005            118,237             90,415           578,985
  Others--
    Customers ........................................          227,782            260,477            217,672         1,712,647
    Intersegment .....................................           37,191             49,221             59,982           279,631
-------------------------------------------------------------------------------------------------------------------------------
       Total .........................................          264,973            309,698            277,654         1,992,278
  Elimination ........................................          (44,445)           (57,113)           (72,547)         (334,173)
-------------------------------------------------------------------------------------------------------------------------------
  Consolidated .......................................  (Yen) 1,035,891    (Yen) 1,096,369    (Yen) 1,055,654     $   7,788,654
-------------------------------------------------------------------------------------------------------------------------------
Operating income (loss):
  Construction and mining equipment ..................  (Yen)       881    (Yen)    22,203    (Yen)    28,489     $       6,624
  Electronics ........................................          (14,925)             2,887             (9,839)         (112,218)
  Others .............................................            4,976              6,450              1,171            37,414
-------------------------------------------------------------------------------------------------------------------------------
    Total ............................................           (9,068)            31,540             19,821           (68,180)
  Corporate expenses and elimination .................           (4,153)            (3,725)            (2,503)          (31,226)
-------------------------------------------------------------------------------------------------------------------------------
  Consolidated operating income ......................          (13,221)            27,815             17,318           (99,406)
  Interest and other income ..........................           34,278             30,718             55,857           257,729
  Interest expense ...................................           16,842             22,194             24,392           126,631
  Other expenses .....................................          110,939             16,275             29,388           834,128
-------------------------------------------------------------------------------------------------------------------------------
  Consolidated income (loss) before income taxes .....  (Yen)  (106,724)   (Yen)    20,064    (Yen)    19,395     $    (802,436)
-------------------------------------------------------------------------------------------------------------------------------
Identifiable assets:
  Construction and mining equipment ..................  (Yen)   879,732    (Yen)   868,611    (Yen)   672,031     $   6,614,526
  Electronics ........................................          181,746            240,592            231,317         1,366,511
  Others .............................................          231,287            254,960            231,989         1,739,000
  Corporate assets and elimination ...................           47,517             39,032            239,943           357,271
-------------------------------------------------------------------------------------------------------------------------------
  Consolidated .......................................  (Yen) 1,340,282    (Yen) 1,403,195    (Yen) 1,375,280     $  10,077,308
-------------------------------------------------------------------------------------------------------------------------------

Depreciation and amortization:
  Construction and mining equipment ..................  (Yen)    36,442    (Yen)    32,317    (Yen)    32,166     $     274,000
  Electronics ........................................           17,235             20,210             20,860           129,587
  Others .............................................            6,217             11,388              8,474            46,744
-------------------------------------------------------------------------------------------------------------------------------
  Consolidated .......................................  (Yen)    59,894    (Yen)    63,915    (Yen)    61,500     $     450,331
-------------------------------------------------------------------------------------------------------------------------------
Capital expenditures:
  Construction and mining equipment ..................  (Yen)    46,354    (Yen)    47,380    (Yen)    37,989     $     348,527
  Electronics ........................................           18,927             16,476             13,089           142,308
  Others .............................................            9,187             15,454              6,650            69,075
-------------------------------------------------------------------------------------------------------------------------------
  Consolidated .......................................  (Yen)    74,468    (Yen)    79,310    (Yen)    57,728     $     559,910
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   Transfers between segments are made at estimated arm's-length prices.
Operating income (loss) represents net sales less cost of sales and selling,
general and administrative expenses. Identifiable assets are those assets used
in the operations of each segment. Unallocated corporate assets consist
primarily of cash and cash equivalents and marketable investment securities
maintained for general corporate purposes.

   Other expenses include impairment loss on long-lived assets in the
electronics segment of (Yen)52,242 million ($392,797 thousand), (Yen)4,337
million and (Yen)4,474 million for the years ended March 31, 2002, 2001 and
2000, respectively.

