<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, 2000

                        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
<PAGE>

     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.

                                  968,921,701

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

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

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

In this document, KOMATSU LTD. is hereinafter referred to as the "Company," and
together with its consolidated subsidiaries, as "Komatsu."

Cautionary Statement with respect to forward-looking statements:
 Statements in this annual report contain forward-looking statements which
 reflect management's current views with respect to certain future events,
 including expected financial position, operating results, and business
 strategies.  These statements can sometimes be identified by the use of
 forward-looking words such as "will," "believes," "should," "projects," and
 similar terms and expressions that identify future events or expectations.
 Actual results may differ materially from those projected and the achievement
 of such forward-looking statements cannot be assured.

 Factors that may cause actual results to differ materially from those
 contemplated by such forward-looking statements include unanticipated changes
 in the demand for Komatsu's principal products which may come about by changes
 in economic conditions in Komatsu's principal markets, changes in exchange
 rates or the impact of increased competition; unanticipated cost or delays
 encountered in achieving Komatsu's objectives with respect to globalized
 production sourcing and new Information Technology tools; uncertainties as to
 the results of Komatsu's research and development efforts and its ability to
 access and protect certain intellectual property rights; and the impact of
 regulatory changes and accounting principle and practice.

                                    PART I

Item 1.  Description of Business
         -----------------------

General
-------

     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.

     Komatsu is a worldwide, integrated manufacturing and sales organization
engaged in the manufacture, development, marketing and sale of industrial
equipment and products. For fiscal 2000, Komatsu recorded worldwide net sales of
(Yen)1,055,654 million (US$10,249 million) and net income of (Yen)13,395 million
(US$130 million).

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<PAGE>

     For purposes of this report, Komatsu's business activities are divided into
five categories: construction and mining equipment, electronics, industrial
machinery, civil engineering and construction, 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)713,529 million (US$6,927 million) for fiscal 2000, a 2.4% decrease from
the previous year, and represented 67.6% of Komatsu's total net sales.

     While sales to customers in Japan increased 8.8%, to (Yen)268,867 million
(US$2,610 million), sales to customers outside Japan decreased by 8.1% to
(Yen)444,662 million (US$4,317 million) in fiscal 2000.  Sales to customers in
Japan represented 37.7% of total sales of construction and mining equipment, up
3.9% from the previous year, while the proportion of sales to customers outside
Japan decreased by 3.9% to 62.3% of total sales of construction and mining
equipment.

     Komatsu's construction and mining equipment segment consists of two broad
categories: construction equipment (including utility products) and mining
equipment.

     Construction Equipment.  Komatsu's construction equipment business operates
worldwide with its primary headquarters located in Tokyo, Japan and three
regional headquarters in each of the United States, Europe and Southeast Asia.
This global strategy permits Komatsu to diversify its sourcing of raw materials,
components and finished products to maximize economic and production
efficiencies.  This global strategy also permits Komatsu to mitigate the effects
on the construction equipment segment of downturns in general economic
conditions and reductions in construction activity in any single geographic
segment and protect against exchange rate risks.

     Komatsu's line of construction equipment includes large earthmoving,
excavating and transportation equipment, including bulldozers, dozer shovels,
hydraulic excavators, wheel-type hydraulic excavators, wheel loaders, reach
loaders, motor graders, dump trucks, articulated dump trucks, rough-terrain
cranes, compactors, vibratory rollers, pipelayers, various types of mini-sized
construction equipment, coal haulers, slag dump trucks, road stabilizers, tunnel
boring machines, shield machines, small-diameter pipe jacking machines,
amphibious bulldozers, underwater rubble leveling robots, mobile debris crushers
and construction robots.  The construction equipment product line also includes
a variety of "utility" equipment - mini to small machines (e.g., mini hydraulic
excavators, mini wheel loaders, backhoe loaders, skid steer loaders, and other
similar products) for landscaping and general construction.

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

                                       3
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     JAPAN.  While demand for construction equipment had been deteriorating
since April 1997, it began to recover in the beginning of fiscal 2000, supported
by the positive effects of the government's comprehensive economic stimulus
package and improved housing investment. Recovery of demand in Japan centered on
hydraulic excavators.

     In November 1998, Komatsu began consolidating and restructuring production
in response to the slowdown in the Japanese market and intensified global
competition, and the restructuring of production in Japan was completed in
August 2000, all plans for the year were carried out on time, including the
transfer of motor graders from the Kashiwazaki Plant and large wheel loaders
from the Kawagoe Plant to the Mooka Plant, and of small and medium-sized wheel
loaders from the Kawagoe Plant to the Awazu Plant with these 10 assemble line
cut to 7, and as a result Komatsu expects the cost saving from fiscal 2001.


Coupled with streamlined sales, service and logistics already in place, Komatsu
has solidified its position and ability to generate stable earnings even at the
current level of demand in Japan.

Komatsu has joined forces across the country, reinforcing sales, rental and
service capabilities by focusing its efforts on high-growth products and market
segments. Since the introduction of the AVANCE NRO series in 1998,which serves
the dual functions of working in confined spaces and general use, Komatsu has
strengthened its leading market position for its mainstay hydraulic excavators
with small, rear-swing radius for extensive use from urban civil engineering and
demolition to forestry. During the year, Komatsu introduced nine additional
models to this line and boosted sales of mini and hydraulic excavators with
small, rear-swing radius. Komatsu also continued to expand sales of large
equipment, notably the D475A bulldozer to the quarrying and mining industries.

The innovative line of construction equipment specifically designed for use in
environmental conservation--namely the mobile debris crusher, mobile soil
stabilizer and mobile tub grinder--continued to win enthusiastic customer
response for its part in eliminating waste disposal costs. Sales of mobile tub
grinders, introduced in March 1999, were particularly strong against the
backdrop of the Waste Disposal Act revised in 1992, which bans field burning of
foliage, stumps and tree roots felled for the purpose of land development, as
well as driftwood and other wood-related materials in dams and reservoirs.

Today, rental equipment accounts for approximately half of all machines working
on-site in Japan. In addition to a greater awareness of cost, a rapid shift to
rental use also reflects the need for a wider diversity of machines resulting
from changes in construction methods, as well as an increased awareness of the
environment as a result of more stringent regulations concerning emissions.
During the year, Komatsu remained committed to strengthening its rental
business. As part of this strategy, Komatsu introduced the GPS (global
positioning system)-incorporated Tele-Management System for efficient allocation
of rental equipment and management of machine operation information. This system
also ensures prompt  maintenance service, while improving profitability in the
rental business.

In the used equipment business during the year, Komatsu reinforced global
marketing of the G-URECA network system for sales of Komatsu used equipment on
the Web. As the Internet is making rapid headway as a tool for the marketing of
used equipment, the G-URECA network system offers valuable real-time search and
negotiation for all registered used machines to potential buyers around the
world.

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This system provides speedy information and has strengthened Komatsu's sales
capacity for used equipment globally. Komatsu Used Equipment Corp., the central
unit of Komatsu specializing in sales of used equipment, held three regular
auctions during the year. At the 39th auction held in March 2000, which
attracted about 400 Japanese and foreign customers, Komatsu Used Equipment Corp
recorded cumulative sales of 10,000 units since its first auction in November
1994.

     ASIA.  Demand for construction and mining equipment began to show
encouraging signs of recovery in the logging and mining industries in Southeast
Asia, where economies have remained depressed since the currency crisis of 1997.
A significant increase in the sales of supply parts also indicates a growing use
of construction equipment. In China, demand for construction equipment remained
strong, reflecting infrastructure development investments started in the latter
half of 1998.

In September 1999, Komatsu acquired part of the shares held by Thai partner,
Bangkok Motor Works Co., Ltd., becoming the majority shareholder of Bangkok
Komatsu.

In Singapore, Komatsu Asia & Pacific Pte Ltd, the regional headquarters and
marketing center for Southeast Asia, advanced both sales and earnings in fiscal
2000, mainly attributable to an upsurge in demand for supply parts from the
logging industry in Indonesia and Malaysia. In China, Komatsu Shantui
Construction Machinery Co., Ltd., continued to boost sales of hydraulic
excavators by capitalizing on expanded market demand in fiscal 2000 and
successfully established a solid position in the Chinese market. Komatsu
Changlin Construction Machinery Corp., also established in 1995 as a production
base for wheel loaders, added hydraulic excavators and motor graders to its
production. With a new molding line in operation during the year, Komatsu
Changlin Foundry Corporation supplied high-quality, cost-competitive foundry
products to Komatsu Castex Ltd. in Japan. Komatsu Changlin Foundry Corporation
also increased sales of foundry products outside Komatsu.

     THE AMERICAS.   North American demand for construction equipment dropped 8%
from the previous year, despite eight consecutive years of growth in the U.S.
economy. Having anticipated the decline in demand, Komatsu America International
Company was well prepared with improved efficiency in both production and sales.
As a result, Komatsu America International generated both sales and profits
comparable to the record-high figures a year ago and continued to enhance its
position in the North American market.

In May 1999, Komatsu Reman North America, Inc., was established to
remanufacture, sell and market key components for construction and mining
equipment, such as engines, transmissions and hydraulic equipment. Through
remanufacturing, Komatsu Reman North America, Inc., is better prepared to meet a
wide range of customer needs, offering a level of quality comparable to that of
new components but at a lower cost, quick delivery and a reduction of waste. By
reusing and recycling parts and components, this business also saves resources
and reduces waste.

     EUROPE. In Europe, demand remained brisk throughout the year under review.
Each business unit ( Komatsu UK Ltd. for hydraulic excavators, Komatsu Hanomag
AG for wheel loaders, and Komatsu Utility Europe S.p.A. for utility equipment )
reinforced its sales operations, expanded respective market-driven product mix
and advanced sales in fiscal 2000. Komatsu UK continued to increase sales of
hydraulic excavators designed for the European market, surpassing the record-
high sales set last year. In fiscal 2000, Komatsu UK introduced its third
wheeled type hydraulic excavator, a 15-ton model positioned between its existing
13-

                                       5
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and 17-ton models. Komatsu UK also delivered the 20,000th machine since its
establishment. In Germany, Komatsu Hanomag boosted both sales and earnings from
the previous year, particularly with expanded sales and market share of mini
wheel loaders. In Italy, Komatsu Utility Europe continued to enjoy rising sales
and profits in fiscal 2000. In addition to an outstanding growth in demand in
Europe of over 20% from the previous year, Komatsu Utility Europe capitalized on
the positive outcome of their sales efforts outside Europe, notably in North
America, achieving an annual production of 7,000 units in fiscal 2000.
Komatsu Europe International N.V., Komatsu's European head-quarters in Belgium,
also continued to expand sales and earnings in fiscal 2000, with increased sales
and market share of large construction and mining equipment. As the regional
headquarters, Komatsu Europe International N.V introduced the cash management
system to European operations to optimize the use of available funds and reduce
costs, by centralizing the settlement of funds at Komatsu Europe Coordination
Centre N.V., a financial service company also based in Belgium.

     Utility Equipment. Demand for utility equipment remained strong in North
America and Europe throughout the year under review, exemplified by the North
American market topping the 100,000 mark. Meanwhile, the Japanese market
appeared to have bottomed out, beginning to show some signs of recovery. In the
United States, the largest market in the world, Komatsu Utility Corporation
continued to boost sales by about 110% from the previous year, posting US$54
million in sales of over 1,300 units in fiscal 2000, after two full years of
operation since its establishment in July 1997. This outstanding result was
further driven by full-scale import sales of backhoe loaders from Komatsu
Utility Europe in Italy. Komatsu utility equipment business now boasts sales
operations in three major world markets, and will further reinforce global
teamwork by building a development and production setup designed to respond
flexibly to market changes and foreign exchange rate fluctuations.

     Mining Equipment.  Komatsu's mining equipment business continued to suffer
from cautious investment by the mining industry, which was hit by sluggish
prices for gold, copper, coal and other commodities. As a result, sales of
mining equipment fell from the previous year. In preparation for the recovery of
demand, during the year under review Komatsu introduced the superlarge WA1200
wheel loader and the remodeled version of the large D475 bulldozer. To
strengthen the business foundation in preparation for a recovery in demand,
Komatsu also facilitated the integration of product development, production and
product support operations. Komatsu Mining Systems, Inc. won an order for 25
units of the world's largest-class 930E dump trucks for a copper mine in Chile,
completing shipment by March 2000. Komatsu Mining Germany GmbH, in charge of
hydraulic mining excavators, recorded shipment of six units of the superlarge
PC8000 hydraulic excavator in fiscal 2000. In March of the same year, Komatsu
Mining Germany GmbH successfully launched production of the PC1100, shipping 10
units to the European market, and has secured an additional order backlog of
more than 20 units for production in 2000. In technology development, Modular
Mining Systems, Inc., specializing in computer-controlled mine management
systems, together with Komatsu Mining Systems and the Company, are diligently
working on applying the latest advanced technologies to the mining industry.
Combining Modular Mining Systems' strength with Komatsu's product development
know-how, the team is in the final stages of development of the world's first
driverless truck system. Designed to provide significant returns to customers,
especially in large-scale operations, which has been confirmed by recent trials,
this system offers a technological edge over any competitor in the mining
equipment business. More-over, bringing together engineering talent from
different

                                       6
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parts of the world, this joint development highlights Komatsu's commitment to
globalization.

Underground Construction Machinery   To help customers reduce construction costs
and improve safety, Komatsu continued the efforts in technological development
of the underground construction machinery. For example, Komatsu worked to reduce
the number of shafts required in high-speed and long-distance excavation. Thanks
to their technological superiority, sales of small-diameter shield machines,
large-diameter rock shield machines and tunnel boring machines (TBM) were
strong. As a result, fiscal 2000 sales of underground machinery improved from
the previous year.

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

     The core business of Komatsu's electronics segment consists of its
semiconductor materials operations, which includes the production of silicon
wafers for the semiconductor industry; polycrystalline silicon, the raw material
used in the production of silicon wafers; and silane gas, which is used in the
manufacture of polycrystalline silicon.  The electronics segment also produces
LCD manufacturing equipment, excimer lasers and various electronic equipment and
devices. Komatsu's electronics segment accounted for (Yen)90,335 million (US$877
million), or 8.5%, of total net sales for fiscal 2000, representing a 4.3%
increase in these sales over the prior fiscal year. Sales in Japan rose 9.9%, to
(Yen)62,530 million (US$607 million); however, sales outside Japan dropped 6.4%,
to 27,805 million (US$270 million).

     Silicon Wafers   Reflecting improved conditions in the semi-conductor
market, worldwide demand for silicon wafers recovered and prices began to
rebound during the year. Komatsu Electronic Metals Co., Ltd., a 63.4% owned
subsidiary of the Company and the core unit of the electronics business, worked
to improve earnings by concentrating production of silicon wafers exclusively in
Japan and Taiwan, increasing productivity, reducing costs across the board and
shortening lead-time for delivery. In fiscal 2000, Komatsu Electronic Metals
increased sales 2.5% from the previous year, to (Yen)63.8 billion (US$620
million). Of this, domestic sales accounted for (Yen)39.9 billion (US$388
million), up 7.3%, while sales outside Japan totaled (Yen)23.9 billion (US$233
million), a drop of 4.6%. To further enhance production efficiency, Komatsu
Electronic Metals Co., Ltd. will transfer production of discrete wafers from the
Hiratsuka Manufacturing Department to the Nagasaki and Miyazaki plants over the
next two years. In March 1999 in the fast-growing Taiwan market, which is
expected to become the hub of semiconductor production based exclusively on
orders, Formosa Komatsu Silicon Corporation, a subsidiary of Komatsu Electronic
Metals, opened its new integrated facility handling single crystal pulling to
polishing. In the second half of fiscal 2000, the Mailiao Plant commenced mass
production of 200mm silicon wafers at an initial monthly capacity of 50,000
wafers. Current plans call for a monthly output of 100,000 wafers in June 2000,
ultimately rising to 200,000 depending on future market demand. In December
1999, Formosa Komatsu Silicon attained ISO 9002 for quality assurance.

     Polycrystalline Silicon   Advanced Silicon Materials LLC., a 100% owned
subsidiary of the Company, reorganized and changed its name from Advanced
Silicon Materials Inc. in April 2000, continued to face a sluggish market
environment for polycrystalline silicon, the raw material for silicon wafers,
during the year, adversely affected by inventory adjustments in the silicon
wafer manufacturing industry. Advanced Silicon Materials LLC. was further
challenged by significant increases in depreciation at its Butte Plant in
Montana, which raised production in fiscal 2000. To overcome such adverse
conditions, Advanced Silicon Materials focused on sales of differentiated
products based on monosilane gas, such as Float Zone and

                                       7
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Charge Replenishment rods, as well as monosilane gas for use in semiconductor
production. Advanced Silicon Materials LLC. anticipates a strong recovery of
demand for polycrystalline silicon in the summer of 2000 or soon after.

Electronic Equipment and Devices   In fiscal 2000 Komatsu Electronics, Inc.,
Japan's leading manufacturer of thermoelectric modules and temperature control
equipment, boosted sales, particularly of micromodules, which have recorded an
average annual growth rate of approximately 70% over the last three years. This
outstanding rate of growth has been reinforced by the recent full-scale shift to
the new Wavelength Division Multiplexing (WDM) method in response to
skyrocketing communications, propelled largely by the huge dispersal of the
Internet. Allowing for a dramatic increase in data transmission volume and
significant cuts in installation costs for fiber optic circuits, the WDM method
requires extensive use of semiconductor lasers as the light source and light
amplifier. As micro modules are essential for controlling the temperature of
these lasers, it is projected that demand will accelerate in line with the
future proliferation of fiber optic communication networks. Komatsu Electronics,
Inc. is a 100% owned subsidiary of the Company.
During the year, the Company continued to expand sales of our Excimer lasers as
the light source for lithographic tools, commonly known as steppers, for
semiconductor manufacturing, by aggressively implementing service and marketing
activities in Japan and overseas. During the year, the Company also introduced
the G20K and G21K models of the KrF (Krypton Fluorine) Excimer laser for use in
0.15 micron and 0.13 micron designing, respectively. In December 1999, the
Company led the industry by commercializing the G20A model, the world's first
ArF (Argon Fluorine) Excimer laser for mass production of steppers.
The Company reached a basic agreement with Ushio Inc., Japan's leading
manufacturer of industrial lamps, to form a 50-50 joint venture to undertake
R&D, production, sales, service and all other aspects of business related to
Excimer lasers for steppers. In addition to the two companies' technological
expertise in Excimer lasers, Gigaphoton Inc., the joint venture established in
August 2000, is expected to expand on a global scale by maximizing the combined
strengths of Ushio's extensive domestic and international sales and service
networks, and Komatsu's advanced Excimer laser technologies and production know-
how.

Sales of LAN-related peripheral devices, such as multi-protocol print servers,
increased. Sales of touch panel computers also increased with the introduction
of new models during the year.

Applied Komatsu Technology, Inc., a joint venture manufacturer of liquid crystal
display (LCD) manufacturing systems, accounted for by the equity method,
significantly improved sales and earnings for the year ended October 31,1999,
reflecting the positive results of large-scale restructuring implemented in
1998. Increased demand for flat panel displays in Taiwan and other Asian
countries also made a positive contribution to improved results.
While the market is expected to continue growing on a long-term basis, the
percentage of the company's sales in Japan is sliding. The market is also highly
unpredictable, with the cycle of fluctuations getting shorter each year. In such
market conditions, there are limitations to making speedy, accurate management
decisions as a joint venture. With such considerations in mind, the Company
transferred full management control of Applied Komatsu Technology to U.S.
partner, Applied Materials Inc., selling its 50% stake in the joint venture as
of the end of October 1999.


     Industrial Machinery Segment
     ----------------------------

                                       8
<PAGE>

     In its industrial machinery segment, Komatsu manufactures a variety of
metal forging and stamping presses, machine tools, sheet-metal machines and
industrial robots.  Except for large metal forging and stamping presses,
Komatsu's industrial machinery, which are presently manufactured by the
Company's operating subsidiaries located principally in Japan, are marketed and
sold to a variety of customers worldwide.  In addition, Komatsu's industrial
machinery operations include a number of foreign affiliates, for example, in the
United States, Komatsu Cutting Technologies, Inc., a Massachusetts-based
manufacturing and distributor of fine plasma cutting systems, and Komatsu
America Industries LLC, an Illinois-based distributor of industrial machinery.

     The industrial machinery segment accounted for approximately 2.9% of
Komatsu's total revenues for fiscal 2000.

Restructuring of the automotive parts manufacturing industry is progressing,
accompanied by global mergers and acquisitions by automakers. However, this
reorganization effort has not yet generated sufficient demand to lift the entire
market for large presses, although it has stimulated. Despite such a challenging
environment, the Company won an order for a 3,250-ton transfer press for the
first time from PSA Peugeot Citroen of France as a result of the active sales
promotion efforts in Europe during the year. At the same time, the Company
continued to reinforce the engineering businesses, centering on large presses
for the automobile industry, including preventive maintenance service and
retrofitting peripheral equipment. The Company works closely with the customers
and provide engineering solutions designed to improve their productivity and
safety. During the year, to better serve local customers, Komatsu America
Industries LLC. opened its third office, this one in Kentucky,to provide
preventive maintenance service for large presses.
In the retrofitting equipment business, the Company won a large-scale order from
a leading automaker.

In July 1999, the Industrial Machinery Division implemented thorough
organizational reform in the sheet metal forming machine and small and medium-
sized press business. As a result, under a new, younger management team, Komatsu
Industries Corporation is now responsible for the entire operation, from
planning, development and production to sales and service. Within this
framework, Komatsu Industries Corporation was divided into four business units:
sheet metal forming machines, small and medium-sized presses, service and
international business, each with clearly defined roles and responsibilities.
After selecting and focusing on strategic products with technological advantages
for timely market introduction, as well as restructuring distribution channels,
Komatsu Industries Corporation increased the value of about 40% from July 1999
to the present, over the corresponding months of the previous year.

Strategic products introduced during the year by Komatsu Industries Corporation
include the HCP press equipped with an AC servomotor, featuring high-precision
and value-added processing, and which successfully captured new customers from a
variety of industries that are new to Komatsu Industries Corporation.

During the year, Komatsu Industries further strengthened its current alliance
with TRUMPF GmbH + Co. KG of Germany, originally entered into in 1995. Under the
new agreement, the two partners will take full advantage of their service net-
works, customer support and other management resources, in addition to mutually
supplying competitive machines to reinforce the complementary relationship.

As a first step, Komatsu Industries will supply its PAS18x40 and PAS35x125 AC

                                       9
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servomotor-driven press brake models to TRUMPF. Utilizing the trademarks of both
Komatsu Industries and TRUMPF, the two will commence marketing of these models
in North America and Europe.

At the same time, Komatsu Industries and TRUMPF will introduce the new TRUMATIC
L 2530 laser cutting machine to the Japanese market and undertake sales and
service.

     Civil Engineering and Construction Segment
     ------------------------------------------

     Komatsu's civil engineering and construction operations are conducted
exclusively within Japan.  Komatsu's operations in this segment are conducted
primarily through Komatsu Construction Ltd. ("Komatsu Construction"), a 68.5%
owned subsidiary of Komatsu, which was established in Japan in 1950. Komatsu
Construction operates principally as a subcontractor for the construction of
condominiums and public sector civil engineering projects.  Public sector civil
engineering projects and condominium construction generate virtually all of
Komatsu Construction's revenues.

     While public works projects advanced in the latter half of the year,
Komatsu Construction and Komatsu House Co. Ltd. ("Komatsu House"), an 85.2%
owned Japanese subsidiary of the Company, were adversely affected by the
protracted stagnation in private-sector investments and housing starts.

Fiscal 2000 sales by Komatsu Construction fell 7.9% from the previous year to
(Yen)63.0 billion (US$612 million). In the year under review, Komatsu
Construction reduced its interest-bearing debt by (Yen)4.0 billion (US$39
million). In February 2000, Komatsu Construction issued new shares in the form
of a third-party allotment to the Company, which now owns 68.5%, thus increasing
its shareholders' equity.

Komatsu Construction will reorganize its management structure and introduce an
executive officer system to effectively meet changes in the business
environment, including intensified market competition. On the business front,
Komatsu Construction continued to emphasize specialized fields of construction
by capitalizing on 29 years of engineering expertise with the radio-controlled
amphibious bulldozer D155W-1 and other specialized equipment for over 800
coastal projects.

Sales by Komatsu House, specializing in the manufacture, sales, and lease and
rental of commercial-use prefabricated structures, rose 3.6% from the previous
year, to (Yen)18.9 billion (US$184 million). Komatsu House registered profits
for the year, in contrast to a loss in the previous fiscal year.

In the market for prefabricated office structures, Komatsu House introduced a
new series of units with a construction time of only a third of that of
conventional models. This outstanding reduction in construction time results
from the fact that approximately 80% of all components are manufactured in the
factory, which has the added advantage of ensuring better uniformity of quality
at the time of construction.

Also during the year, Komatsu House attained ISO9001, demonstrating the advanced
level of its quality assurance system for design and manufacturing of
prefabricated structures and their components.

Sales in the civil engineering and construction segment increased 2.1% to
(Yen)78,653million

                                       10
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(US$764 million) (or 7.5% of Komatsu's total net sales) in fiscal 2000.

     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 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 and the production of
business systems and software packages through separate subsidiaries and
affiliates.

     Komatsu Diesel Co., Ltd. has been strengthening sales of diesel engines for
both stationary and portable generators to leading manufacturers in the
industry. As a result, Komatsu Diesel increased sales and profits for the year.
They are also emphasizing solutions-based business expansion through promptly
and astutely meeting customer needs by supporting their overseas business
expansion and reducing maintenance costs .

Komatsu Zenoah, a manufacturer of mini agricultural and forestry equipment, mini
construction equipment, general-purpose two-stroke engines and hydraulic
equipment, advanced sales 7.5% from the previous year, to (Yen)43.5 billion
(US$423 million). Komatsu Zenoah recorded buoyant sales of agricultural and
forestry equipment, centering on eco-friendly systems such as the mobile
chipper-shredder, launched in April 1999. Komatsu Zenoah expanded overseas
sales, notably in the United States with the introduction of a new, eco-friendly
strat-charged engine and increased orders for hobby engines. Komatsu Zenoah also
boosted export sales of hydraulic equipment.

Fiscal 2000 sales by Komatsu Forklift Co.,Ltd., a subsidiary accounted for by
the equity method, amounted to (Yen)88.3 billion (US$858million), a decrease of
6.6% from the previous year, against the backdrop of sluggish demand for
forklift trucks in Japan. By continuing to cut fixed and other costs, however,
Komatsu Forklift generated profits, making a good recovery from substantial
loss.

In May 2000, the Company and Komatsu Forklift entered a basic agreement with
Linde AG, a German manufacturer of forklift trucks with a leading international
market share, to build a global collaborative relationship for production and
sales.

Under this agreement, Komatsu Forklift acquired 10% of Linde subsidiary, Fiat OM
Carrelli Elevatori S.p.A. shares, while Linde obtained 10% of Komatsu Forklift's
shares.

Komatsu purchased new shares through third-party allotment and shares from the
open market, increasing its equity holding in Komatsu Forklift to 50.8%. As a
result, Komatsu Forklift is now a consolidated subsidiary of the Company.

Sales by Komatsu Soft Ltd. amounted to (Yen)21.2 billion (US$206 million) in
fiscal 2000, up 1.7% from the previous year. The software development market was
overshadowed by restrained corporate investment in large-scale IT due to
concerns about the Y2K issue.

Meanwhile, Komatsu Soft's service revenues posted healthy gains, thanks to the
rapid proliferation of the Internet among individuals and solid growth of
outsourcing by companies.

                                       11
<PAGE>

In March 2000, the Company established an alliance with Toyo Information Systems
Co., Ltd., to accelerate its involvement in IT, transferring 65% of Komatsu
Soft's outstanding shares to Toyo Information Systems in April 2000, whereupon
the former became a subsidiary of the latter.

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

     Financial information (other than net sales figures by geographic segment)
is produced and discussed in this report as such information is presented in
Komatsu's audited consolidated financial statements.  Net sales figures by
geographic region presented and discussed herein reflect sales of Komatsu's
products by the geographic location of the 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, 2000, 1999, and 1998:


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

<TABLE>
<CAPTION>
===========================================================================================================
                           Fiscal Year                     Fiscal Year                    Fiscal Year
                         Ended 3/31/2000                 ended 3/31/1999                ended 3/31/1998
                         ---------------                 ---------------                ---------------
                                                                                     (Millions of Yen)
-----------------------------------------------------------------------------------------------------------
<S>           <C>                      <C>      <C>                   <C>      <C>                   <C>
Construction   (Yen)713,529            67.6%    (Yen)731,077          68.9%    (Yen)721,875          65.4%
and Mining
Equipment
-----------------------------------------------------------------------------------------------------------
Electronics           90,335             8.5%          86,608           8.2%         104,265           9.4%
-----------------------------------------------------------------------------------------------------------
Civil                 78,653             7.5%          77,020           7.2%          94,889           8.6%
Engineering
and
Construction
-----------------------------------------------------------------------------------------------------------
Industrial            30,856             2.9%          42,676           4.0%          51,231           4.7%
Machinery
-----------------------------------------------------------------------------------------------------------
Other                142,281            13.5%         124,216          11.7%         131,817          11.9%
-----------------------------------------------------------------------------------------------------------
Total         (Yen)1,055,654           100.0%  (Yen)1,061,597         100.0%  (Yen)1,104,077         100.0%
===========================================================================================================
</TABLE>

     * Operating income (loss) for the fiscal year ended March 31, 2000, 1999,
       and 1998 was also organized according to the same five categories, as
       follows:

                                             (Millions of Yen)

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                                                   2000             1999       1998
                                                                                   ----             ----       ----
                    <S>                                                        <C>            <C>            <C>
                    Construction and
                    Mining Equipment                                           (Yen)28,445    (Yen)30,963    (Yen)36,976

                    Electronics                                                     (9,839)       (18,074)        4,043

                    Civil Engineering and
                     Construction                                                      801         (2,984)          338

                    Industrial Machinery                                            (1,719)        (1,961)           88
                    Others

                    Corporate expenses and
                     Elimination                                                     (4,158)        (4,796)       (3,254)

                    -----------------------------------------------------------------------------------------------------
                    TOTAL                                                      (Yen)17,318     (Yen)4,281    (Yen)43,098
                                                                                    ======          =====    ===========
</TABLE>

  The following table sets forth Komatsu's net sales by geographic markets for
the years ended March 31, 2000, 1999, and 1998 :

                              Net Sales by Geographic Markets
                              -------------------------------

<TABLE>
<CAPTION>
============================================================================================================
                        Fiscal Year                     Fiscal Year                    Fiscal Year
                      Ended 3/31/2000                 Ended 3/31/1999                ended 3/31/1998
              -------------------------------  -----------------------------  ------------------------------
------------------------------------------------------------------------------------------------------------
                                                  (Millions of Yen)
<S>           <C>                       <C>     <C>                    <C>     <C>                     <C>
Japan          (Yen)553,822             52.5%   (Yen)523,946           49.4%   (Yen)605,901            54.9%
------------------------------------------------------------------------------------------------------------
Americas             242,609            23.0%         272,091          25.6%         230,824           20.9%
------------------------------------------------------------------------------------------------------------
Europe               123,633            11.7%         119,270          11.2%         113,427           10.3%
------------------------------------------------------------------------------------------------------------
Asia (excluding)      99,558             9.4%          96,853           9.1%         109,572            9.9%
Japan) &
Oceania
------------------------------------------------------------------------------------------------------------
Middle East           36,032             3.4%          49,437           4.7%          44,353            4.0%
& Africa
------------------------------------------------------------------------------------------------------------
Total         (Yen)1,055,654           100.0%  (Yen)1,061,597         100.0%  (Yen)1,104,077          100.0%
============================================================================================================
</TABLE>


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

     Komatsu's domestic and international sales and distribution functions in
its construction and mining equipment segment, its principal and largest
business segment, are conducted primarily through a network of subsidiaries,
affiliates and independent distributors, and to a lesser extent by joint venture
partners. While Komatsu's construction and mining equipment sales and
distribution operations in Japan focus principally on retail sales to

                                       13
<PAGE>

customers, Komatsu utilizes its extensive Japanese sales distributor network to
offer rental programs to its customers, especially within its construction and
utility equipment businesses.

     Domestic Market:

     Komatsu used to sell construction and mining equipment throughout Japan
through its direct sales system.  Komatsu has, however, shifted away from a
direct sales system to an indirect system of authorized distributors.  At the
beginning of fiscal 1999, Komatsu established a sales network of authorized
distributors for its construction and mining equipment throughout Japan, and
substantially all of Komatsu's sales are now made by such distributors.
Distributors perform comprehensive sales and service functions mainly at each
prefecture.  Six of the 43 companies that compose Komatsu's authorized
distributor network in Japan are independent companies, 20 are affiliates of the
Company and 17 are consolidated subsidiaries of the Company.

     In order to support its sales and to improve its sales network and
competitive position, Komatsu has directed its efforts towards expanding its
after-sales services and maintaining adequate inventories of products and spare
parts to ensure prompt deliveries.

     Overseas Markets:

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

     Komatsu's overseas sales of construction and mining equipment are made
through a sales and service network consisting of approximately 180
distributors.  The distributors are supplied through trading companies and the
Company's subsidiaries and affiliated companies and are supported by Komatsu's
liaison offices in major cities around the world. The subsidiaries and
affiliated companies are located in Australia, Belgium, Brazil, the Federal
Republic of Germany, Hong Kong, India, Indonesia, Italy, Mexico, the Republic of
China, the Republic of South Africa, Singapore, 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 and facilitate delivery of emergency spare parts.

     Komatsu launched the SMAP network system in 1998,directly linking
distributors and plants in Japan with product quality information. During the
year under review, Komatsu launched the system, known as the G-SMAP, globally.
With this network system, Komatsu is now able to transmit prompt information
worldwide on its construction and mining equipment to the distributors and
production bases around the world.

All such information is simultaneously stored in the main database of the G-SMAP
and is available to all users of the network, including distributors. Komatsu's
development, production, sales and service personnel around the world can
utilize the G-SMAP system to reduce the time needed for troubleshooting, to keep
abreast of quality issues, and incorporate relevant information in new product
development. In this way, the G-SMAP improves product quality and helps
customers reduce costs. In addition, the G-SMAP is designed to improve total
customer support through processing, utilizing and mutually sharing all
information concerning sales, service and parts supply.

                                       14
<PAGE>

Research and Development
------------------------

     Komatsu places a high priority on research and development in order to
maintain a competitive advantage in all of its existing lines of products, as
well as to develop new business ventures.

     Research and development ("R&D") expenses for fiscal 2000 decreased 7.1%
from the previous year, to (Yen)42,460 million (US$412 million), representing
4.0% of net sales.  Komatsu's consolidated R&D expenditures for the years ended
March 31, 1999 and 1998 amounted to (Yen)45,712 million and (Yen)44,058 million,
respectively.  The construction and mining equipment segment accounted for R&D
expenses of (Yen)23,757 million in fiscal 2000 compared to (Yen)26,595 million
in fiscal 1999.  The electronics segment recorded R&D expenses of (Yen)8,857
million in fiscal 2000 compared to (Yen)9,861 million in fiscal 1999.

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

     Komatsu will focus on the following technical issues as part of its mid-to
long-term R&D goals:

(1)  Information Technology (IT)

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

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

(2)  Environmental Control Assessment and Development

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

                                       15
<PAGE>

(3)  Supporting Geometry-shrink of Semiconductor Circuits

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

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, and that it is the
largest manufacturer of large-sized presses in Japan.


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

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

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

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


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 and various environmental controls regulating manufacturing
processes.  Komatsu's

                                       16
<PAGE>

operations and products are designed to comply with all applicable environmental
regulations currently in effect in the relevant jurisdictions.

     Komatsu believes that it is 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 results of operations. In 1992, Komatsu issued the Earth
Environment Charter, a comprehensive corporate policy statement representing
Komatsu's commitment to compliance with all applicable regulations and industry
standards for the protection of the environment. Komatsu annually reviews its
compliance with applicable environmental regulations governing its operations.

Employee Relations
------------------

     At March 31, 2000, Komatsu had 28,522 full-time employees in Japan and
overseas.  Komatsu considers its labor relations to be satisfactory.

     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
to July 31, 2001.  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 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.


Item 2.  Description of Property
         -----------------------

     Komatsu's manufacturing operations are conducted in 22 principal plants, 10
of which are located in Japan. As of March 31, 2000, the 22 plants had aggregate
manufacturing floor space of 1,299 thousand square meters (13,970 thousand
square feet).  In addition, Komatsu utilizes additional floor space at such
plants and elsewhere for laboratories, office buildings, and employee housing
and welfare facilities.  Komatsu's plants are currently operating regularly, on
a year-round basis, based upon at least one full shift per plant. Komatsu could
increase its production by, among other 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, 2000, the net book value of the
property owned by Komatsu was (Yen)397,534 million, of which (Yen)45,809 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, 2000, are as follows:

                                       17
<PAGE>

<TABLE>
<CAPTION>
  Name of                                                 Approximate
   Plant            Operator            Location          Floor Space              Principal Products
-----------    -------------------  ----------------   ------------------  -----------------------------------
                                                          Square meters
                                                         (thousand sq ft)
<S>            <C>                  <C>                <C>                 <C>
Awazu          Komatsu Ltd.         Komatsu            286,000             Small and mediuml-sized
Plant                               (Jpn)               (3,077)            bulldozers, mini and small-sized
                                                                           hydraulic excavators,
                                                                           mini,small,and medium-sized
                                                                           wheel loaders, machine tools,
                                                                           presses, tunnel boring machines,
                                                                           armed vehicles and ammunition

Osaka Plant    Komatsu Ltd.         Hirakata           138,000             Large-sized bulldozers, large and
                                    (Jpn)               (1,485)            medium-sized hydraulic excavators,
                                                                           mobile crushers, mobile soil
                                                                           improving equipment, and mobile wood
                                                                           crushers

Oyama Plant    Komatsu Ltd.         Oyama              184,000             Diesel engines, diesel generators,
                                    (Jpn)               (1,980)            diesel compressors, marine engines,
                                                                           hydraulic components and excimer laser

Mooka          Komatsu Ltd.         Mooka               65,000             Rough-terrain cranes and dump trucks,
Plant                               (Jpn)                 (699)            large sized wheel loaders, motor
                                                                           graders, road construction machinery,
                                                                           trash compactors, and towing tractors

Himi Plant     Komatsu Castex       Himi                56,000             Cast steel, cast iron and casting
               Ltd.                 (Jpn)                 (603)            patterns

Hiratsuka      Komatsu              Hiratsuka           14,000             High purity single crystalline
Plant          Electronic Metals    (Jpn)                 (151)            silicon
               Co., Ltd.

Nagasaki       Komatsu              Nagasaki            23,000             High purity single crystalline
Plant          Electronic Metals    (Jpn)                 (247)            silicon and high purity single
               Co., Ltd.                                                   crystalline silicon wafers

Miyazaki       Komatsu              Miyazaki            23,000             High purity silicon wafers
Plant          Electronic Metals    (Jpn)                 (247)
               Co., Ltd.