58

<PAGE>

Geographic Information:

Net sales recognized by sales destination for the years ended March 31, 2002,
2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                                              Thousands of
                                                          Millions of yen                     U.S. dollars
                                        ---------------------------------------------------   ------------
                                             2002                 2001            2000             2002
----------------------------------------------------------------------------------------------------------
<S>                                     <C>                  <C>             <C>               <C>
Japan ................................  (Yen)  478,187       (Yen)  586,865  (Yen)  553,822    $ 3,595,391
Americas .............................         262,341              241,091         242,609      1,972,489
Europe ...............................         128,029              126,479         123,633        962,624
Asia (excluding Japan) and Oceania ...         126,363              117,136          99,558        950,098
Middle East and Africa ...............          40,971               24,798          36,032        308,052
----------------------------------------------------------------------------------------------------------
Consolidated net sales ...............  (Yen)1,035,891       (Yen)1,096,369  (Yen)1,055,654    $ 7,788,654
----------------------------------------------------------------------------------------------------------
</TABLE>

   Net sales recognized by geographic origin and long-lived assets at March 31,
2002, 2001 and 2000, and for the years then ended are as follows:

<TABLE>
<CAPTION>
                                                                                              Thousands of
                                                          Millions of yen                     U.S. dollars
                                        ---------------------------------------------------   ------------
                                             2002                 2001            2000             2002
----------------------------------------------------------------------------------------------------------
<S>                                     <C>                  <C>             <C>               <C>
Net sales:
   Japan .............................  (Yen)  564,537       (Yen)  662,025  (Yen)  615,580    $ 4,244,639
   U.S.A. ............................         266,701              241,745         245,002      2,005,271
   Europe ............................         108,191              112,257         114,742        813,466
   Other .............................          96,462               80,342          80,330        725,278
----------------------------------------------------------------------------------------------------------
   Total .............................  (Yen)1,035,891       (Yen)1,096,369  (Yen)1,055,654    $ 7,788,654
----------------------------------------------------------------------------------------------------------
Long-lived assets:
   Japan .............................  (Yen)  309,315       (Yen)  320,194  (Yen)  277,693    $ 2,325,677
   U.S.A. ............................         115,812              139,132         134,991        870,767
   Europe ............................          13,913                9,664           9,032        104,609
   Other .............................          31,701               32,670          26,087        238,353
----------------------------------------------------------------------------------------------------------
   Total .............................  (Yen)  470,741       (Yen)  501,660  (Yen)  447,803    $ 3,539,406
----------------------------------------------------------------------------------------------------------
</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, 2002, 2001 and 2000.

                                                                              59

<PAGE>

   The following information shows net sales and operating income (loss)
recognized by geographic origin for the years ended March 31, 2002, 2001 and
2000. 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
                                        --------------------------------------------------    ------------
                                             2002              2001              2000             2002
----------------------------------------------------------------------------------------------------------
<S>                                     <C>               <C>               <C>                <C>
Net sales:
   Japan--
     Customers .......................  (Yen)  564,537    (Yen)  662,025    (Yen)  615,580     $ 4,244,639
     Intersegment ....................         125,525           142,645           143,569         943,797
----------------------------------------------------------------------------------------------------------
   Total .............................         690,062           804,670           759,149       5,188,436
----------------------------------------------------------------------------------------------------------
   Americas--
     Customers .......................         267,111           242,182           245,367       2,008,353
     Intersegment ....................          17,070            10,194             8,624         128,346
----------------------------------------------------------------------------------------------------------
   Total .............................         284,181           252,376           253,991       2,136,699
----------------------------------------------------------------------------------------------------------
   Europe--
     Customers .......................         108,191           112,257           114,742         813,466
     Intersegment ....................           9,682            13,551            14,665          72,797
----------------------------------------------------------------------------------------------------------
   Total .............................         117,873           125,808           129,407         886,263
----------------------------------------------------------------------------------------------------------
   Others--
     Customers .......................          96,052            79,905            79,965         722,196
     Intersegment ....................           6,869             3,652             4,750          51,646
----------------------------------------------------------------------------------------------------------
   Total .............................         102,921            83,557            84,715         773,842
   Elimination .......................        (159,146)         (170,042)         (171,608)     (1,196,586)
----------------------------------------------------------------------------------------------------------
   Consolidated ......................  (Yen)1,035,891    (Yen)1,096,369    (Yen)1,055,654     $ 7,788,654
----------------------------------------------------------------------------------------------------------

Operating income (loss):
   Japan .............................  (Yen)      130    (Yen)   29,253    (Yen)      955     $       977
   Americas ..........................         (10,562)           (2,302)           12,354         (79,413)
   Europe ............................           3,077             5,945             4,284          23,135
   Others ............................            (354)              364             2,202          (2,662)
   Corporate and elimination .........          (5,512)           (5,445)           (2,477)        (41,443)
----------------------------------------------------------------------------------------------------------
   Consolidated ......................  (Yen)  (13,221)   (Yen)   27,815    (Yen)   17,318     $   (99,406)
----------------------------------------------------------------------------------------------------------