Tachikawa      Komatsu Zenoah Co.   Higashi-            22,007             Mini-sized construction equipment,
Plant                               yamato                (237)            mini-sized agricultural and forestry
                                    (Jpn)                                  equipment, general purpose engines,
                                                                           hydraulic equipment


Koriyama       Komatsu Zenoah Co.   Koriyama            14,900             Mini-sized construction equipment,
Plant                               (Jpn)                 (160)            mini-sized agricultural and forestry
                                                                           equipment, general purpose engines,
                                                                           hydraulic equipment
</TABLE>

                                       18
<PAGE>

<TABLE>
<CAPTION>
  Name of                                                 Approximate
   Plant            Operator            Location          Floor Space              Principal Products
-----------    -------------------  ----------------   ------------------  -----------------------------------
                                                          Square meters
                                                         (thousand sq ft)
<S>            <C>                  <C>                <C>                 <C>
Chattanooga    Komatsu America      Chattanooga           29,730           Hydraulic excavators, wheel loaders,
Plant          International        (U.S.A.)                (320)          graders and cranes
               Company

Peoria Plant   Komatsu Mining       Illinois             108,000           Large-sized wheel loaders and
               Systems, Inc.        (U.S.A.)              (1,162)          dump trucks

Candiac        Komatsu America      Quebec (Can.)          8,280           Wheel loaders
Plant          International                                 (89)
               Company

Suzano Plant   Komatsu do Brasil    Suzano (Brazil)       57,000           Bulldozers and hydraulic excavators
               Ltda.                                        (613)

Birtley        Komatsu UK Ltd.      Birtley               59,700           Medium and large sized hydraulic
Plant                               (U.K.)                  (642)          excavators

Este Plant     Komatsu Utility      Padova                33,876           Mini and small-sized hydraulic
               Europe S.p.A.        (Italy)                 (365)          excavators, backhoe loaders and
                                                                           skid-steer loaders

Changlin       Komatsu Shantui      Jiangsu               14,240           Wheel loaders, motor gradors, and
Plant          Construction         (China)                 (153)          hydraulic excavators
               Machinery Co.,
               Ltd.

Hanomag        Komatsu              Hannover              37,000           Wheel loaders and compactors
Plant          Hanomag AG           (F.R.G.)                (398)

Jakarta        P.T. Komatsu         Jakarta               43,066           Hydraulic excavators, wheel loaders,
Plant          Indonesia Tbk        (Indonesia)             (463)          bulldozers, motor graders, dump
                                                                           trucks, sheet metal parts for
                                                                           construction equipment

Dusseldorf     Komatsu Mining       Dusseldorf            23,269           Super-large-sized hydraulic excavators
Plant          Germany GmbH         (F.R.G.)                (250)

Moses Lake     Advanced Silicon     Moses Lake            27,078           Polycrystal silicon and silane gas
Plant          Materials LLC.       (U.S.A.)                (291)

Butte Plant    Advanced Silicon     Montana               31,383           Polycrystal silicon and silane gas
               Materials LLC.       (U.S.A.)                (338)
</TABLE>

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


     Item 3.        Legal Proceedings
                    -----------------

                                       19
<PAGE>

     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.


Item 4.   Control of Registrant
          ---------------------

(a)  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 its best knowledge does any person
own more than ten percent of the Company's Common Stock.

(b)  (1)       No person owns more than ten percent of the Company's common
               stock.

     (2)       The total amount of the Company's voting securities owned by the
               officers, directors and statutory auditors as a group (31
               persons) as of June 30, 2000 was as follows:


<TABLE>
<CAPTION>
    Class of Stock           Identity of Person or Group      Amount Owned of Class    Percent
    --------------           ---------------------------      ---------------------    -------
    <S>                  <C>                                  <C>                      <C>
  Common Stock           officers, directors and statutory           686,069            0.072%
                         auditors as a group                         shares
</TABLE>

(c)  The Company is not aware of any arrangement, the operation of which might
at a subsequent date, result in the acquisition of or a change in the control of
the Company.


Item 5.   Nature of Trading Market
          ------------------------

     The shares of common stock of the Company are principally listed on the
Tokyo Stock Exchange.

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

     As of July 31, 2000,  958,921,701 shares of common stock were outstanding.
On the same date, 12,218,305 ADSs (equivalent to 48,873,220 shares of common
stock, or approximately 5.1% of the total number of shares of common stock
outstanding on that date) were outstanding and were held by 14 record holders of
ADRs.

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 the
reported high and low sales prices of ADSs.

                                       20
<PAGE>

<TABLE>
<CAPTION>
                                    Tokyo Stock Exchange              ADS's Prices in the
                                           Price                      over-the-counter
                               Per Share of Common Stock market

                                    high        Low                     High          Low
<S>                                 <C>         <C>                     <C>           <C>
The fiscal year ended March 31,2000
     1st quarter                        820        605  Yen                 27 3/4    20 3/8  US$
     2nd quarter                        793        606                      27 1/2    23 1/2
     3rd quarter                        742        460                      27 1/2        18
     4th quarter                        574        444                      20 5/8    16 3/4
The fiscal year ended March 31,1999
     1st quarter                        703        526  Yen                 21 3/8        16  US$
     2nd quarter                        745        575                      20 1/4    16 1/2
     3rd quarter                        691        548                      23 5/8        16
     4th quarter                        655        505                          23    18 1/4
</TABLE>


Item 6.   Exchange Controls and Other Limitations
          Affecting Security Holders
          ---------------------------------------


A.   Foreign Exchange and Foreign Trade Law
     --------------------------------------

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

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

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

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

     The Foreign Exchange Law requires that a resident of Japan whose debt
securities are being issued outside of Japan file a post facto report of
                                                    ---- -----
"capital transaction" with the Minister of Finance.  Under the Foreign Exchange
Law, payment of the principal of and interest on the 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.

                                       21
<PAGE>

     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.

     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. (See "B. Commercial Code - Subscription Rights"
below.)

                                       22
<PAGE>

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.


B.   Commercial Code
     ---------------

     A brief description of certain material provisions of the Commercial Code
of Japan (the "Commercial Code") relevant to shares of common stock of
companies, such as the Company, whose shares are listed on any Japanese stock
exchange are set forth below:


Transfer of Shares
------------------

     Under the Commercial Code, the transfer of shares is effected by delivery
of share certificates, but in order to assert shareholders' rights against the
company, the transferee must, in general, have its name and address registered
on the company's register of shareholders, through a transfer agent of the
company. Non-resident shareholders are required to appoint a standing proxy in
Japan or to designate a mailing address in Japan.


"Unit" Share
------------

     A company whose shares are listed on any Japanese stock exchange is
generally required to adopt as one "unit" of shares either: (i) the number of
shares obtainable by dividing (Yen)50,000 by the par value of such company's
shares; or (ii) such other number as the company determines in its Articles of
Incorporation, if the portion of the net assets of the company shown in the
latest balance sheet attributable to such number of shares is not less than
(Yen)50,000. If the company does not provide for a different number of shares as
a unit, it is deemed to have adopted as one unit the number of shares set forth
in (i) above.

(Transferability of Shares Representing Less Than One Unit)

     Certificates for shares representing less than one unit are allowed to be
issued only in certain limited circumstances.  Since the transfer of shares
normally requires delivery of the certificates therefor, fractions of a unit for
which no share certificates are issued may not be transferable.  Shares
representing less than one unit for which share certificates have been issued
prior to adoption of the unit share system in 1982 continue to be transferable,
but the transfer may only be registered on the company's register of
shareholders if the transferee is already a registered shareholder (whether in
respect of units or of shares representing less than one unit).

(Rights of a Holder of Shares Representing Less Than
One Unit to Require the Company to Purchase Such Shares)

     A holder of shares representing less than one unit may at any time require
the company to purchase such shares at their last reported sale price on the
Japanese stock exchange on which the shares are listed (or, if the shares are
listed on more than one stock exchange, the stock exchange which is provided by
law) on the day when such requirement is made or, if no sale

                                       23
<PAGE>

takes place on such stock exchange on such day, the price at which the first
sale of the shares is effected on such stock exchange thereafter, less
applicable brokerage commission. The usual securities transfer tax is applicable
to such a purchase.

(Other Rights of a Holder of Shares Representing Less Than One Unit)

     A holder of shares representing less than one unit continues to enjoy in
respect of such shares: (i) the right to receive cash dividends; (ii)the right
to receive shares issuable upon stock splits; (iii) the right to be allotted
subscription rights with respect to new shares, convertible bonds and bonds with
warrants to subscribe for shares when such rights are granted to shareholders;
(iv) the right to participate in the distribution of surplus assets in the event
of the liquidation of the company; and (v) certain other rights, including the
right to require the company to issue replacement share certificates for lost,
stolen and destroyed share certificates.  All other rights, including voting
rights, the right to institute derivative actions and the right to examine the
company's books and records, cannot be exercised with respect to shares
representing less than one unit.


Voting Rights
-------------

     A holder of shares representing less than one unit is not able to exercise
any voting rights with respect to such shares. In calculating the quorum for
various voting purposes, the aggregate number of such shares representing less
than one unit is excluded from the number of outstanding shares. A holder of
shares representing one or more whole units has one vote for each such share,
except that a corporate shareholder one-quarter or more of whose outstanding
shares are directly or indirectly owned by the company may not exercise its
voting rights. In the case of a company (regardless of whether or not listed on
any stock exchange) whose stated capital is not less than (Yen)500 million or
whose total debt as appearing on its latest balance sheet is not less than
(Yen)20 billion and the number of holders of whose voting shares is not less
than 1,000, shareholders having voting rights may cast their votes in writing
unless, for the time being, the company is listed on a stock exchange in Japan
and solicits proxies from all shareholders.


Stock Splits
------------

     The entire amount of the issue price of new shares is required to be
accounted for as stated capital, although the company may account for an amount
not exceeding one-half of such issue price as capital surplus (subject to the
remainder being not less than the total par value of the new shares being
issued). The company may at any time transfer the whole or any part of its
capital surplus and legal reserve to stated capital by resolution of the Board
of Directors. The whole or any part of retained earnings which are distributable
as annual dividends may also be transferred to stated capital by resolution of
an ordinary general meeting of shareholders.

     The company may at any time split the shares in issue into a greater number
of shares by resolution of the Board of Directors if: (i) the total par value of
the shares in issue after the stock split does not exceed the stated capital;
and (ii) the net assets of the company (as appearing in the latest balance
sheet) divided by the number of the shares in issue after the stock split is at
least (Yen)50. Generally, unless a stock split involves a change in the par
value of the shares (which would be subject to shareholders' approval),
shareholders will not be required to exchange share certificates for new share
certificates, but certificates representing the additional shares resulting

                                       24
<PAGE>

from the stock split will be issued to shareholders subject to the limitations
of the unit share system as described above. If the exchange of share
certificates is not required, the company must give public notice of the stock
split, specifying a record date therefor, not less than two weeks prior to such
record date and, in addition, promptly after the stock split takes effect, give
notice to each shareholder specifying the number of shares to which such
shareholder is entitled by virtue of the stock split. If exchange of share
certificates is required, the company must give public notice (and, in addition,
notice to each shareholder) that, within a period of not less than one month
specified in such notice, share certificates must be submitted to the company
for exchange.


Subscription Rights
-------------------

     Holders of shares of the Company have no pre-emptive rights. The authorized
but unissued shares may be issued generally at such times and upon such terms as
the Board of Directors shall determine. The Board of Directors may, however,
determine that all shareholders as of a record date be given rights to subscribe
to new shares of the company on uniform terms. Such subscription rights may be
made generally transferable by the Board of Directors in its discretion,
however, an active market in subscription rights has not yet been developed in
Japan.


Repurchase by a Company of Its Own Shares
-----------------------------------------

     Except as otherwise permitted by the Commercial Code as set out below, a
company may not, in general, acquire its own shares except by means of a
reduction in capital in the manner provided for in the Commercial Code.
However, a company shall acquire its own shares in response to a shareholder's
request for purchase of his shares representing less than one unit.  Shares so
purchased must be sold or otherwise transferred to a third party within a
reasonable time thereafter.

     The amendments to the Commercial Code which took effect in June 1997, as
well as those which took effect on October 1, 1994, enable the company to
acquire its own shares (i) for the purpose of transferring such shares to its
employees and/or directors if there is any justifiable reason or (ii) for the
purpose of cancellation. In either case, the acquisition is subject to
authorization granted by resolution (in the case of a company whose shares are
not listed on any stock exchange in Japan or traded on the over-the-counter
market in Japan, by special resolution) of an ordinary general meeting of
shareholders. Acquisition by a company of its shares for the purpose of transfer
to its employees and/or directors is subject to, among other things, the
following restrictions: (a) the purchase shall be made for due cause, such as
for the purpose of a transfer to its employees' shareholding association or for
the purpose of sale to specific directors and/or employees based on stock option
arrangements; (b) the number of shares held by the company as a result of such
acquisition may not at any time exceed ten percent of the total number of shares
in issue; (c) the number of shares to be purchased by the company for such
purpose during the period from the time of the relevant resolution of the
ordinary general meeting of shareholders to the time of conclusion of the
immediately following ordinary general meeting of shareholders may not exceed
ten percent of the total number of shares in issue; (d) the total amount of the
purchase price of the shares purchased by the company for such purpose during
the period referred to in (c) above may not exceed the amount of profits
distributable by the company as year-end dividends, less the aggregate of any
amount to be paid out by the company by way of appropriation of retained
earnings and any amount of

                                       25
<PAGE>

retained earnings transferred to stated capital, if any such appropriation and
transfer is authorized pursuant to resolution of the ordinary general meeting of
the shareholders at which such purchase of shares is also authorized; and (e)
(in the case of a listed company such as the Company) the purchase shall be
effected only on any of the stock exchanges on which the shares are then listed
or by way of tender offer in the manner prescribed by the Securities and
Exchange Law (as amended). Purchase by a company of its shares for the purpose
of cancellation is subject to the restrictions referred to in (d) and (e) above
shares purchased by the company for the purpose of transfer to its employees
and/or directors must be transferred to them within six months after such
purchase, or (if purchased for stock option arrangements) within the option
exercise period, and shares purchased by the company for the purpose of
cancellation must be canceled without delay after such purchase.

  However, a special law to the Commercial Code, which was introduced on 1 June
1997, enables the Company to acquire shares in order to cancel the same without
the authorization of shareholders, provided that the Articles of Incorporation
authorize the Board of Directors to do so.  With respect to such acquisition,
the restrictions referred to in (c) and (e) are applicable, together with the
additional restriction that the total amount of the purchase price must not
exceed 1/2 of the amount of the retained earnings available for dividend
payments as of the latest fiscal year end, minus the amount (to be) paid by way
of appropriation of earnings and transferred to capital, the aggregate total
purchase price of shares to be acquired under (1) and (2) above, and other
certain amounts.

  In addition, an amendment to the special law to the Commercial Code, which was
introduced on March 30, 1998, enables the Company to acquire shares by way of
appropriation of capital surplus in order to cancel the same without the
authorization of shareholders, provided that the Articles of Incorporation
authorizes the Board to do so.  With respect to such acquisition, the
restriction referred to in (e) is applicable together with the additional
restrictions that (i) the total amount of the purchase price must not exceed the
aggregate amount of capital surplus and legal reserve less 1/4 of stated
capital, provided that such repurchase cannot be done in cases where the Company
does not have retained earnings available for dividend payments as of the latest
fiscal year end because of deductions of the amount (to be) paid by way of
appropriation of earnings and transfer to capital, the aggregate total purchase
price of shares to be acquired under (1) and (2) above, and other certain
amounts; (ii) the resource of such acquisition must be capital reserve; and
(iii) public notice to the creditors of the Company must be done during the two
weeks after the board resolution.

  By a resolution adopted at the annual shareholders' meeting on June 27, 1997,
the Company's Articles of Incorporation were amended to enable the Company to
acquire its shares for cancellation by appropriation of retained earnings, up to
a maximum of ninety million (90,000,000) shares, pursuant to a resolution of the
Board of Directors.  The Company completed such acquisition at the total
acquisition price of (Yen)9,773 million by April 12, 1998 and canceled the
15,000,000 shares, and at the total acquisition price of (Yen)6,340 million in
May, 2000 and canceled the 10,000,000 shares.

  Also, by a resolution adopted at the annual shareholders' meeting on June 26,
1998, the Company was authorized to acquire up to one million (1,000,000) shares
at a maximum total acquisition price of (Yen)1 billion for transfer to certain
of its directors and employees.  As of August 3, 1998, the Company completed the
acquisition of one million (1,000,000) shares at the total acquisition price of
(Yen)696 million.

                                       26
<PAGE>

  Also, by a resolution adopted at the annual shareholders' meeting on June 29,
1999, the Company was authorized to acquire up to 1.2 million (1,200,000) shares
at a maximum total acquisition price of (Yen)1.2 billion for transfer to certain
of its directors and employees.  As of July 23, 1999, the Company completed the
acquisition of 1.2 million (1,200,000) shares at the total acquisition price of
925 million. On December 7,1999, the Company sold 20,000 of the 1,200,000 shares
on the market.

  Also, by a resolution adopted at the annual shareholders' meeting on June 28,
2000, the Company was authorized to acquire up to 1.2 million (1,200,000) shares
at a maximum total acquisition price of (Yen)1 billion for transfer to certain
of its directors and employees.

The Commercial Code generally prohibits any subsidiary from acquiring shares in
its parent company.



C.  Other Regulations
    -----------------

  The Securities and Exchange Law of Japan, as amended, requires any person who
has become, beneficially and solely or jointly, a holder of more than five
percent of the total issued voting shares of a company listed on any Japanese
stock exchange or traded on the over-the-counter market in Japan, to file with
the Director of the appropriate Local Finance Bureau of the Ministry of Finance
of Japan, within five business days, a report concerning such shareholdings. A
similar report must also be made if the ratio of such holding subsequently
changes by one percent or more.  Copies of any such report must also be
furnished to the issuer of such shares and to all Japanese stock exchanges on
which the shares are listed or the Japan Securities Dealers Association in the
case of over-the-counter shares.  For this purpose, shares issuable to such
person upon conversion of convertible bonds or exercise of warrants (and similar
shares) are taken into account in determining both the number of shares held by
such holder and the issuer's total number of issued shares.


Item 7.  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, 2002) and the difference, if any, between the issue
price and the amount payable upon redemption of such debt securities will not be
subject to the withholding of Japanese income tax, if such interest or
difference is payable outside of Japan to a non-resident of Japan or non-
Japanese corporation which (in the case of interest) has submitted documents
certifying its non-Japanese residency in accordance with the requirements set
out in Japanese tax laws.

                                       27
<PAGE>

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 (but, in general, not capital surplus) to stated
capital (whether made in connection with a stock split or otherwise) is treated
as a dividend payment to shareholders for Japanese tax purposes and is, in
general, subject to Japanese income tax.  No such transfer would be necessary in
connection with a stock split if the total par value of the shares in issue
after the stock split does not exceed the stated capital.

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

                                       28
<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.


Item 8.  Selected Financial Data
         -----------------------

  Attached hereto and incorporated in full by reference are pages 38 and 39 of
the Company's 2000 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)109.65=U.S.$1 as of July 31, 2000.)


Item 9.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations
         ---------------------------------------------

Outlook

     The statements contained in this Outlook section are based on management's
current expectations.  With the exception of the historical information
contained herein, the statements presented in this Outlook section are forward-
looking statements that involve numerous risks and uncertainties that could
significantly affect expected results.  Actual results may differ materially.

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

Preceding this restructuring program Komatsu had streamlined sales and logistics
operations. With the completion of the restructuring program, Management
believes that Komatsu's construction and mining equipment is in a position to
generate stable earning over the foreseeable future even when total demand in
the Japanese market remains at about the current level.

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

                                       29
<PAGE>

directions as the hub of the growth strategy:

(1) Globalization

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

(2) Full-line offering

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

(3) Environmental business

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

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

Komatsu will take active steps to expand the solutions-centered business in the
areas of after-sales, ranging from lease and rental, parts and service, and
sales of used equipment to logistics, and non-life insurance, all of which will
expand sales and profits. In these after-sales markets, Komatsu is confident of
differentiating its products and technologies, notably through IT utilization.
Komatsu also believes IT will have a major positive impact on changing the way
of doing business and the business models.

Electronics.  Management believes Komatsu's electronics business is now on track
for recovery, with prospects for mid- and long-range growth.

Operating loss from the electronics segment improved to (Yen)9,839 million
(US$96 million) in fiscal 2000 from a loss of (Yen)18,074 million in fiscal
1999.  This year, further improvement in this segment is expected to continue to
reduce the level of losses.  Management believes, however, that improvement in
the silicon wafer business will likely depend on the rebound and normalization
of price.

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

Komatsu Silicon America, Inc. is planning to transfer its processing equipment
to other group companies, which could effectively utilize the same, with a view
to reducing the costs of maintaining unused equipment, which was one of the
major reasons for the loss Komatsu Silicon America, Inc. suffered in fiscal
2000.

Sales of polycrystalline silicon by Advanced Silicon Materials LLC. were slow
during fiscal 2000, reflecting an overall weak demand for the product.  To
overcome such adverse conditions, Advanced Silicon Materials focused on sales of
differentiated products from monosilane gas, such as float zone and charge
replenishment rods, as well as monosilane gas itself for use in semiconductor
production.

Management believes the Excimer laser business will be further strengthened in
the global

                                       30
<PAGE>

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

     Industrial Machinery.  Komatsu's industrial machinery business comprises
large presses for the automobile industry, sheet metal forming machines, small
and medium-sized presses and machine tools. Based on the results in fiscal 2000,
Komatsu is significantly increasing its efforts to reform our financial position
in the sheet metal forming machine and small and medium-sized press business. In
other industrial machinery businesses, to secure profitability, Komatsu will
restructure relevant organizations and reallocate the workforce to maximize the
strengths and match respective market sizes.

Civil Engineering and Construction. Under the flat demand and negative or slow
revenue growth of civil engineering and construction business in Japan, Komatsu
will continue to emphasize the specialized field of coastal construction
projects, such as coastal infrastructure development, environmental reclamation,
unmanned civil engineering projects at hazardous sites and other works, using
amphibious bulldozer D155W and other specialized equipment, Komatsu will also
continue to reinforce proposal-based sales of its prefabricated structures that
feature advantages in terms of quality, cost and delivery.

     Foreign Exchange Rate Fluctuations.  Sales to customers located outside
Japan represented approximately 48% and 51% of Komatsu's net revenues in fiscal
2000 and fiscal 1999, respectively. Komatsu expects that a significant portion
of its revenues will continue to be from sales to customers outside of Japan. 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
dollar could generally have an adverse effect on Komatsu's results of operations
although Komatsu has reduced its exposure to changes in the exchange rate
between the yen and the 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 9A below. The devaluation of the yen against the dollar generally
results in an increase in Komatsu's operating profit.

Results of Operations

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

     Net Sales

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

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

                                       31
<PAGE>

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

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

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

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

     Earnings

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

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

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

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

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

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

                                       32
<PAGE>

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

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

Comparison of Fiscal 1999 with Fiscal 1998
------------------------------------------

     Net Sales Komatsu's net sales decreased 3.8% in fiscal 1999 to
(Yen)1,061,597 million(US$8,997 million) from (Yen)1,104,077 million in fiscal
1998. While the increase in overseas net sales, in construction and mining
equipment operation, offset a decline in domestic net sales, both domestic and
overseas net sales of other operations decreased. Overseas net sales increased
7.9% to (Yen)537,651 million (US$4,556 million) in fiscal 1999 from (Yen)498,176
million in fiscal 1998 due to construction and mining equipment operation.
Domestic net sales decreased 13.5% to (Yen)523,946 million (US$4,440 million) in
fiscal 1999 from (Yen)605,901 million in fiscal 1998 due primarily to depressed
domestic demand for construction and mining equipment which resulted from the
sluggish Japanese economy. While net sales in Asia (other than Japan) and in
Oceania decreased 11.6% to (Yen)96,853 million (US$821 million) in fiscal 1999
due to economic crises experienced by certain countries in the region, this
decline was outweighed by increased sales in other regions, including the
Americas, Europe, the Middle East and Africa. Overseas business expansion in
fiscal 1999 was particularly strong in the Americas and Europe, with net sales
in the Americas increasing 17.9% to (Yen)272,091 million (US$2,306 million) in
fiscal 1999 from (Yen)230,824 million in fiscal 1998 and net sales in Europe
increasing 5.2% to (Yen)119,270 million (US$1,011 million) in fiscal 1999 from
(Yen)113,427 million in fiscal 1998. Net sales in the Middle East and Africa
increased 11.5% to (Yen)49,437 million (US$419 million) in fiscal 1999.

     Earnings Cost of sales for fiscal 1999 declined 2.3% to (Yen)807,255
million (US$6,841 million) from (Yen)826,627 million in fiscal 1998. The cost of
salesto net sales ratio grew 1.1% to 76.0% in fiscal 1999 from 74.9% in fiscal
1998. SG&A expenses for fiscal 1999 increased 6.7% to (Yen)250,061 million
(US$2,119 million). The ratio of SG&A expenses to net sales in fiscal 1999 was
23.6%, up 2.4% over 21.2% in fiscal 1998. As a result, operating income for
fiscal 1999 declined 90.1% compared to the previous fiscal year to (Yen)4,281
million (US$36 million). Major contributing factors were weak silicon wafer
prices, one-time expenses resulting from the restructuring of manufacturing
operations and a substantial operating loss incurred in the civil engineering
and construction business. Net interest and other income and expenses for fiscal
1999 generated a loss of (Yen)13,885 million (US$118 million), compared to a
loss of (Yen)2,846 million in fiscal 1998, including a large write-down of
(Yen)14,214 million (US$120 million) due to the devaluation of domestic
marketable and investment securities precipitated by the weak stock market and
economy in Japan. Interest and other income for fiscal 1999 also included a gain
of (Yen)7,206 million (US$61 million) from the sales of property at Machida in
Japan. As a result of this loss and the increase in selling, general and
administrative expenses described above, income (loss) before income taxes,
minority interests and equity in earnings shrank in fiscal 1999, resulting in a
net loss of (Yen)9,604 million (US$81 million), compared with income of
(Yen)40,252 million in fiscal 1998, and declined 4.5% to minus 0.9% as a
percentage of net sales. Minority interests in income (loss) of consolidated
subsidiaries raised income after income tax by (Yen)6,862 million (US$58
million) in fiscal 1999, a reverse from the reduction in income after income tax
of (Yen)933 million in fiscal 1998, reflecting losses of such consolidated
subsidiaries due
                                       33
<PAGE>

primarily to KEM. In fiscal 1999, equity in earnings (losses) of affiliated
companies fell to a loss of (Yen)7,575 million (US$64 million), from a gain of
(Yen)763 million in fiscal 1998 due primarily to one-time expenses resulting
from the restructuring of the operating base of AKT. As a result, and for the
first time since the introduction of consolidated financial statements in 1964,
Komatsu experienced a net loss in fiscal 1999 of (Yen)12,378 million (US$105
million). On a per share basis, net loss for fiscal 1999 amounted to (Yen)12.77
(US$0.11), while cash dividends per share were reduced by (Yen)1.00, to
(Yen)7.00 (US$0.06) for the year. Cash dividends per share were (Yen)8.00 in
fiscal 1998.

Performance by Segment

     Komatsu operates in five business segments:  Construction and mining
equipment, electronics, industrial machinery, civil engineering and
construction, and other operations.

     Construction and Mining Equipment.  Fiscal 2000 net sales of construction
and mining equipment totaled (Yen)713,529 million (US$6,927 million), a decrease
of 2.4% compared to (Yen)731,077 million in fiscal 1999 which represented an
increase of 1.3% compared to (Yen)721,875 million in fiscal 1998.  Construction
and mining equipment net sales accounted for 67.6% of Komatsu's worldwide net
sales in fiscal 2000.  While sales in Japan increased 8.8%, to (Yen)268,867
million (US$2,610 million) in fiscal 2000 from (Yen)247,102 million in fiscal
1999, sales outside Japan decreased 8.1% to (Yen)444,662 million (US$4,317
million) in fiscal 2000.  Sales in Japan represented 37.7% of total sales of
construction and mining equipment, up 3.9% from the previous fiscal year, while
the proportion of sales outside Japan decreased to 62.3%. Overall, net sales of
construction and mining equipment comprised 67.6% of Komatsu's total net sales
in fiscal 2000, down 1.3% from 68.9% in fiscal 1999 and up 2.3% from 65.3% in
fiscal 1998.

     Operating income from the construction and mining equipment segment for
fiscal 2000 decreased 8.1% compared to the previous fiscal year to (Yen)28,445
million (US$276 million).  In fiscal 1999 operating income decreased 16.2% to
(Yen)30,963 million from (Yen)36,976 million in fiscal 1998 due primarily to a
decrease in domestic sales and one-time expenses resulting from restructuring.

     Electronics.  In the electronics business, fiscal 2000 net sales from
electronics operations increased 4.3% to (Yen)90,335 million (US$877 million)
from (Yen)86,608 million in fiscal 1999, as sales in Japan increased 9.9% to
(Yen)62,530 million (US$607 million), and sales outside Japan decreased 6.4% to
(Yen)27,805 million (US$270 million).  Fiscal 1999 net sales decreased 16.9% to
(Yen)86,608 million from (Yen)104,265 million in fiscal 1998.  Electronics
accounted for 8.5% of Komatsu's net sales in fiscal 2000, compared with 8.2% in
fiscal 1999 and 9.4% in fiscal 1998.

     KEM, a 63.4% owned subsidiary of the Company engaged in the manufacture of
silicon wafers, had sales of (Yen)63,862 million (US$620 million) for fiscal
2000, a increase of 2.5% over sales of (Yen)62,277 million the previous fiscal
year.

     Operating income (loss) from the electronics segment for fiscal 2000 was an
operating loss of (Yen)9,839 million (US$96 million), which was an improvement
that cut the operating loss of (Yen)18,074 million in fiscal 1999, by almost one
half. This was due to improved

                                       34
<PAGE>

conditions in semiconductor market, the recovery of worldwide demand for silicon
wafers and prices beginning to rebound during the year.

In fiscal 2000, the Company recorded impairment losses on long-lived assets at
its wholly owned subsidiary in the electronics segment. Such impairment losses
were calculated using the best estimate of discounted future cash flows based on
the assumption to continue its operation.

     Industrial Machinery.  Fiscal 2000 sales of industrial machinery decreased
27.7% to (Yen)30,856 million (US$300 million) from (Yen)42,676 million in fiscal
1999.  Fiscal 1999 sales of industrial machinery of (Yen)42,676 million
represented a decrease of 16.7% over sales of (Yen)51,231 million in fiscal
1998.  This sales decline was due to primarily depressed demand in Japan and
sales of large presses as well as a decline in sales of modular transfer
presses, reflecting restrained investments by the automobile manufacturing
industry. Sales in Japan decreased 22.3%, to (Yen)18,301 million (US$178
million), in fiscal 2000 from (Yen)23,549 million in fiscal 1999, and sales
outside Japan decreased 34.4% to (Yen)12,555 million (US$122 million).
Industrial machinery comprised 2.9% of sales of Komatsu's fiscal 2000 sales,
compared to 4.0% in the previous fiscal year and 4.7% in fiscal 1998.

     Operating income (loss) from the industrial machinery segment for fiscal
2000 totaled an operating loss of (Yen)1,719 million (US$17 million), compared
to operating loss of (Yen)1,961 million in fiscal 1999 and operating profit of
(Yen)88 million in fiscal 1998.

     Civil Engineering and Construction.  Limited to the Japanese market, sales
for Komatsu's civil engineering and construction operations increased 2.1% to
(Yen)78,653 million (US$764 million) in fiscal 2000 from (Yen)77,020 million in
fiscal 1999, which represented a 18.8% decrease from (Yen)94,889 million in
fiscal 1998. Civil engineering and construction amounted to 7.5% of sales of
Komatsu in fiscal 2000, compared to 7.2% in the previous fiscal year.

     Komatsu Construction, the major business unit of Komatsu's civil
engineering and construction operations, had sales of (Yen)63,020 million
(US$612 million) for fiscal 2000, down 7.9% over (Yen)68,400 million in fiscal
1999.

     Sales of Komatsu House, which is engaged in the sale of commercial-use
prefabricated buildings, increased 3.6% to (Yen)18,927 million (US$184 million)
in fiscal 2000 from the level of the previous fiscal year.

     Operating income (loss) from the civil engineering and construction segment
for fiscal 2000 amounted to an operating income of (Yen)801 million (US$8
million).  In fiscal 1999 operating loss amounted to (Yen)2,984 million due
primarily to a lump sum write off of delinquent receivables. Operating income
was (Yen)338 million in fiscal 1998.

     Other Operations.  Fiscal 2000 sales from Komatsu's other operations
increased 14.5% to (Yen)142,281 million (US$1,381 million) from (Yen)124,216
million in fiscal 1999.

     Operating income from other operating segments for fiscal 2000 increased
234.3% compared to the previous fiscal year to (Yen)3,788 million (US$37
million) due to increased sales of products of agricultural and forestry
equipment, centering on eco-friendly systems such as  the mobile chipper-
shredder. In fiscal 1999 operating income decreased by 76.9% to
(Yen)1,133million from (Yen)4,907 million in the previous fiscal year due to
decreased sales of

                                       35
<PAGE>

products such as diesel engines and logistics packages due to a stagnant
domestic market for construction equipment.

Performance by Region

     Japan.  Net sales to customers in Japan increased 5.7% from (Yen)523,946
million in fiscal 1999 to (Yen)553,822 million (US$5,377 million) in fiscal
2000.  Operating income (loss) for Komatsu's operations in Japan increased from
a loss of (Yen)10,052 million in fiscal 1999 to a income of (Yen)955 million
(US$9 million) in fiscal 2000.  The increase in sales came from the recovery of
the demand for construction equipment demand in Japan and the increase of the
sales domestic electronics operation.  Compared to fiscal 1998, net sales to
customers in Japan and operating income (loss) recorded by Komatsu's operations
in Japan in fiscal 1999 decreased by 13.5% (from (Yen)605,901 million) and
decreased by 37,702 million from operating income of (Yen)27,650 million,
respectively.

     Asia (Excluding Japan) and Oceania.  Net sales to customers in the rest of
Asia and Oceania increased 2.8% to (Yen)99,558 million (US$967 million) in
fiscal 2000 compared to (Yen)96,853 million in fiscal 1999.  Net sales in fiscal
1999 decreased 11.6% from (Yen)109,572 million in fiscal 1998.  The increase in
net sales in fiscal 2000 was due to the recovery of the  market demand in Asia
for Komatsu's products.  Net sales to customers in Asia (excluding Japan) and
Oceania comprised 9.4% of Komatsu's worldwide net sales in fiscal 2000, up from
9.1% in fiscal 1999 and down from 9.9% in fiscal 1998.

     Americas.  Net sales to customers in North America, Central America and
South America, decreased 10.8% in fiscal 2000 to (Yen)242,609 million (US$2,355
million) from (Yen)272,091 million in fiscal 1999.  Fiscal 1999 net sales
increased 17.9% over net sales of (Yen)230,824 million in fiscal 1998.  The
decrease in net sales in fiscal 2000 was due to decreased demand for
construction equipment in North America.  North American, Central American and
South American net sales accounted for 23.0% of Komatsu's net sales worldwide in
fiscal 2000, down from 25.6% in fiscal 1999 and up from 20.9% in fiscal 1998.

     Operating income generated by Komatsu's operations in the Americas
increased 62.7% during fiscal 2000 to (Yen)12,354 million (US$120 million) from
(Yen)7,594 million in fiscal 1999.  Compared to fiscal 1998, operating income
recorded in fiscal 1999 decreased by 46.0% from (Yen)14,064 million due to the
substantial operating losses of KSA and ASiMI.

     Europe.  Net sales to customers in Europe in fiscal 2000 increased 3.7% to
(Yen)123,633 million (US$1,200 million) from (Yen)119,270 million in fiscal
1999. Fiscal 1999 net sales increased 5.2% over (Yen)113,427 million in fiscal
1998.  Increased sales in fiscal 2000 and 1999 were due primarily to increased
sales of hydraulic excavators, wheel loaders and utility equipment.  Net sales
to customers in Europe comprised 11.7% of Komatsu's net sales worldwide in
fiscal 2000, up from 11.2% in fiscal 1999 and 10.3% in fiscal 1998.

     In fiscal 2000, operating income from Komatsu's operations in Europe
decreased to (Yen)4,284 million (US$42 million) from (Yen)9,253 million in
fiscal 1999 due to the depreciation of Euro currency.  Compared to fiscal 1998,
operating income recorded in fiscal 1999 increased by (Yen)4,863 million from
(Yen)4,390 million.

     Middle East and Africa.  In the Middle East and Africa, Komatsu's net sales
decreased 27.1% to (Yen)36,032 million (US$350 million) in fiscal 2000 compared
to (Yen)49,437

                                       36
<PAGE>

million in fiscal 1999, which in turn represented an 11.5% increase from net
sales of (Yen)44,353 million in fiscal 1998. The sales decline came from the
decrease of the demand for the equipment in the Middle East and Africa. Net
sales to customers in the Middle East and Africa comprised 3.4% of Komatsu's net
sales worldwide in fiscal 2000, down from 4.7% in fiscal 1999 and 4.0% in fiscal
1998.

Liquidity and Capital Resources

     Cash and cash equivalents at March 31, 2000 were (Yen)80,476 million
(US$781 million), a decrease of (Yen)6,825 million from the previous fiscal year
end.  Net cash provided by operating activities was (Yen)34,224 million (US$332
million) for fiscal 2000, approximately the same level as (Yen)34,346 million in
the previous fiscal year.

     Net cash provided by investing activities in fiscal 2000 was (Yen)18,880
million (US$183 million) and increased by (Yen)82,883 million from (Yen)64,003
million used in fiscal 1999. This increase was principally due to the decrease
of capital expenditures by (Yen)57,146 million and the increase in the proceeds
from sales of property by (Yen)23,515 million in fiscal 2000 compared to fiscal
1999. Net cash used in financing activities increased to (Yen)61,565 million
(US$598 million) in fiscal 2000, an increase of (Yen)68,179 million over
(Yen)6,614 million provided by financing activities in fiscal 1999, principally
reflecting the repayment of the debt during fiscal 2000.

Working capital in fiscal 2000 increased 2.2% from the previous year, to
(Yen)261,736 million (US$2,541 million).

     The current ratio (current assets divided by current liabilities) in fiscal
2000 increased by 7.2% over the previous year to 149.3%, compared with 142.1% in
fiscal 1999.

Capital expenditures in fiscal 2000 decreased 49.7% over the previous fiscal
year, to (Yen)57,728 million (US$560 million), caused primarily by the
completion of an investment cycle in the electronics business, which resulted in
reduced capital expenditures of (Yen)48,765 million (US$473 million) in the
electronics business segment. Capital expenditures in fiscal 1999 decreased 6.6%
over the amount in fiscal 1998.  Commitments for capital expenditures
outstanding as of March 31, 2000, totaled approximately (Yen)599 million (US$6
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 would need to
incur significant capital expenditures or other investments to expand its
production in this segment.