Identifiable assets:
   Japan .............................  (Yen)  948,294    (Yen)1,030,872    (Yen)  941,282     $ 7,130,030
   Americas ..........................         354,438           343,967           289,123       2,664,947
   Europe ............................          82,102            83,389            73,560         617,308
   Others ............................         106,626            98,057            83,760         801,699
   Corporate assets and elimination ..        (151,178)         (153,090)          (12,445)     (1,136,676)
----------------------------------------------------------------------------------------------------------
   Consolidated ......................  (Yen)1,340,282    (Yen)1,403,195    (Yen)1,375,280     $10,077,308
----------------------------------------------------------------------------------------------------------

Overseas sales:
   Americas ..........................  (Yen)  262,341    (Yen)  241,091    (Yen)  242,609     $ 1,972,489
   Europe ............................         128,029           126,479           123,633         962,624
   Others ............................         167,334           141,934           135,590       1,258,150
----------------------------------------------------------------------------------------------------------
   Total .............................  (Yen)  557,704    (Yen)  509,504    (Yen)  501,832     $ 4,193,263
----------------------------------------------------------------------------------------------------------
</TABLE>

   Transfers between segments are made at estimated arm's-length prices.
Operating income (loss) represents net sales less cost of sales and selling,
general and administrative expenses. Identifiable assets are those assets used
in the operations of each segment. Unallocated corporate assets consist
primarily of cash and cash equivalents and marketable investment securities
maintained for general corporate purposes.

60

<PAGE>

21. Subsequent Event

On May 10, 2002, the Company and its subsidiaries Komatsu Forklift Co., Ltd. and
Komatsu Zenoah Co. have reached an agreement on stock for stock exchanges
(hereinafter referred to as "the Exchanges"). The exchange ratios were
determined as a result of discussions by the concerned companies with reference
to the exchange ratios calculated by independent third-party organizations. At
present, the Company holds approximately 52% and 54% of the shares of Komatsu
Forklift Co., Ltd. and Komatsu Zenoah Co. respectively and expects to issue
39,822,359 shares of common stock upon the Exchanges. The Company will conduct
the Exchanges by a simplified procedure as specified in Article 358 of the
Commercial Code of Japan, which does not require the approval at its
shareholders' meeting. The Exchanges will be carried out in October 2002 and
Komatsu Forklift Co., Ltd. and Komatsu Zenoah Co. will become wholly owned
subsidiaries of the Company.

     Since May 2000, the Company has built business cooperation on a global
basis with Linde AG of Germany in the areas of production and sales of forklift
trucks. In May 2002, in order to construct a closer cooperative relationship,
the Company and Linde AG have reached a basic agreement under which two
companies will transform Komatsu Forklift Co., Ltd. into their joint venture
company. The Company and Linde AG expect to conclude the joint-venture agreement
by the end of November 2002 and establish this joint-venture company subject to
the approval of the Anti-Trust Authorities.

                                                                              61

<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, 2002 and
March 31, 2001 and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
2002, 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, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 2002, in conformity with accounting principles generally
accepted in the United States of America (see Note 1).

As discussed in Note 1 to the consolidated financial statements, the Company and
its subsidiaries changed the method of accounting for derivative instruments and
hedging activities effective April 1, 2001.

Also, 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
May 10, 2002

62

<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 2.5% to
     5.5% annually.

     At March 31, 2002 and 2001 trade notes and accounts receivable were
     comprised of the following:

<TABLE>
<CAPTION>
                                                                               Thousands of
                                                  Millions of Yen              U.S. dollars
                                           -------------------------------   -----------------
                                               2002             2001               2002
                                           -------------    --------------   -----------------
     <S>                                   <C>              <C>                <C>
     Notes:
         Affiliated companies              (Yen)     894    (Yen)   1,154      $        6,722
         Other                                   127,595          137,933             959,361
                                           --------------   --------------   -----------------
               Total                             128,489          139,087             966,083
                                           --------------   --------------   -----------------

     Accounts:
         Affiliated companies                     27,919           46,573             209,917
         Other                                   198,474          222,934           1,492,286
                                           --------------   --------------   -----------------
               Total                             226,393          269,507           1,702,203
                                           --------------   --------------   -----------------