     At March 31, 2000, Komatsu had a cash balance of (Yen)80,476 million
(US$781 million).  At that date, Komatsu's consolidated total debt was
(Yen)460,259 million (US$4,469 million), (Yen)214,970 million (US$2,087 million)
of which was short-term debt (including current portions of long-term debt).  As
of March 31, 2000, (Yen)54,306 million of Komatsu's long-term debt was scheduled
to mature in fiscal 2001, (Yen)40,147 million in fiscal 2002, and (Yen)205,142
million in fiscal 2003 and thereafter.

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

                                       37
<PAGE>

     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, 2000, Komatsu had securitized accounts
receivable totaling (Yen)72,320 million (US$702 million) (or 16.4% of total
accounts receivable at that date).  Of this amount, (Yen)31,360 million related
to receivables generated by Komatsu's Japanese operations and (Yen)40,960
million related to receivables generated by Komatsu's North American operations.
As of March 31, 1999, Komatsu had securitized accounts receivable totaling
(Yen)63,714 million (or 14.6% of total accounts receivable at that date).  Of
this amount, (Yen)23,219 million related to receivables generated by Komatsu's
Japanese operations and (Yen)40,495 million related to receivables generated by
Komatsu's North American operations.

     Komatsu sold idle properties of the Osaka Plant in Nakamiya district for
(Yen)26.0 billion in fiscal 2000.

     As of July 31, 2000, the Company had outstanding (Yen)19,000 million of
commercial paper issued under its (Yen)50,000 million commercial paper program,
scheduled to mature in September 2000 and October 2000. As of July 31, 2000,
Komatsu Finance America Inc. ("KFA") had outstanding US$200 million of
commercial paper issued under its US$400 million commercial paper program (the
"CP Program") and US$764 million of notes issued under its US$1,200 million Euro
Medium Term Note Program ("EMTN Program"). Under EMTN Program, the Company, KFA,
Komatsu Finance (Netherlands) B.V. ("KFN") and Komatsu Australia Pty., Ltd. may
from time to time issue notes denominated in any currency. The commercial paper
issued under the CP Program have scheduled maturities during August and
September of 2000 and the notes issued under the EMTN Program are scheduled to
mature on various dates through November 2008. As of July 31, 2000, Komatsu
Europe Coordination Center N.V. had outstanding EUR81 million of commercial
paper issued under its EUR150 million commercial paper program, which have
scheduled maturities during August, September, and October of 2000 and April of
2001. As of July 31, 2000, Komatsu Finance (Netherlands) B.V. had EUR74 million
of notes issued under its EMTN program, which are scheduled to mature on various
dates through April 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 the 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 the 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.

Dividend Policy

     The Company  maintains returns on shareholders' equity while striving to
secure internal funds for reinvestment. In fiscal 2000, the Company paid its
year-end dividend for fiscal 2000 to (Yen)3 (annual dividend to be (Yen)6 per
share) based on the policy as above, and payout ratio of fiscal 2000 was 42.6%.
In fiscal 1997, 1998 and 2000, the Company implemented acquisition and writeoff
of its outstanding common shares.  In its endeavor to increase returns on
shareholders' equity, the Company will continue to take such actions on a

                                       38
<PAGE>

continual basis in the years ahead, taking into account stock market trends,
cash flows and other relevant financial conditions.

Environmental Policy

     As Japan's top manufacturer and an international leader in construction and
mining equipment, the Company is aware of its social responsibility toward the
environment. Komatsu regards the protection of the environment as an important
goal of business and seeks to lead the industry in setting environmental
protection standards.

Energy Saving

     The Company is working to reduce energy consumption at its plants by 15%
from the 1990 level by the end of March 2011, which would surpass the rate of
10% set by the Japan Construction Equipment Manufacturers Association.  As of
the end of March 2000, the Company attained a reduction of approximately 12.5%
from 1990 levels.

Protecting the Ozone Layer

     The Company had virtually discontinued use of ozone-depleting chemicals by
the end of March 1993, and completely discontinued their use by the end of March
1996.

Efficient Use of Resources

     The Company plans to reduce industrial waste to near-zero levels by the end
of March 2011.  As of the end of March 2000, the Company had reduced levels by
68%.

Soil and Underground Water Pollution Prevention Measures

     By the end of March 1997, the Company had completely discontinued the use
of organic chlorine-based solvents.

     In its life cycle assessment (LCA) of its construction equipment, the
Company focuses on the following four goals:  curbing owning and operating (O&O)
costs, reducing CO2 emissions, cutting toxic matter and improving recyclability.

     In the area of recyclability, its PC200-6 hydraulic excavators and WA100-3
wheel loaders currently stand at 81% and 92%, respectively.  For all its
construction equipment, Komatsu is working to improve this percentage to over
97% in 2005 and 99.5% in 2010.

     The Company has made a priority of promoting the recycling of rubber shoes
for the undercarriage, as well as recycling of oil filters, used oil, batteries,
hoses, antifreeze and sludge from the cleaning of equipment.

     The Company has also been working to promote remanufacturing of components
through design modifications and advances in engineering technologies.

     The Company committed to reducing CO//2// emissions from its diesel
engines. The Company will strive to reduce emissions by 5% in 2005 and 10% in
2010 from the 1998 level.

     In January 1998, the Company teamed up with Cummins, the world's top
manufacturer of engines, to establish Industrial Power Alliance, Ltd. ("IPA"), a
50-50 joint

                                       39
<PAGE>

venture based at the Company's Oyama Plant. IPA is engaged specifically in the
research and development of next-generation diesel engines with reduced CO2
emissions, enhanced cost competitiveness and durability, and low noise. As a
partner and international engine development center to both Cummins and the
Company, IPA is poised to be a leader in next-generation engines.


Year 2000 Issues

Defining the Y2K issue as one of the most important management tasks to assure
the Quality and Reliability of its management, Komatsu has been addressing the
problem since late 1996, when it instituted a Companywide program. As a result,
no problems worthy of note have occurred within the Group. Although Komatsu will
continue to monitor the issue, Komatsu does not anticipate any serious problems
in the future.

Komatsu expenditures for the counter-Y2K activities totaled approximately
(Yen)6.0 billion, of which about (Yen)5.5 billion was expended by the end of
March 31, 1999, while the balance of about (Yen)0.5 billion (US$5 million) was
used in fiscal 2000. These expenditures did not have any serious impact on the
business and cash flows of the Company.

The above statement concerning the Year 2000 Readiness Disclosure does not
constitute a statement of warranty and may not be interpreted to expand any
warranty provided with any Komatsu product.

  Financial Review
  ----------------

  Attached hereto and incorporated in full by reference are pages 34, 35, 36 and
37 of the Company's 2000 Annual Report to Shareholders pertaining to "Financial
Review", which pages comprise part of the Consolidated Financial Statements
attached hereto.


Item 9A.  Quantitative and Qualitative Disclosures About Market Risk
          ----------------------------------------------------------

Market Risk Exposure

  Komatsu is exposed to market risk primarily from changes in foreign currency
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, Komatsu enters into various hedging
transactions pursuant to its policies and procedures. Komatsu does not hold or
issue derivative financial instruments for non-hedging or speculation purposes.

  Komatsu is exposed to risk of 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 default
on their obligations.

Foreign Exchange Risk

  To reduce foreign exchange risks relating to foreign currency denominated
assets and liabilities, Komatsu executes forward exchange contracts ranging from
50% to 100% based on its projection of use of time deposits in foreign
currencies. Furthermore, to reduce foreign exchange risks in relation to medium-
term and long-term foreign currency denominated assets

                                       40
<PAGE>

and liabilities and to fix related costs, Komatsu has executed such forward
contracts for a portion of its bonds and loans.

  The following table provides information concerning derivative financial
instruments of Komatsu in relation to foreign currency exchange transactions
existing as of March 31, 2000, 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, 2000.

                                       41
<PAGE>

<TABLE>
<CAPTION>
                                                                       Millions of yen
                                                             (except average contractual rates)
                                   ----------------------------------------------------------------------------------------
Forwards to sell foreign
 currencies:                         US$/Yen         GBP/EUR       EUR/Yen        US$/EUR        Others          Total
---------------------------------------------------------------------------------------------------------------------------
<S>                               <C>             <C>            <C>           <C>            <C>            <C>
Contract amounts                   (Yen)14,3915    (Yen)6,568     (Yen)3,330    (Yen)3,007      (Yen)935      (Yen)28,755
Average contractual rates                105.92          1.57         102.22          0.95
---------------------------------------------------------------------------------------------------------------------------

Forwards to buy foreign
 currencies:                          GBP/EUR         US$/Yen       Yen/ZAR       GBP/US$        Others         Total
---------------------------------------------------------------------------------------------------------------------------
Contract amounts                   (Yen)10,854     (Yen)2,155     (Yen)2,133    (Yen)907        (Yen)3,147    (Yen)19,196
Average contractual rates                 0.64           0.01          16.05        0.62
---------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                  Thousands of U.S. dollars
                                -------------------------------------------------------------------------------------------
Forwards to sell foreign
 currencies:                          US$/Yen         GBP/EUR        EUR/Yen       US$/EUR        Others         Total
---------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                 <C>            <C>           <C>             <C>           <C>
Contract amounts                     $144,806          $63,767       $32,330        $29,194        $ 9,098        $279,175
---------------------------------------------------------------------------------------------------------------------------

Forwards to buy foreign
 currencies:                          GBP/EUR         US$/Yen        Yen/ZAR       GBP/US$        Others         Total
---------------------------------------------------------------------------------------------------------------------------
Contract amounts                     $105,379          $20,922       $20,709        $ 8,806        $30,553        $186,369
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

Interest Rate Risk

  To reduce risks and hedge the cash flow, Komatsu engages in interest rate
swaps and cap option transactions for payment of certain floating rate
liabilities.

  Certain interest rate swap contracts are not qualified as hedge and are
recorded at the fair value and the resultant gains are recognized as income.

The following tables provide information concerning derivatives and other
financial instruments of Komatsu that are sensitive to changes in interest
rates, mainly including interest rate swaps and debt obligations.  For debt
obligations, the table presents 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, 2000, the notional
amount of interest cap transactions is (Yen)35,026 million (US$340 million) and
the average strike rate is 5.83%, respectively.

<TABLE>
<CAPTION>
                                                      Millions of yen
                                       Long-term debt (including due within one year)
---------------------------------------------------------------------------------------------------------------------------------
                            Average                                            Expected maturity date
                           Interest               -------------------------------------------------------------------------------
                             rate        Total             2001         2002         2003         2004         2005   Thereafter
---------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>        <C>           <C>          <C>          <C>          <C>          <C>           <C>
U.S. dollar bonds            6.97%     (Yen)19,251   (Yen)   --   (Yen)   --   (Yen)   --  (Yen)11,981   (Yen)   --    (Yen)7,270

Japanese yen
convertible                  1.86%          62,447           --           --           --       27,447           --        35,000

Debentures/debentured bonds

Euro medium-term
notes                        1.50%          90,959       40,139       12,289       20,012        2,702        6,480         9,337

Loans, principally
from banks                   3.49%         126,938       14,167       27,858       22,062       28,296        5,438        29,117
---------------------------------------------------------------------------------------------------------------------------------
Total                                 (Yen)299,595  (Yen)54,306  (Yen)40,147  (Yen)42,074  (Yen)70,426  (Yen)11,918   (Yen)80,724
=================================================================================================================================
</TABLE>

                                       42
<PAGE>

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

------------------------------------------------------------------------------------------------------------------------------------
                            Average
                         Interest rate                                          Expected maturity date
                       -----------------                 ---------------------------------------------------------------------------
                        Receive    Pay       Total         2001         2002         2003         2004         2005      Thereafter
------------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>         <C>    <C>           <C>           <C>          <C>          <C>          <C>          <C>
Japanese yen              0.87%   2.12%  (Yen)21,710      (Yen)350      (Yen)374   (Yen)1,074   (Yen)3,874   (Yen)8,865   (Yen)7,173
 Interest rate swap
U.S. dollar               5.49%   5.65%       62,368         3,736         7,043       17,991       33,086           --          512
 Interest rate swap
Australia dollar          5.61%   7.31%          138           138            --           --           --           --           --
 Interest rate swap
Japanese yen              5.03%   4.52%       10,339         4,139         1,000        1,000        3,000        1,200           --
 cross-currency swap
U.S. dollar               5.84%   6.09%       79,798        33,048        10,355       19,220        1,799        6,197        9,179
 cross-currency swap
Singapore dollar          3.35%   3.37%        1,236           618           618           --           --           --           --
 Interest rate swap
------------------------------------------------------------------------------------------------------------------------------------
  Total                                 (Yen)175,589   (Yen)42,029   (Yen)19,390  (Yen)39,285  (Yen)41,759  (Yen)16,262  (Yen)16,864
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

------------------------------------------------------------------------------------------------------------------------------------

                                                                                  Expected maturity date
                                                            ------------------------------------------------------------------------
                                   Average
                                   Interest
                                     rate          Total       2001       2002         2003        2004        2005     Thereafter
------------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>         <C>         <C>         <C>         <C>         <C>        <C>
U.S. dollar bonds                        6.97%   $  186,903  $     --    $     --    $     --    $116,320    $     --   $  70,583
Japanese yen convertible                 1.86%      606,282        --          --          --     266,476          --     339,806
Debentures/debentured bonds
Euro medium-term notes                   1.50%      883,097   389,699     119,311     194,291      26,233     62,9138      90,650
Loans, principally from banks            3.49%    1,232,408   137,544     270,466     214,194     274,719      52,796     282,689
------------------------------------------------------------------------------------------------------------------------------------
   Total                                         $2,908,690  $527,243    $389,777    $408,485    $683,748    $115,709   $ 783,728
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       43
<PAGE>

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


------------------------------------------------------------------------------------------------------------------------------------
                            Average
                         Interest rate                                          Expected maturity date
                       -----------------                 ---------------------------------------------------------------------------
                        Receive   Pay        Total         2001         2002         2003         2004         2005      Thereafter
------------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>         <C>    <C>           <C>           <C>          <C>          <C>          <C>          <C>
Japanese yen               0.87%  2.12%  $  210,777    $  3,398      $  3,631     $ 10,427     $ 37,612     $ 86,068     $  69641
 interest rate swap
U.S. dollar                5.49%  5.65%     605,515      36,272        68,379      174,670      321,223           --        4,971
 interest rate swap
Australia dollar           5.61%  7.31%       1,340       1,340            --           --           --           --           --
 interest rate swap
Japanese yen               5.03%  4.52%     100,378      40,184         9,709        9,709       29,126       11,650           --
 cross-currency swap
U.S. dollar                5.84%  6.09%     774,738     320,854       100,534      186,602       17,466       60,165       89,117
 cross-currency swap
Singapore dollar           3.35%  3.37%      12,000       6,000         6,000           --           --           --           --
 Interest rate swap
------------------------------------------------------------------------------------------------------------------------------------
   Total                                 $1,704,748    $408,048      $188,253     $381,408     $405,427     $157,883     $163,729
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Euro Conversion

     On January 1, 1999, 11 of 15 member countries of the European Union
established fixed conversion rates between their existing currencies (the
"legacy currencies") and adopted the euro as their new common currency. The euro
trades on currency exchanges and the legacy currencies remain legal tender in
the participating countries for a transition period until January 1, 2002.
Beginning on January 1, 2002, euro denominated bills and coins will be issued
and legacy currencies will be withdrawn from circulation.

     The introduction of the euro has increased the pace of price harmonization
throughout Europe. Komatsu is analyzing its pricing strategy to minimize any
potential risk of this pricing harmonization.

     The introduction of the euro reduces Komatsu's exposure to changes in
multiple foreign exchange rates, as assets and liabilities previously
denominated in legacy currencies are now denominated in a single currency.

     Komatsu believes that the euro conversion will not have an adverse material
impact on its financial position or results of operations.

Item 10.  Directors and Officers of Registrant
          ------------------------------------

                                       44
<PAGE>

     All Directors and Statutory Auditors are elected by a general meeting of
shareholders to serve terms of approximately two years and three years,
respectively, 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 elects 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 Executive Vice Presidents 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 of Directors, may at any time request the directors to report on the
business activities of the Company and may investigate the business as well as
the financial situation of the Company. Certain powers are provided under the
Commercial Code of Japan to enable the Statutory Auditors to carry out these
functions. Further, each Statutory Auditor continues to perform the function of
examining the annual financial documents and the rendering of an opinion thereon
for the general meeting of shareholders. The Statutory Auditors may not at the
same time be Directors, managers or employees of the Company or of any of its
subsidiaries.

     Set forth below are the names of the Company's Directors and Statutory
Auditors (who constituted the Directors and Statutory Auditors as of June 28,
2000), 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
<S>                      <C>                           <C>
Tetsuya Katada           Chairman of the Board         Mar.  1978  Director
                                                       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

Satoru Anzaki            President (Representative     Mar.  1985  Director
                         Director)
                                                       Nov.  1988  Managing Director
                                                       Jun.  1991  Executive Managing Director
                                                       Jun.  1995  President
                                                       Jun.  1995  Rep. Director
</TABLE>

                                       45
<PAGE>

<TABLE>
<S>                      <C>                           <C>
Masahiro Sakane          Executive Vice President      Jun.  1989  Director
                         (Representative Director)     Jun.  1994  Managing Director
                                                       Jun.  1997  Executive Managing Director
                                                       Jun.  1999  Executive Vice President
                                                       Jun.  1999  Rep. Director

Toshitaka Hagiwara       Executive Vice President      Jun.  1990  Director
                         (Representative Director)     Jun.  1995  Managing Director
                                                       Jun.  1997  Executive Managing Director
                                                       Jun.  1999  Executive Vice President
                                                       Jun.  1999  Rep. Director

Koji Ogaki               Executive Managing Director   Jun.  1991  Director
                                                       Jun.  1996  Managing Director
                                                       Jun.  1999  Executive Managing Director

Norimichi Kitagawa       Executive Managing Director   Jun.  1993  Director
                                                       Jun.  1997  Managing Director
                                                       Jun.  1999  Executive Managing Director

Arlie G. Tucker          Director                      Jun.  1997  Director

Toshio Morikawa          Director                      Jun.  1999  Director

Toshiro Nakaya           Statutory Auditor             Mar.  1987  Director
                                                       Jun.  1989  Managing Director
                                                       Jun.  1993  Executive Managing Director
                                                       Jun.  1996  Statutory Auditor

Hiroyuki Watanabe        Statutory Auditor             Jun.  1997  Statutory Auditor

Masahiro Yoshiike        Statutory Auditor             Jun.  1997  Statutory Auditor

Takaharu Dohi            Statutory Auditor             Jun.  1999  Statutory Auditor
</TABLE>

     There are no family relationships between any Director or Statutory Auditor
and any other Director or Statutory Auditor of the Company.

     In order to strengthen its corporate governance as a global enterprise and
facilitate response to the 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
          members of Board were reduced from the current 26 to 8. The management
          decision-making and supervisory functions were separated from the
          executive functions.

                                       46
<PAGE>

     .    New external board directors were appointed in order to strengthen the
          transparency and objectivity of management.

2.   Introduction of Executive Officer System

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

     .    Executive Officers were given clearly defined responsibilities.

3.   Introduction of the Global Officer System

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

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

4.   Establishment of Committee on Reward

     .    The Company plans to establish an advisory Committee on Reward, which
          will include external members, in order to ensure 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.

Item 11.  Compensation of Directors and Officers
          --------------------------------------

Aggregate Compensation
----------------------

     The aggregate compensation, including bonuses but excluding retirement
allowances, paid by the Company in fiscal 2000, to all Directors and Statutory
Auditors as a group for services in all capacities was (Yen)463 million.

Bonuses
-------

     In accordance with customary Japanese business practices, annual bonuses
are paid to 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 thereof customarily held in June 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 paid.
Included in the figure for aggregate compensation set forth above is a total of
(Yen)76 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 1999 fiscal year as approved by the Company's Shareholders at
the General Meeting of Shareholders held on June 29, 1999.

                                       47
<PAGE>

Retirement Allowance
--------------------

     The Company has a severance payment plan for directors and statutory
auditors. The plan provides for lump-sum severance payments based on pertinent
rules of the Company. The amount of the provision made for such severance
payments, as charged to operating income, for the year ended March 31, 2000 was
(Yen)184 million.

Item 12.  Options to Purchase Securities from Registrant or Subsidiaries
          --------------------------------------------------------------

     On June 28, 2000, the shareholders of the Company authorized the
acquisition by the Company of 1,200,000 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 Directors and certain employees
under agreements granting the 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 by 1.05 the
average of the closing prices applicable to ordinary transactions of shares of
the Company 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 shares of the Company
on the Tokyo Stock Exchange at the date of the grant. According to the
agreement, the option price is (Yen)758 per share and the option exercise period
is from July 1, 2001 to June 30, 2006.

     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>
Tetsuya Katada             80,000       Satoru Anzaki              80,000
Masahiro Sakane            70,000       Toshitaka Hagiwara         70,000
Koji Ogaki                 60,000       Norimichi Kitagawa         60,000
Arlie G. Tucker            20,000
</TABLE>

Item 13.  Interest of Management in Certain Transactions
          ----------------------------------------------

          None

                                       48
<PAGE>

                                    PART II

Item 14.  Description of Securities to be Registered
          ------------------------------------------

          Not applicable.


                                   PART III

Item 15.  Defaults Upon Senior Securities
          -------------------------------

          None

Item 16.  Changes in Securities and Changes in Security for Registered
          ------------------------------------------------------------
          Securities and Use of Proceeds
          ------------------------------

     (a)  Not applicable.

     (b)  Not applicable.

     (c)  Not applicable.

     (d)  Not applicable.

                                    PART IV

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

          Not applicable.

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

          See Consolidated Financial Statements and Schedules attached hereto.

Item 19.  Financial Statements and Exhibits
          ---------------------------------

     (a)  See Index to Consolidated Financial Statements and Schedules attached
          hereto.

     (b)  None.

                                       49
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.



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



                                                  By: /s/ Masaru Fukase
                                                     ---------------------------
                                                      Masaru Fukase
                                                      Senior Executive Officer

Date: September 28, 2000

                                       50
<PAGE>

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







                                  CONSOLIDATED
                       FINANCIAL STATEMENTS AND SCHEDULES
               FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
             -----------------------------------------------------






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

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

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


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



<TABLE>
<CAPTION>
                                                                                      Page in
                                                                                    Shareholders
                                                                                       Report
                                                                                 -------------------
<S>                                                                              <C>
Consolidated Financial Statements and Report of Independent Public Accountants
  Included in the Company's Financial Report to Shareholders for the Year Ended
  March 31, 2000 Attached Hereto and Incorporated Herein by Reference:

  Consolidated Balance Sheets, March 31, 2000 and 1999...........................    40 and 41

  Consolidated Statements of Income for the
    Years Ended March 31, 2000, 1999 and 1998....................................       42

  Consolidated Statements of Shareholders' Equity for the
    Years Ended March 31, 2000, 1999 and 1998....................................       43

  Consolidated Statements of Cash Flows for the
    Years Ended March 31, 2000, 1999 and 1998....................................       44

  Notes to Consolidated Financial Statements.....................................    45 to 65

 Report of Independent Public Accountants........................................       66
</TABLE>
                                      -1-
<PAGE>

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

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

  Schedule for the Years Ended March 31, 2000, 1999 and 1998:

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


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

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

                                      -2-
<PAGE>

Financial Review



Sales
-----
Net sales in fiscal 2000, ended March 31, 2000, decreased 0.6% from the previous
year, to (Yen)1,055,654 million (US$10,249 million at US$1=(Yen)103).

  Although sales in Japan rose 5.7%, to (Yen)553,822 million (US$5,377 million),
overseas sales fell 6.7%, to (Yen)501,832 million (US$4,872 million). As a
result, the ratio of overseas sales to consolidated net sales for the year
dipped from 50.6% in the previous year, to 47.5%.

  Domestic sales of construction and mining equipment were up from the previous
year, owing primarily to the positive effect of the government's economic
stimulus measures and improved housing investments in Japan. Overseas, demand
for construction and mining equipment in Southeast Asia began to show signs of
recovery from the depressed conditions brought on by the economic crisis of
1997, while sales in Europe climbed in line with robust demand. However, sales
in the United States dropped, mainly attributable to the adverse effect of
foreign exchange translations, as well as dwindling demand for construction and
mining equipment. Overall, sales of construction and mining equipment slid 2.4%,
to (Yen)713,529 million (US$6,927 million).

  In the electronics business, domestic demand for silicon wafers significantly
improved in terms of quantity, and our operation in Taiwan commenced shipments
of silicon wafers. Although demand for polycrystalline silicon as the raw
material for silicon wafers remained sluggish, that for IT-related equipment and
thermoelectric modules continued to expand. As a result, sales in the
electronics business for the year grew 4.3%, to (Yen)90,335 million (US$877
million).

  Sales by the civil engineering and construction business also rose, up 2.1%
from the previous year, to (Yen)78,653 million (US$764 million), reflecting
successful efforts to improve earnings in a market where both public works and
private-sector projects remained stagnant.

  In the meantime, the industrial machinery business continued to suffer from
weak domestic demand for industrial machinery, and sales of large presses dipped
from the previous year as automobile manufacturers curbed their equipment
investment programs. As a result, sales of industrial machinery for the year
decreased 27.7%, to (Yen)30,856 million (US$300 million).

  Elsewhere in other operations, although sales from the logistics business and
iron and steel castings declined from the previous year, sales rose for
components, including engines, and agricultural and forestry equipment,
centering on environment-related products. As a result, sales of other
operations expanded 14.5%, to (Yen)142,281 million (US$1,381 million).

  Overseas sales by region in fiscal 2000 were as follows: sales in the Americas
accounted for (Yen)242,609 million (US$2,355 million), down 10.8%; sales in
Europe advanced 3.7%, to (Yen)123,633 million (US$1,200 million); sales in Asia
(excluding Japan) and Oceania increased 2.8%, to (Yen)99,558 million (US$967
million); and sales in the Middle East and Africa fell 27.1%, to (Yen)36,032
million (US$350 million).

Earnings
--------
Cost of sales in fiscal 2000 decreased 1.3% from the previous year, to
(Yen)796,820 million (US$7,736 million). Standing at 75.5%, the ratio of cost of
sales to net sales dropped 0.5 percentage point. Selling, general and
administrative (SG&A) expenses for the year were down 3.4%, to (Yen)241,516
million (US$2,345 million), while the ratio of SG&A to net sales dipped 0.7
percentage point from the previous year, to 22.9%.

  As a result, operating income for fiscal 2000 soared 304.5% over the previous
year, to (Yen)17,318 million (US$168 million). This improvement was brought
about primarily by improved earnings in the electronics business, owing to the
recovery of demand for silicon wafers, and improved finances in the civil
engineering and construction business, attributable to a substantial operating
loss in the previous year.

  Net interest and other income and expenses in fiscal 2000 generated a profit
of (Yen)2,077 million (US$20 million), compared with a loss of (Yen)13,885
million in the previous year. This resulted from the fact that other expenses in
fiscal 1999

                             [GRAPHS APPEARS HERE]

34
<PAGE>

included a large write-down due to the devaluation of domestic marketable and
investment securities, while net other income in fiscal 2000 included large
gains on gain on sales of assets such as an equity stake in Applied Komatsu
Technology, Inc., gain on sale of idle properties of the Osaka Plant in Nakamiya
district. As a result, income (loss) before income taxes, minority interests and
equity in earnings for the year increased to (Yen)19,395 million (US$188
million), from a net loss of (Yen)9,604 million in fiscal 1999. The percentage
of income (loss) before income taxes, minority interests and equity in earnings
to net sales rose 2.7 percentage points, to 1.8%.

  Fiscal 2000 equity in earnings (losses) of affiliated companies increased to
(Yen)4,038 million (US$39 million), from a loss of (Yen)7,575 million in fiscal
1999. This improvement was chiefly accounted for by the increased earnings of
Applied Komatsu Technology, Inc., a manufacturer of liquid crystal display (LCD)
panel manufacturing equipment, which suffered a major loss in the previous year.

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

  On a per share basis, net income for the year amounted to (Yen)13.85
(US13.4c). Dividends per share were reduced by (Yen)1.00, to (Yen)6.00 (US5.8c).

Liquidity and Capital Resources
-------------------------------
Working capital in fiscal 2000 increased 2.2% from the previous year, to
(Yen)261,736 million (US$2,541 million).

  The current ratio in fiscal 2000 rose 7.2 percentage points over the previous
year, to 149.3%. The current ratio in fiscal 1999 was up 12.7 percentage points
from the previous year.

  Capital expenditures in fiscal 2000 decreased 49.7% from the previous year, to
(Yen)57,728 million (US$560 million). The drop was caused primarily by the
completion of an investment cycle in the electronics business, which resulted in
reduced capital expenditures of (Yen)48,765 million (US$473 million), compared
with the previous year. Capital expenditures in fiscal 1999 declined 6.6% from
the previous year. Commitments for capital expenditures outstanding as of March
31, 2000, totaled (Yen)1,151 million (US$11 million), which were significantly
lower than in the previous year.

  R&D expenses in fiscal 2000 dropped 7.1% from the previous year, to
(Yen)42,460 million (US$412 million), and accounted for 4.0% of net sales.
Fiscal 2000 expenses for advertising and public relations activities dropped
22.4% from the previous year, to (Yen)4,327 million (US$42 million), or 0.4% of
net sales.

Financial Condition
-------------------
The Company is striving to reduce interest-bearing debt to increase the
soundness of its finances. To that end, in addition to increased securitization
of notes and accounts receivable, along with the establishment of commitments on
lines of credit for the United States and Europe, it also introduced a cash
management system in Japan and Europe for the effective utilization of funds
within the Group. Elsewhere, the Company also disposed of non-urgent assets. As
a result, short- and long-term debt as of March 31, 2000, decreased (Yen)104,980
million from the previous year, to (Yen)460,259 million (US$4,469 million),
which translates to DER (debt-equity ratio) of 0.94 to 1.

  Cash and cash equivalents at the end of the year amounted to (Yen)80,476
million (US$781 million), a decrease of (Yen)6,825 million from the previous
year. Net cash provided by operating activities in fiscal 2000 totaled
(Yen)34,224 million (US$332 million), a decrease of (Yen)122 million from the
previous year. Net cash provided by investing activities for the year amounted
to (Yen)18,880 million (US$183 million), an increase of (Yen)82,883 million from
the previous year. Primary factors behind this improvement include a decrease in
the purchase of tangible fixed assets owing to restrained capital expenditures,
a decline of (Yen)57,146 million from the previous year, and an increase in the
proceeds from the sales of property of (Yen)23,515 million from the previous
year. Net cash used in financing activities for the year came to (Yen)61,565
million (US$598 million), a decline of (Yen)68,179 million from the previous
year, mainly attributable to a significant drop in proceeds from long-term debt
totaling (Yen)19,798 million, in comparison with (Yen)140,708 million in the
previous year.

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

  The companies are exposed to credit-related losses in the event of
nonperformance by counterparties to derivative financial instruments. However,
because of the counterparties' high credit ratings, none are expected to fail to
meet their obligations.

                                                                              35
<PAGE>

Foreign Exchange Risk
---------------------
To reduce foreign exchange risks against foreign currency denominated assets and
liabilities, the companies execute forward exchange contracts in a range of 50%
to 100% based on their projected cash flow in foreign currencies. Furthermore,
to reduce foreign exchange risks in relation to medium-term and long-term
foreign currency denominated assets and liabilities and to fix related costs,
the companies have executed such forwards for part of their bonds and loans.

  The following table provides information concerning derivative financial
instruments of the companies in relation to foreign currency exchange
transactions existing as of March 31, 2000, 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, 2000.

<TABLE>
<CAPTION>
                                                                Millions of yen (except average contractual rates)
                                               -------------------------------------------------------------------------------------
Forwards to sell foreign currencies:              US$/Yen     GBP/EUR          EUR/Yen        US$/EUR       Others        Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>             <C>            <C>           <C>         <C>
Contract amounts............................   (Yen)14,915  (Yen)6,568      (Yen) 3,330    (Yen)3,007    (Yen)   935  (Yen)28,755
Average contractual rates...................        105.92        1.57           102.22          0.95
====================================================================================================================================

Forwards to buy foreign currencies:               GBP/EUR      US$/Yen         Yen/ZAR        GBP/US$       Others        Total
------------------------------------------------------------------------------------------------------------------------------------
Contract amounts............................   (Yen)10,854  (Yen)2,155       (Yen)2,133      (Yen)907     (Yen)3,147  (Yen)19,196
Average contractual rates...................          0.64        0.01            16.05          0.62
====================================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                             Thousands of U.S. dollars
                                               -------------------------------------------------------------------------------------
Forwards to sell foreign currencies:               US$/Yen     GBP/EUR          EUR/Yen        US$/EUR       Others        Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>             <C>            <C>           <C>         <C>
Contract amounts............................   $   144,806  $   63,767      $    32,330    $   29,194    $   9,078   $  279,175
====================================================================================================================================

Forwards to buy foreign currencies:               GBP/EUR      US$/Yen          Yen/ZAR        GBP/US$       Others        Total
------------------------------------------------------------------------------------------------------------------------------------
Contract amounts............................   $   105,379  $   20,922      $    20,709    $    8,806    $  30,553   $  186,369
====================================================================================================================================
</TABLE>

Interest Rate Risk
------------------
To reduce risks and hedge the cash flow, the companies engage in certain
interest rate swaps and cap option transactions for payment of certain floating
rate liabilities. Certain interest rate swap contracts are not qualified as
hedge and are recorded at the fair value and the resultant gains are recognized
as income.

  The following tables provide information concerning derivatives and other
financial instruments of the companies that are sensitive to changes in interest
rates, mainly including interest rate swaps and debt obligations. For debt
obligations, the tables present principal cash flows and related weighted
average interest rates by expected maturity dates. For interest rate and cross-
currency swaps, the tables on the following page present notional amounts and
weighted average receive and pay interest rates. As of March 31, 2000, the
notional amount and its average strike rate of interest cap transactions are
(Yen)35,026 million (US$340 million) and 5.83%, respectively.

<TABLE>
<CAPTION>
Long-term debt (including due within one year)                                         Millions of yen
------------------------------------------------------------------------------------------------------------------------------------
                                    Average                                            Expected maturity date
                                                             -----------------------------------------------------------------------
                                  interest rate      Total        2001         2002       2003       2004         2005    Thereafter
------------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>           <C>          <C>         <C>         <C>         <C>         <C>         <C>
U.S. dollar bonds................     6.97%     (Yen) 19,251 (Yen)    -- (Yen)    -- (Yen)    -- (Yen)11,981 (Yen)    -- (Yen) 7,270
Japanese yen convertible
 debentures /debentured bonds....     1.86%           62,447          --          --          --      27,447          --      35,000
Euro medium-term notes...........     1.50%           90,959      40,139      12,289      20,012       2,702       6,480       9,337
Loans, principally from banks....     3.49%          126,938      14,167      27,858      22,062      28,296       5,438      29,117
------------------------------------------------------------------------------------------------------------------------------------
Total............................               (Yen)299,595 (Yen)54,306 (Yen)40,147 (Yen)42,074 (Yen)70,426 (Yen)11,918 (Yen)80,724
====================================================================================================================================
</TABLE>

36
<PAGE>

<TABLE>
<CAPTION>
Interest rate and cross-currency swaps                                                           Millions of yen
------------------------------------------------------------------------------------------------------------------------------------
                                     Average interest rate                                       Expected maturity date
                                     ---------------------           ---------------------------------------------------------------
                                     Receive    Pay         Total          2001          2002          2003        2004         2005
------------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>        <C>         <C>            <C>           <C>          <C>          <C>          <C>
Japanese yen interest rate swap......  0.87%    2.12%  (Yen) 21,710  (Yen)   350  (Yen)   374  (Yen)  1,074 (Yen) 3,874  (Yen) 8,865
U.S. dollar interest rate swap.......  5.49%    5.65%        62,368        3,736        7,043        17,991      33,086           --
Australian dollar interest rate swap.  5.61%    7.31%           138          138           --            --          --           --
Japanese yen cross-currency swap.....  5.03%    4.52%        10,339        4,139        1,000         1,000       3,000        1,200
U.S. dollar cross-currency swap......  5.84%    6.09%        79,798       33,048       10,355        19,220       1,799        6,197
Singapore dollar interest rate swap..  3.35%    3.37%         1,236          618          618            --          --           --
------------------------------------------------------------------------------------------------------------------------------------
Total................................                  (Yen)175,589  (Yen)42,029  (Yen)19,390  (Yen)39,285  (Yen)41,759  (Yen)16,262
====================================================================================================================================
<CAPTION>

                                       Thereafter
--------------------------------------------------
<S>                                    <C>
Japanese yen interest rate swap....... (Yen) 7,173
U.S. dollar interest rate swap........         512
Australian dollar interest rate swap..          --
Japanese yen cross-currency swap......          --
U.S. dollar cross-currency swap.......       9,179
Singapore dollar interest rate swap...          --
--------------------------------------------------
Total................................. (Yen)16,864
==================================================
</TABLE>

<TABLE>
<CAPTION>
Long-term debt (including due within one year)                                   Thousands of U.S. dollars
-----------------------------------------------------------------------------------------------------------------------------
                                                 Average                               Expected maturity date
                                                                       ------------------------------------------------------
                                              interest rate   Total      2001     2002     2003     2004     2005  Thereafter
-----------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>          <C>         <C>      <C>      <C>      <C>      <C>     <C>
U.S. dollar bonds............................     6.97%    $  186,903       --       --       --  116,320       --  $  70,583
Japanese yen convertible
  debentures/debentured bonds................     1.86%       606,282       --       --       --  266,476       --    339,806
Euro medium-term notes.......................     1.50%       883,097  389,699  119,311  194,291   26,233   62,913     90,650
Loans, principally from banks................     3.49%     1,232,408  137,544  270,466  214,194  274,719   52,796    282,689
-----------------------------------------------------------------------------------------------------------------------------
Total........................................              $2,908,690 $527,243 $389,777 $408,485 $683,748 $115,709  $ 783,728
=============================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
Interest rate and cross-currency swaps                                                   Thousands of U.S. dollars
------------------------------------------------------------------------------------------------------------------------------------
                                        Average interest rate                                   Expected maturity date
                                        ---------------------           ------------------------------------------------------------
                                        Receive    Pay        Total        2001      2002       2003     2004       2005  Thereafter
------------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>        <C>      <C>          <C>       <C>        <C>       <C>       <C>     <C>
Japanese yen interest rate swap........   0.87%    2.12%   $  210,777   $  3,398  $  3,631   $ 10,427  $ 37,612  $ 86,068  $ 69,641
U.S. dollar interest rate swap.........   5.49%    5.65%      605,515     36,272    68,379    174,670   321,223        --     4,971
Australian dollar interest rate swap...   5.61%    7.31%        1,340      1,340        --         --        --        --        --
Japanese yen cross-currency swap.......   5.03%    4.52%      100,378     40,184     9,709      9,709    29,126    11,650        --
U.S. dollar cross-currency swap........   5.84%    6.09%      774,738    320,854   100,534    186,602    17,466    60,165    89,117
Singapore dollar interest rate swap....   3.35%    3.37%       12,000      6,000     6,000         --        --        --        --
-----------------------------------------------------------------------------------------------------------------------------------
Total..................................                    $1,704,748   $408,048  $188,253   $381,408  $405,427  $157,883  $163,729
===================================================================================================================================
</TABLE>

Euro Conversion
================================================================================

On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies (the
"legacy currencies") and adopted the euro as their new common currency. The euro
trades on currency exchanges and the legacy currencies remain legal tender in
the participating countries for a transi tion period ending January 1, 2002.
Beginning on January 1, 2002, euro denominated bills and coins will be issued
and legacy currencies will be withdrawn from circulation.