     Unearned interest                            (2,568)          (2,938)            (19,308)
     Allowance for doubtful receivables          (15,221)         (10,998)           (114,444)
                                           --------------   --------------   -----------------
               Total                       (Yen) 337,093    (Yen) 394,658      $    2,534,534
                                           ==============   ==============   =================
</TABLE>

B.   DEFERRED INCOME TAXES AND OTHER CURRENT ASSETS

     At March 31, 2002 and 2001 deferred income taxes and other current assets
     were comprised of the following:

<TABLE>
<CAPTION>
                                                                               Thousands of
                                                  Millions of Yen              U.S. dollars
                                           -------------------------------   -----------------
                                               2002             2001               2002
                                           -------------    --------------   -----------------
     <S>                                   <C>              <C>                <C>
     Prepaid expenses                      (Yen)   2,634    (Yen)   3,909      $       19,804
     Short-term loans receivable:
         Affiliated companies                     12,574           16,447              94,541
         Other                                    20,374           21,093             153,188
                                           --------------   --------------   -----------------
               Total                              32,948           37,540             247,729
                                           --------------   --------------   -----------------

     Deferred income taxes                        43,313           26,937             325,662
</TABLE>

                                      A-1

<PAGE>

<TABLE>
     <S>                                                        <C>              <C>              <C>
     Other                                                             30,534           26,413             229,579
                                                                -------------    --------------   -----------------
               Total                                            (Yen) 109,429     (Yen) 94,799      $      822,774
                                                                =============    ==============   =================
</TABLE>

C.   DEFERRED INCOME TAXES AND OTHER CURRENT LIABILITIES

     At March 31, 2002 and 2001 deferred income taxes and other current
     liabilities comprised of the following:

<TABLE>
<CAPTION>
                                                                       Millions of Yen              Thousands of
                                                                                                    U.S. dollars
                                                                ------------------------------      --------------
                                                                    2002             2001               2002
                                                                -------------     ------------      --------------
     <S>                                                        <C>               <C>               <C>
     Accrued expenses                                           (Yen) 150,810     (Yen)113,161      $    1,133,910
     Liability for derivative financial instruments                     4,299                -              32,323
     Customers' advances and employees' deposits                       15,445           17,897             116,128
     Deferred income taxes                                                 10              576                  75
                                                                -------------    --------------     --------------
               Total                                            (Yen) 170,564     (Yen)131,634      $    1,282,436
                                                                =============    ==============     ==============
</TABLE>

D.   UNAPPROPRIATED RETAINED EARNINGS

     At March 31, 2002 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)7,195
     million ($54,098 thousand).

E.   INTEREST AND OTHER INCOME

     Interest and other income for the years ended March 31, 2002, 2001 and 2000
     were comprised of the following:

<TABLE>
<CAPTION>
                                                                                                    Thousands of
                                                                Millions of Yen                     U.S. dollars
                                                ---------------------------------------------       --------------
                                                    2002            2001            2000                2002
                                                ------------    -------------   -------------       --------------
     <S>                                        <C>             <C>               <C>               <C>
     Interest and other income:
         Interest-
            Installment receivables             (Yen)  5,960    (Yen)  6,755      (Yen)  6,842      $       44,812
            Other                                      3,613           3,622             5,028              27,165
         Dividends                                     1,324           1,073             1,062               9,955
         Net gains on sales of marketable
            securities and investments                     -          11,991            16,993                   -
         Gains on sales of property                   16,454           3,440            23,777             123,714
         Insurance commission                            547             533               504               4,113
         Gain on electric contract settlement          5,665               -                 -              42,594
         Miscellaneous                                   715           3,304             1,651               5,376
                                                ------------    ------------    --------------      --------------
               Total                            (Yen) 34,278    (Yen) 30,718      (Yen) 55,857      $      257,729
                                                ============    ============    ==============      ==============
</TABLE>

F.   OTHER EXPENSE

                                      A-2

<PAGE>

     Other expense for the years ended March 31, 2002, 2001 and 2000 were
     comprised of the following:

<TABLE>
<CAPTION>
                                                                                                    Thousands of
                                                           Millions of Yen                          U.S. dollars
                                                  --------------------------------------------    ----------------
                                                      2002            2001            2000              2002
                                                  ------------    ------------    ------------    ----------------
     <S>                                          <C>             <C>             <C>             <C>
     Other expense:
       Loss on marketable securities               (Yen) 8,696     (Yen)     -     (Yen)     -       $      65,383
       Loss on disposal or sale of fixed assets          7,202           5,565          14,367              54,150
       Exchange gain or loss, net                        1,109               -           4,323               8,339
       Other                                            11,559           6,373           6,224              86,910
                                                  ------------    ------------    ------------    ----------------
                       Total                       (Yen)28,566     (Yen)11,938     (Yen)24,914       $     214,782
                                                  ============    ============    ============    ================
</TABLE>

                                      A-3

<PAGE>

                                                                     SCHEDULE II

                   KOMATSU LTD. AND CONSOLIDATED SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                                                    Millions of Yen
                                               -----------------------------------------------------------------
           Column A                                Column B                  Column C             Column D
--------------------------------------------   ---------------   ------------------------- --------------------
                                                                             Additions
                                                                 -------------------------
                                                   Balance at     Charged to
                                                  beginning of     costs and        Charged to
                 Description                      fiscal period    expenses       other accounts     Deductions
-------------------------------------------    ----------------- ------------    ---------------- ----------------
<S>                                            <C>               <C>             <C>              <C>
Valuation and qualifying accounts deducted
 from assets to which they apply:

 Allowance for doubtful receivables
    Year ended March 31, 2002 (c)                  (Yen)10,061    (Yen)  8,126          -           (Yen)  2,966 (a)
                                               ===============   =============   ================ ==============
    Year ended March 31, 2001                      (Yen)12,208    (Yen)      -          -           (Yen)  1,210 (a)
                                               ===============   =============   ================ ==============

    Year ended March 31, 2000                      (Yen)12,535    (Yen)  1,150          -           (Yen)  1,477 (a)
                                               ===============   =============   ================ ==============
 Valuation allowance of deferred tax assets
    Year ended March 31, 2002 (c)                  (Yen)19,910    (Yen) 37,547          -           (Yen)  9,610 (b)
                                               ===============   =============   ================ ==============
    Year ended March 31, 2001                      (Yen)20,551    (Yen)  8,621          -           (Yen)  9,196 (b)
                                               ===============   =============   ================ ==============
    Year ended March 31, 2000                      (Yen)20,412    (Yen) 11,322          -           (Yen) 11,183 (b)
                                               ===============   =============   ================ ==============

<CAPTION>
                                                                  Thousands of
                                                                  U.S. dollars
                                              -----------       -----------------
           Column A                             Column E            Column E
--------------------------------------------  -----------       -----------------
                                                Balance  at         Balance at
                                               end of fiscal       end of fiscal
                 Description                      period              period
--------------------------------------------  ---------------   -----------------
<S>                                           <C>               <C>
Valuation and qualifying accounts deducted
 from assets to which they apply:

 Allowance for doubtful receivables
    Year ended March 31, 2002 (c)                 (Yen)15,221    $    114,444
                                               ==============    ============
    Year ended March 31, 2001                     (Yen)10,998
                                               ==============
    Year ended March 31, 2000                     (Yen)12,208
                                               ==============

 Valuation allowance of deferred tax assets
    Year ended March 31, 2002 (c)                 (Yen)47,847    $    359,752
                                               ==============    ============
    Year ended March 31, 2001                     (Yen)19,976
                                               ==============
    Year ended March 31, 2000                     (Yen)20,551
                                               ==============
</TABLE>

       (a) Principally uncollectible accounts and notes charged to the allowance
       (b) Realization or expiration of net operating loss carryforwards
       (c) At the beginning of fiscal 2002, the Company changed the consolidated
           closing date for certain overseas subsidiaries from December 31 to
           March 31. As a result, balance at April 1, 2001 does not tie into
           balance at 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, 2002 and
2001, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended March 31, 2002,
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, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 2002, in conformity with accounting principles generally
accepted in the United States of America (see Note 1).

As discussed in Note 1 to the consolidated financial statements, the Company and
its subsidiaries changed the method of accounting for derivative instruments and
hedging activities effective April 1, 2001.

Also, 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
May 10, 2002

                                      B-1

<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                Subsequently
Exhibit number     Title                                                        Numbered Page
--------------     -----                                                        -------------
<S>                <C>                                                          <C>
Exhibit (1)        Articles of Incorporation of Komatsu Ltd. (Translation)            1

Exhibit (2)        Certificate of English Translations                                9

Exhibit (99)       Assurances letter concerning the audit by Arthur Andersen         10
</TABLE>