  Introduction of the euro has increased the pace of price harmonization
throughout Europe. Komatsu is analyzing all aspects of its pricing strategy to
minimize any potential risk of this price harmonization.

  The introduction of the euro reduces the amount of Komatsu's exposure to
changes in multiple foreign exchange rates, owing to the net effect of having
assets and liabilities denominated in a single currency as opposed to the
various legacy currencies.

  The euro conversion did not have an adverse material impact on Komatsu's
consolidated financial position or results of consolidated operations.

Year 2000 Issues
================================================================================

Defining the Y2K issue as one of the most important management tasks to assure
the Quality and Reliability of its management, Komatsu has been addressing the
problem since late 1996, when it instituted a Companywide program. As a result,
no problems worthy of note have occurred within the Group. Although we will
continue to monitor the issue, we do not anticipate any serious problems in the
future.

  Groupwide expenditures for the counter-Y2K activities totaled approximately
(Yen)6.0 billion, of which about (Yen)5.5 billion was expended by the end of
March 31, 1999, while the balance of about (Yen)0.5 billion (US$5 million) was
used in fiscal 2000. These expenditures did not have any serious impact on the
business and cash flows of the Company.

                                                                              37
<PAGE>

Ten-Year Summary
Komatsu Ltd. and Consolidated Subsidiaries

<TABLE>
<CAPTION>
                                                                                                Millions of yen
                                                                                           (except per share amounts)
                                                                     ---------------------------------------------------------------
                                                                                              Years ended March 31
                                                                     ---------------------------------------------------------------
                                                                            2000                    1999                  1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                    <C>                     <C>
For the fiscal period
Net sales...........................................................  (Yen)1,055,654         (Yen)1,061,597          (Yen)1,104,077
Cost of sales.......................................................         796,820                807,255                 826,627
Income (loss) before income taxes, minority interests, equity
  in earnings and cumulative effect of accounting changes...........          19,395                 (9,604)                 40,252
Net income (loss)...................................................          13,395                (12,378)                 19,241
    As percentage of sales..........................................             1.3%                  (1.2)%                   1.7%
Net income (loss) per share--Basic..................................  (Yen)     13.9         (Yen)    (12.8)         (Yen)     19.6
Cash dividends paid.................................................           5,803                  7,751                   7,872
Cash dividends per share............................................             6.0                    7.0                     8.0
Capital expenditures................................................          57,728                114,874                 123,026
------------------------------------------------------------------------------------------------------------------------------------

At fiscal period-end
Total assets........................................................  (Yen)1,375,280         (Yen)1,524,600          (Yen)1,561,662
Working capital.....................................................         261,736                256,039                 212,096
Property, plant and equipment.......................................         397,534                440,706                 393,603
Long-term debt--Less current maturities.............................         245,289                292,250                 196,898
Shareholders' equity................................................         490,454                495,643                 524,201
    As percentage of total assets...................................            35.7%                  32.5%                   33.6%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                         Yen per U.S. dollar
                                                                      -------------------------------------------------------
                                                                        2000                   1999                   1998
-----------------------------------------------------------------------------------------------------------------------------
<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)103               (Yen)118                (Yen)133
    Average for the fiscal period.................................         110                    128                     124
    Range:
      High........................................................         121                    145                     133
      Low.........................................................         102                    113                     115
------------------------------------------------------------------------------------------------------------------------------
</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.

38
<PAGE>

<TABLE>
<CAPTION>
                                                         Millions of yen
                                                  (except per share amounts)
        ------------------------------------------------------------------------------------------------------------------------
                                                     Years ended March 31
        ------------------------------------------------------------------------------------------------------------------------
                  1997             1996            1995           1994           1993            1992           1991
        ------------------------------------------------------------------------------------------------------------------------
        <S>              <C>                <C>              <C>               <C>              <C>               <C>
        (Yen)1,098,916   (Yen)  999,327     (Yen)  918,910   (Yen)  845,853    (Yen)  869,928   (Yen)) 919,753    (Yen)  988,897
               827,665          763,045            702,416          649,512           662,408          689,039           718,714

                45,769           32,431             24,482           13,933            30,757           41,911            85,015
                18,160           14,291             10,225            1,303             3,037           10,898            31,258
                   1.7%             1.4%               1.1%             0.2%              0.3%             1.2%              3.2%
        (Yen)     18.3   (Yen)     14.2     (Yen)     10.2   (Yen)      1.3    (Yen)      3.0   (Yen)     10.8    (Yen)     30.5
                 7,992            8,031              8,028            8,022             8,019            8,017             7,960
                   8.0              8.0                8.0              8.0               8.0              8.0               8.0
                70,604           47,499             41,492           30,032            47,156           73,771            75,700
        ------------------------------------------------------------------------------------------------------------------------

        (Yen)1,512,730   (Yen)1,593,003     (Yen)1,541,972   (Yen)1,375,966    (Yen)1,323,960   (Yen)1,452,818    (Yen)1,319,189
               228,404          260,296            254,992          221,274           249,419          230,751           340,614
               299,098          264,842            257,219          260,720           260,999          261,211           217,896
               163,590          140,208            140,550          142,578           207,027          222,088           171,899
               541,933          606,444            575,534          505,871           516,409          523,387           524,790
                  35.8%            38.1%              37.3%            36.8%             39.0%            36.0%             39.8%
</TABLE>

<TABLE>
<CAPTION>
                                                         Yen per U.S. dollar
           ------------------------------------------------------------------------------------------------------------------------
                    1997              1996               1995             1994              1993              1992             1991
           ------------------------------------------------------------------------------------------------------------------------
           <S>                    <C>                <C>              <C>               <C>               <C>              <C>
                 (Yen)124         (Yen)107           (Yen) 87         (Yen)102          (Yen)115          (Yen)133         (Yen)141
                      113               96                 99              107               124               133              141

                      124              107                105              114               135               142              160
                      105               84                 87              101               115               123              125
           ------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                              39
<PAGE>

Consolidated Balance Sheets
Komatsu Ltd. and Consolidated Subsidiaries
March 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                                   Thousands of
                                                                                                   U.S. dollars
                                                                      Millions of yen                (Note 1)
                                                                 ----------------------------      -----------
Assets                                                                 2000             1999            2000
--------------------------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>             <C>
Current assets
Cash and cash equivalents (Note 1)..........................  (Yen)   80,476   (Yen)   87,301     $   781,320
Time deposits (Note 8)......................................             915              844           8,883
Marketable securities (Notes 1, 5 and 19)...................          40,219           54,434         390,476
Trade notes and accounts receivable, less allowance
 for doubtful receivables of (Yen)12,208 million
 ($118,524 thousand) in 2000 and (Yen)12,535 million
 in 1999 (Notes 3 and 8)....................................         368,452          374,157       3,577,204
Inventories (Notes 1 and 4).................................         209,089          244,868       2,029,990
Deferred income taxes and other current assets
 (Notes 1 and 13)...........................................          93,347          101,944         906,282
--------------------------------------------------------------------------------------------------------------
Total current assets........................................         792,498          863,548       7,694,155
--------------------------------------------------------------------------------------------------------------

Investments
Investments in and advances to affiliated companies
 (Notes 1 and 6)............................................          26,846           31,516         260,641
Investment securities (Notes 1, 5 and 19)...................          75,935           88,447         737,233
Other.......................................................           7,982            6,612          77,495
--------------------------------------------------------------------------------------------------------------
Total investments...........................................         110,763          126,575       1,075,369
--------------------------------------------------------------------------------------------------------------

Land and buildings held for sale--At the lower of cost
 or market (including projects in progress).................          17,503           18,720         169,932
--------------------------------------------------------------------------------------------------------------
Property, plant and equipment--Less accumulated
 depreciation (Notes 1, 7 and 8)............................         397,534          440,706       3,859,553
--------------------------------------------------------------------------------------------------------------
Deferred income taxes (Notes 1 and 13)......................          17,495           20,207         169,854
--------------------------------------------------------------------------------------------------------------
Other assets (Note 10)......................................          39,487           54,844         383,370
--------------------------------------------------------------------------------------------------------------
                                                              (Yen)1,375,280   (Yen)1,524,600     $13,352,233
==============================================================================================================
</TABLE>

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

40
<PAGE>

<TABLE>
<CAPTION>
                                                                                                  Thousands of
                                                                                                  U.S. dollars
                                                                    Millions of yen                 (Note 1)
                                                               -------------------------------   ---------------
Liabilities and Shareholders' Equity                                 2000             1999             2000
----------------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>              <C>
Current liabilities
Short-term debt (Notes 8 and 9) .............................   (Yen)160,664      (Yen)235,384       $ 1,559,845
Current maturities of long-term debt (Notes 8, 9 and 19).....         54,306            37,605           527,243
Trade notes and accounts payable ............................        184,624           193,167         1,792,466
Income taxes payable (Note 13) ..............................         12,792            15,007           124,194
Deferred income taxes and other current liabilities
  (Notes 1 and 13) ..........................................        118,376           126,346         1,149,281
----------------------------------------------------------------------------------------------------------------
Total current liabilities ...................................        530,762           607,509         5,153,029
----------------------------------------------------------------------------------------------------------------

Long-term debt (Notes 8, 9 and 19) ..........................        245,289           292,250         2,381,447
----------------------------------------------------------------------------------------------------------------
Liability for postretirement benefits (Notes 1 and 10) ......         55,406            78,551           537,922
----------------------------------------------------------------------------------------------------------------
Deferred income taxes (Notes 1 and 13) ......................         23,500            17,052           228,156
----------------------------------------------------------------------------------------------------------------
Minority interests ..........................................         29,869            33,595           289,990
----------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Note 17)

Shareholders' equity (Notes 1 and 11)
Common stock, (Yen)50 par value--
  Authorized, 3,965,000,000 shares in 2000 and 1999;
  Issued and outstanding, 968,921,701 shares
    in 2000 and 1999 ........................................         68,370            68,370           663,786
Capital surplus .............................................        117,366           117,083         1,139,476
Retained earnings:
  Appropriated for legal reserve ............................         20,431            20,200           198,359
  Unappropriated ............................................        305,483           298,122         2,965,854
Accumulated other comprehensive income (loss)
  (Notes 1, 5, 10 and 12) ...................................        (19,590)           (7,436)         (190,194)
Treasury stock at cost, 2,180,000 shares in 2000
  and 1,000,000 shares in 1999 (Note 11) ....................         (1,606)             (696)          (15,592)
----------------------------------------------------------------------------------------------------------------
Total shareholders' equity ..................................        490,454           495,643         4,761,689
----------------------------------------------------------------------------------------------------------------
                                                              (Yen)1,375,280    (Yen)1,524,600       $13,352,233
================================================================================================================
</TABLE>

                                                                              41
<PAGE>

Consolidated Statements of Income
Komatsu Ltd. and Consolidated Subsidiaries
Years ended March 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                                 Thousands of
                                                                                                 U.S. dollars
                                                                  Millions of yen                   (Note 1)
                                                ---------------------------------------------     ----------
                                                      2000            1999            1998            2000
------------------------------------------------------------------------------------------------------------
<S>                                                  <C>             <C>             <C>          <C>
Revenues
Net sales (Note 6) ..........................   (Yen)1,055,654  (Yen)1,061,597  (Yen)1,104,077   $10,249,068
Interest and other income ...................           55,857          25,655          24,319       542,301
------------------------------------------------------------------------------------------------------------
Total .......................................        1,111,511       1,087,252       1,128,396    10,791,369
------------------------------------------------------------------------------------------------------------

Costs and expenses (Notes 14 and 15)
Cost of sales ...............................          796,820         807,255         826,627     7,736,116
Selling, general and administrative .........          241,516         250,061         234,352     2,344,816
Interest ....................................           24,392          21,219          17,138       236,816
Other .......................................           29,388          18,321          10,027       285,320
------------------------------------------------------------------------------------------------------------
Total .......................................        1,092,116       1,096,856       1,088,144    10,603,068
------------------------------------------------------------------------------------------------------------

Income (loss) before income taxes, minority
  interests and equity in earnings ..........           19,395          (9,604)         40,252       188,301
------------------------------------------------------------------------------------------------------------
Income taxes (Notes 1 and 13)
Current .....................................           18,158          19,083          21,436       176,291
Deferred ....................................           (8,208)        (17,022)           (595)      (79,689)
------------------------------------------------------------------------------------------------------------
Total .......................................            9,950           2,061          20,841        96,602
------------------------------------------------------------------------------------------------------------
Income (loss) before minority interests
  and equity in earnings ....................            9,445         (11,665)         19,411        91,699

Minority interests in income (loss) of
  consolidated subsidiaries .................              (88)          6,862            (933)         (854)

Equity in earnings (losses) of affiliated
  companies .................................            4,038          (7,575)            763        39,204
------------------------------------------------------------------------------------------------------------
Net income (loss) ...........................    (Yen)  13,395    (Yen)(12,378)    (Yen)19,241   $   130,049
============================================================================================================

                                                                Yen                                 U.S. cents
                                                  ------------------------------------------       ------------
Net income (loss) per share (Notes 1 and 16):
  Basic .....................................     (Yen)13.85    (Yen)(12.77)      (Yen)19.60        13.4(cent)
  Diluted ...................................          13.76         (12.77)           19.32        13.4
Dividends per share (Note 1) ................           6.00           7.00             8.00         5.8
=============================================================================================================
</TABLE>

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

42
<PAGE>

Consolidated Statements of Shareholders' Equity
Komatsu Ltd. and Consolidated Subsidiaries
Years ended March 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                                              Thousands of
                                                                                                              U.S. dollars
                                                                            Millions of yen                     (Note 1)
                                                              ---------------------------------------------   ------------
                                                                 2000           1999              1998             2000
--------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>              <C>             <C>             <C>
Common stock
Balance, beginning of year .................................  (Yen) 68,370     (Yen) 68,416    (Yen) 69,120    $   663,786
Purchase and retirement of common stock:
 921,000 shares in 1999 and
 14,079,000 shares in 1998 ..................................           --              (46)           (704)            --
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year .......................................  (Yen) 68,370     (Yen) 68,370    (Yen) 68,416    $   663,786
==========================================================================================================================
Capital surplus
Balance, beginning of year .................................  (Yen)117,083     (Yen)116,981    (Yen)116,981    $ 1,136,728
Sales of treasury stock ....................................           283              102              --          2,748
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year .......................................  (Yen)117,366     (Yen)117,083    (Yen)116,981    $ 1,139,476
==========================================================================================================================
Retained earnings
Appropriated for legal reserve
Balance, beginning of year .................................  (Yen) 20,200     (Yen) 19,921    (Yen) 19,846    $   196,116
Transfer from unappropriated retained earnings .............           231              279              75          2,243
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year .......................................  (Yen) 20,431     (Yen) 20,200    (Yen) 19,921    $   198,359
==========================================================================================================================
Unappropriated retained earnings
Balance, beginning of year .................................  (Yen)298,122    (Yen) 319,054    (Yen)316,259   $  2,894,388
Net income (loss) ..........................................        13,395          (12,378)         19,241        130,049
Cash dividends paid ........................................        (5,803)          (7,751)         (7,872)       (56,340)
Transfer to retained earnings appropriated for legal reserve          (231)            (279)            (75)        (2,243)
Purchase and retirement of common stock ....................            --             (524)         (8,499)            --
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year .......................................  (Yen)305,483    (Yen) 298,122    (Yen)319,054   $  2,965,854
==========================================================================================================================
Accumulated other comprehensive income (loss)
Balance, beginning of year .................................  (Yen) (7,436)   (Yen)    (171)   (Yen) 19,727    $   (72,194)
Other comprehensive income (loss) for the year, net of tax .       (12,154)          (7,265)        (19,898}      (118,000)
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year .......................................  (Yen)(19,590)   (Yen)  (7,436)   (Yen)   (171)   $  (190,194)
==========================================================================================================================
Treasury stock
Balance, beginning of year .................................  (Yen)   (696)   (Yen)      --    (Yen)     --    $    (6,757)
Purchase of treasury stock .................................          (925)          (1,175)             --         (8,981)
Sales of treasury stock ....................................            15              479              --            146
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year .......................................  (Yen) (1,606)   (Yen)    (696)   (Yen)     --    $   (15,592)
==========================================================================================================================
Total shareholders' equity .................................  (Yen)490,454    (Yen) 495,643    (Yen)524,201      4,761,689
==========================================================================================================================
Disclosure of comprehensive income (loss)
Net income (loss) for the year .............................  (Yen) 13,395    (Yen) (12,378)   (Yen) 19,241    $   130,049
Other comprehensive income (loss) for the year, net of tax .       (12,154)          (7,265)        (19,898)      (118,000)
--------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) for the year ...................  (Yen)  1,241    (Yen) (19,643)   (Yen)   (657)   $    12,049
==========================================================================================================================
</TABLE>

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

                                                                              43
<PAGE>

Consolidated Statements of Cash Flows
Komatsu Ltd. and Consolidated Subsidiaries
Years ended March 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                                                       Thousands of
                                                                                                                       U.S. dollars
                                                                                    Millions of yen                       (Note 1)
                                                                    ------------------------------------------------   ------------
                                                                          2000              1999             1998           2000
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                <C>             <C>             <C>
Operating activities
Net income (loss)..................................................  (Yen)13,395        (Yen)(12,378)   (Yen) 19,241    $   130,049
Adjustments to reconcile net income (loss) to net
 cash provided by (used in) operating activities:
  Depreciation and amortization....................................       63,690              55,376          49,410        618,349
  Provision (reversal) for deferred income taxes...................       (8,208)            (17,022)           (595)       (79,689)
  Net loss (gain) from marketable securities and investments.......      (16,993)              4,679          (8,285)      (164,981)
  Gain on sale of property.........................................      (23,777)             (7,912)         (1,740)      (230,845)
  Loss on disposal or sale of fixed assets.........................       14,367               6,418           4,524        139,485
  Impairment loss on long-lived assets.............................        4,474                   -               -         43,437
  Gain on sale of minority interest in subsidiaries................            -                   -          (5,556)             -
  Provision (reversal) for postretirement benefits, net............      (10,920)             (9,282)           (725)      (106,019)
Changes in assets and liabilities:
  Decrease (increase) in trade receivables.........................      (13,448)             60,293          60,424       (130,563)
  Decrease (increase) in inventories...............................       13,683              (2,803)         (9,970)       132,845
  Increase (decrease) in trade payables............................        4,065             (47,541)        (24,612)        39,466
  Increase (decrease) in income taxes payable......................       (1,075)              5,304          (8,972)       (10,437)
Other, net.........................................................       (5,029)               (786)         (5,698)       (48,825)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities..........................       34,224              34,346          67,446        332,272
-----------------------------------------------------------------------------------------------------------------------------------
Investing activities
Capital expenditures...............................................      (57,728)           (114,874)       (123,026)      (560,466)
Proceeds from sales of property....................................       37,584              14,069           7,178        364,893
Proceeds from sales of marketable securities and investments.......      137,278              50,929          70,584      1,332,796
Purchases of marketable securities and investments.................      (98,218)            (25,062)        (27,362)      (953,573)
Proceeds from sale of minority interest............................            -                   -          13,065              -
Collection of loan receivables.....................................        5,066              13,441          10,162         49,185
Disbursement of loan receivables...................................       (4,930)            (17,731)        (27,913)       (47,864)
Decrease (increase) in time deposits...............................         (172)             15,225         (10,973)        (1,670)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities................       18,880             (64,003)        (88,285)       183,301
-----------------------------------------------------------------------------------------------------------------------------------
Financing activities
Proceeds from long-term debt.......................................       19,798             140,708          78,859        192,214
Repayments on long-term debt.......................................      (21,663)            (47,638)        (35,192)      (210,320)
Increase (decrease) in short-term debt.............................      (52,987)            (77,690)         15,803       (514,437)
Sales (repurchase) of common stock, net............................         (910)             (1,015)         (9,203)        (8,835)
Dividends paid.....................................................       (5,803)             (7,751)         (7,872)       (56,340)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities................      (61,565)              6,614          42,395       (597,718)
-----------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate change on cash and
 cash equivalents..................................................        1,636               1,082            (121)        15,883
-----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents...............       (6,825)            (21,961)         21,435        (66,262)
Cash and cash equivalents, beginning of year.......................       87,301             109,262          87,827        847,582
-----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year.............................  (Yen)80,476        (Yen) 87,301    (Yen)109,262    $   781,320
===================================================================================================================================
</TABLE>

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

44
<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 heavy equipment, consisting of
various types of construction and mining equipment and industrial machinery
throughout the world, and also engage in manufacturing and sales of electronics
including semiconductor products, civil engineering and construction, 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, 2000, consisted of the following:

     Construction and mining equipment--67.6%, Electronics--8.5%, Civil
 engineering and construction--7.5%, Industrial machinery--2.9%, Others--13.5%.

     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
2000, 47.5% were generated outside Japan, with 23.0% in the Americas, 11.7% in
Europe, 9.4% in Asia (excluding Japan) and Oceania, and 3.4% 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, 2000, is included solely for the
convenience of readers outside Japan and has been made at the rate of (Yen)103
to $1, the approximate rate of exchange prevailing at the Federal Reserve Bank
of New York on March 31, 2000. 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 Company adopted the provision of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information" effective April 1, 1998, and made retroactive restatement
of the segment information for the year ended March 31, 1998, for which SFAS No.
14 was applied.

     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 foreign currency translation,
postretirement benefits, investments in debt and equity securities, valuation
losses of long-lived assets and accruals of certain expenses.

Summary of Significant Accounting Policies

(1) Consolidation and Investments in Affiliated Companies

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

     In September 1997, Komatsu Electronic Metals Co., Ltd. (KEM), a
consolidated manufacturing subsidiary of silicon wafers, completed an initial
public offering and listed its shares on the Tokyo Stock Exchange. The public
offering generated net proceeds to the companies of (Yen)13,065 million and a
gain of (Yen)5,556 million, reducing the companies' ownership interest in KEM
from 76.4% to 60.0%.

     In 1999, the Company increased its ownership in certain affiliated
companies namely Komatsu Zenoah Co., Komatsu Mining Germany GmbH, formerly Demag
Komatsu GmbH, and three other companies and those companies became consolidated
subsidiaries as of March 31, 1999.

     Investments in 20% to 50%-owned affiliated companies and certain minor
subsidiaries not consolidated are, with minor exceptions, accounted for by the
equity method. All significant intercompany transactions have been eliminated.
The excess cost of investments in the subsidiaries and affiliated companies over
their equity in the net assets at the dates of acquisition is generally being
amortized on a straight-line method over the estimated periods benefited, not
exceeding periods of 10 years.

(2) Translation of Foreign Currency Accounts

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


                                                                              45
<PAGE>

(3) Marketable Securities and Investment Securities

In compliance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company has categorized current and noncurrent
marketable equity securities and debt securities as securities available for
sale and as a result are stated at fair value.

(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, 2000, 1999 and 1998, are
as follows:

<TABLE>
<S>                                               <C>       <C>         <C>
                                                   2000      1999        1998
-------------------------------------------------------------------------------
Buildings.....................................        8%        8%          9%
Machinery and equipment.......................       25%       23%         26%
-------------------------------------------------------------------------------
</TABLE>

     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) Construction Contracts

Certain domestic subsidiaries engage in construction operations in Japan, which
include the construction of buildings and public works projects, such as bridges
and roads. Income from short-term construction contracts is recorded under the
completed-contract method of accounting. Income from long-term construction
contracts is generally recorded under the percentage-of-completion method of
accounting.

(7) Income Taxes

In accordance with SFAS No. 109, "Accounting for Income Taxes," the deferred tax
provision is determined by the asset and liability method. Under this method,
deferred tax assets and liabilities are recognized based on temporary
differences between financial statement and tax bases of assets and liabilities
using enacted tax rates as of each balance-sheet date. On March 31, 1999 and
1998, new income tax rates, effective April 1, 1999 and 1998, were enacted. The
effect on deferred tax assets and liabilities of changes in tax rates were
recognized in income in each year that included each enactment date.

     The companies compute and record income taxes currently payable based on
their separate determinations of taxable income which may be different from
accounting income.

     Provision for income taxes is not recorded for undistributed earnings of
foreign subsidiaries and affiliated companies because the Company considers that
such earnings are permanently reinvested and/or would not result in material
additional taxation should they be distributed to the Company under current
circumstances.

(8) Postretirement Benefits

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

     The Company adopted SFAS No. 132, "Employers' Disclosure about Pensions and
Other Postretirement Benefits," in the year ended March 31, 1999. SFAS No. 132
revised employers' disclosures about pension and other postretire-ment benefit
plans. SFAS No. 132 did not change the recognition or measurement of those plans
and did not affect the Company's consolidated financial position and results of
operations. All prior-year disclosures had been restated to conform with the
provisions of SFAS No. 132.

(9) Free Share Distribution

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

(10) Per Share Data

Basic net income (loss) per share has been computed by dividing net income
(loss) by the weighted-average number of common shares outstanding during each
fiscal year, after deducting treasury shares. Diluted net income (loss) per
share reflects the potential dilution and has been computed on the basis that
all convertible bonds were converted at the beginning of the year to the extent
that it is not antidilutive.

     Dividends per share shown in the accompanying consolidated statements of
income have been presented on an accrual basis and include, in each fiscal year
ended March 31, dividends approved or to be approved by shareholders after such
date, but applicable to the year then ended.

46
<PAGE>

(11) Consolidated Statements of Cash Flows

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

(12) Derivative Financial Instruments

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

Financial Instruments Qualifying as Hedge

The companies enter into interest rate swap and cap agreements as a means of
managing their rate exposures. Interest differentials on those interest rate
swaps are accrued as interest rate change over the contract period. Premiums
paid for interest rate caps are amortized over the life of contracts and are
expensed as a part of interest expense.

     The companies also enter into forward exchange contracts and swaps to hedge
foreign currency exposure arising from foreign currency assets and liabilities
and sales commitments.

     Gains and losses on the foreign exchange contracts are recognized based on
changes in exchange rates, and are offset by corresponding foreign exchange
gains or losses on such assets and liabilities being hedged.

     Gains and losses on the forward exchange contracts to hedge foreign
currency commitments are deferred and included in the measurement of the related
transactions, unless it is estimated that such deferral would lead to
recognizing losses in later periods.

Financial Instruments Not Qualifying as Hedge

In May 1999, the Company entered into interest rate swap contracts with the
notional amount of (Yen)40,000 million ($388,350 thousand) as a means of
managing the Company and its group companies' interest rate exposures. Those
contracts did not meet the hedge criteria. Accordingly, those interest rate
swaps were recorded in the accompanying consolidated balance sheets at their
fair value as of March 31, 2000, and the resultant gains from those interest
rate swaps of (Yen)401 million ($3,893 thousand) were recognized in "Interest
and other income" in the accompanying consolidated statements of income for the
year ended March 31, 2000.

(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.

     On November 9, 1998, the Company announced its plans to restructure the
domestic manufacturing plants for construction equipment, which also covered
some of the group companies. Under such plans, the Company has been combining
the manufacturing facilities of certain manufacturing plants of Komatsu and
certain consolidated subsidiaries in order to achieve optimal manufacturing
operations by improving the productivity of manufacturing through disposal of
certain properties on a consolidated basis. This restructuring plan will be
completed in the first half of the fiscal year ending March 31, 2001.

     As part of this restructuring plan, specified manufacturing facilities of
certain consolidated subsidiaries were disposed of during fiscal 2000. Disposal
losses of (Yen)196 million ($1,903 thousand) and (Yen)1,000 million were charged
to income in fiscal 2000 and 1999, respectively. Expected disposal losses on
those manufacturing facilities of approximately (Yen)1,000 million as of March
31, 1999 were accrued and included in other current liabilities in the
accompanying consolidated financial statements.

     In fiscal 2000, the Company recorded impairment losses on long-lived assets
at its wholly owned subsidiary in the electronics segment. Such impairment
losses were calculated using the best estimate of discounted future cash flows
based on the assumption to continue its operation. However, because of
uncertainties in management's best estimate of future cash flows based on the
assumption to continue its operation, the actual result with regard to losses of
long-lived assets may have a materially unfavorable impact on the Company if the
assumption of cash flow projection is changed in future.

(14) Comprehensive Income

The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in the year
ended March 31, 1999. Comprehensive income consists of net income, changes in
foreign currency translation adjustments, net unrealized holding gains on
securities available for sale and pension liability adjustments, and is included
in the consolidated statements of shareholders' equity. SFAS No. 130 requires
only additional disclosures in the consolidated financial statements and does
not affect the Company's consolidated financial position and results of
operations. Consolidated financial statements for fiscal 1998 have been
reclassified to conform with the provisions of SFAS No. 130.

(15) Use of Estimates

The Company's management has made a number of estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses,
including impairment losses of long-lived assets and the disclosures of fair
value

                                                                              47
<PAGE>

of financial instruments and contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from the estimates and assumptions.

(16) New Accounting Standards

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income (loss),
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, depending on the type of hedge transaction. The ineffective
portion of all hedges will be recognized in earnings. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133." This statement
defers the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000. The Company will adopt SFAS No. 133 for the year beginning April 1,
2001. Currently, the effect on the Company's consolidated financial statements
of adopting SFAS No. 133 has not been determined.

     In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position No. 98-1 (SOP 98-1), "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
provides guidance on when costs for internal-use computer software should be
capitalized or expensed as incurred and is effective for fiscal years beginning
after December 15, 1998. The effect of adopting this statement was immaterial on
the companies' financial positions and results of operations as of and for the
year ended March 31, 2000.

     In April 1998, the AICPA also issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that costs of start-up activities,
including organization costs, should be expensed as incurred. This is effective
for fiscal years beginning after December 15, 1998. The effect of adopting this
statement was immaterial on the companies' financial positions and results of
operations as of and for the year ended March 31, 2000.

2. Supplemental Cash Flow Information
===============================================================================
<TABLE>
<CAPTION>
Additional cash flow information and noncash investing and financing activities for the years ended March 31, 2000, 1999 and 1998,
are as follows:
                                                                                                               Thousands of
                                                                           Millions of yen                     U.S. dollars
<S>                                                                ---------------------------------------  -------------------
                                                                    <C>              <C>            <C>             <C>
                                                                     2000             1999           1998            2000
-------------------------------------------------------------------------------------------------------------------------------
Additional cash flow information:
  Interest paid.......................................               (Yen)25,007    (Yen)21,235     (Yen)16,774   $  242,786
  Income taxes paid...................................                    20,922         14,172          30,286      203,126
-------------------------------------------------------------------------------------------------------------------------------
Noncash investing and financing activities:
  Assets and liabilities of certain companies consolidated
   commencing in fiscal 2000, 1999 and 1998 (Note 6):
   Total assets......................................                (Yen)9,021    (Yen)100,716     (Yen)50,392   $  87,583
   Total liabilities.................................                     6,478          67,746          32,056      62,893
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

3. Trade Notes and Accounts Receivable
===============================================================================
The Company and certain of its subsidiaries follow the practice of including
installment receivables due after one year (less unearned interest) in current
assets. Receivables due after one year (less unearned interest) amounted to
(Yen)56,874 million ($552,175 thousand) and (Yen)37,196 million at March 31,
2000 and 1999, respectively.

48
<PAGE>

4. Inventories
================================================================================

At March 31, 2000 and 1999, inventories comprised the following:

<TABLE>
<CAPTION>
                                                                                                  Thousands of
                                                                           Millions of yen        U.S. dollars
                                                                      --------------------------  ------------
                                                                          2000         1999            2000
--------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>           <C>
Finished products, including finished parts held for sale.......      (Yen)138,230  (Yen)155,096    1,342,039
Work in process.................................................            45,376        59,259      440,544
Materials and supplies..........................................            25,483        30,513      247,407
--------------------------------------------------------------------------------------------------------------
Total...........................................................      (Yen)209,089  (Yen)244,868    2,029,990
==============================================================================================================
</TABLE>

5. Marketable Securities and Investment Securities
================================================================================

Marketable securities and investment securities at March 31, 2000 and 1999,
primarily consisted of securities available for sale.

The cost, gross unrealized holding gains and losses, and fair value for such
securities by major security types at March 31, 2000 and 1999, are as follows:

<TABLE>
<CAPTION>
                                                                              Millions of yen
                                                       -------------------------------------------------------------
                                                                          Gross unrealized holding
                                                                     ----------------------------------
                                                           Cost            Gains          Losses         Fair value
--------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>               <C>             <C>
At March 31, 2000
Marketable securities available for sale:
  Marketable debt securities.....................      (Yen)   107     (Yen)     -       (Yen)  -        (Yen)   107
  Marketable equity securities...................           27,712          13,149            749             40,112
--------------------------------------------------------------------------------------------------------------------
                                                       (Yen)27,819     (Yen)13,149       (Yen)749        (Yen)40,219
--------------------------------------------------------------------------------------------------------------------
Investment securities available for sale:
  Marketable debt securities.....................      (Yen)     3     (Yen)     8       (Yen)  -        (Yen)    11
  Marketable equity securities...................           33,527          32,021            267             65,281
  Other investment securities....................           10,643               -              -             10,643
--------------------------------------------------------------------------------------------------------------------
                                                       (Yen)44,173     (Yen)32,029       (Yen)267        (Yen)75,935
====================================================================================================================

<CAPTION>
                                                                              Millions of yen
                                                       -------------------------------------------------------------
                                                                          Gross unrealized holding
                                                                     ----------------------------------
                                                           Cost            Gains          Losses         Fair value
--------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>               <C>             <C>
At March 31, 1999
Marketable securities available for sale:
  Marketable debt securities......................     (Yen) 2,851     (Yen)    12      (Yen)    -       (Yen) 2,863
  Marketable equity securities....................          35,357          18,933           2,719            51,571
--------------------------------------------------------------------------------------------------------------------
                                                       (Yen)38,208     (Yen)18,945      (Yen)2,719       (Yen)54,434
--------------------------------------------------------------------------------------------------------------------
Investment securities available for sale:
  Marketable debt securities
  Marketable equity securities....................     (Yen)    30     (Yen)     -      (Yen)    -       (Yen)    30
  Other investment securities.....................          40,395          33,858           1,442            72,811
                                                            15,606               -               -            15,606
--------------------------------------------------------------------------------------------------------------------
                                                       (Yen)56,031     (Yen)33,858      (Yen)1,442       (Yen)88,447
====================================================================================================================

<CAPTION>
                                                                              Millions of yen
                                                       -------------------------------------------------------------
                                                                          Gross unrealized holding
                                                                     ----------------------------------
                                                           Cost            Gains          Losses         Fair value
--------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>               <C>             <C>
At March 31, 2000
Marketable securities available for sale:
  Marketable debt securities......................     $    1,039      $        -        $     -          $    1,039
  Marketable equity securities....................        269,049         127,660          7,272             389,437
--------------------------------------------------------------------------------------------------------------------
                                                       $  270,088      $  127,660        $ 7,272          $  390,476
--------------------------------------------------------------------------------------------------------------------
Investment securities available for sale:
  Marketable debt securities......................     $       29      $       78        $     -          $      107
  Marketable equity securities....................        325,505         310,883          2,592             633,796
  Other investment securities.....................        103,330               -              -             103,330
--------------------------------------------------------------------------------------------------------------------
                                                       $  428,864      $  310,961        $ 2,592          $  737,233
====================================================================================================================
</TABLE>

                                                                              49
<PAGE>

     Maturities of marketable debt securities at March 31, 2000 and 1999
primarily fall within five years.

     Unrealized holding gains and losses are included as a component of
shareholders' equity until realized.

     Proceeds from the sales of securities available for sale were (Yen)137,278
million ($1,332,796 thousand), (Yen)50,929 million and (Yen)70,584 million for
the years ended March 31, 2000, 1999 and 1998, respectively.

     Net realized gains (losses) on the sales of securities available for sale
during the years ended March 31, 2000, 1999 and 1998, amounted to (Yen)16,993
million ($164,981 thousand), (Yen)(4,679) million and (Yen)8,285 million,
respectively. They were included in the determination of net income. The cost of
the securities sold was computed based on the average-cost method.

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

At March 31, 2000 and 1999, investments in and advances to affiliated companies
comprised the following:

<TABLE>
<CAPTION>
                                                                                                  Thousands of
                                                                           Millions of yen        U.S. dollars
                                                                      --------------------------  ------------
                                                                          2000         1999            2000
--------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>            <C>          <C>
Investments in capital stock...................................       (Yen)26,635    (Yen)24,308    $ 258,592
Advances.......................................................               211          7,208        2,049
--------------------------------------------------------------------------------------------------------------
Total..........................................................       (Yen)26,846    (Yen)31,516    $ 260,641
==============================================================================================================
</TABLE>

     The carrying value of investments in the affiliated companies at March 31,
1999 included (Yen)908 million, representing the unamortized balance of the
excess of the cost of investments over the companies' equity in the net assets,
at date of acquisition.

     The companies own a 39.2% (27.2% in 1999) interest in Komatsu Forklift Co.,
Ltd., which manufactures and distributes forklift products. The common stock of
the above affiliated company is publicly traded. The carrying values of this
investment at March 31, 2000 and 1999, were (Yen)14,903 million ($144,689
thousand) and (Yen)9,003 million, respectively, with corresponding quoted market
values of (Yen)5,228 million ($50,757 thousand) and (Yen)3,826 million,
respectively.

     In the late part of the fiscal year ended March 31, 1999, the Company
increased its ownership percentage in Komatsu Zenoah Co., to 51.2% (33.2% in
1998). As a result, Komatsu Zenoah Co. has been reflected as a consolidated
subsidiary of the Company effective March 31, 1999.

     Dividends received from affiliated companies were (Yen)324 million ($3,146
thousand), (Yen)25 million and (Yen)485 million during the years ended March 31,
2000, 1999 and 1998, respectively.

     Trade notes and accounts receivable from affiliated companies at March 31,
2000 and 1999, were (Yen)44,050 million ($427,670 thousand) and (Yen)47,537
million, respectively.

     Short-term loans receivable from affiliated companies at March 31, 2000 and
1999, were (Yen)19,200 million ($186,408 thousand) and (Yen)21,146 million,
respectively.

     Trade notes and accounts payable to affiliated companies at March 31, 2000
and 1999, were (Yen)5,506 million ($53,456 thousand) and (Yen)7,300 million,
respectively.

     Net sales for the years ended March 31, 2000, 1999 and 1998, included net
sales to affiliated companies in the amounts of (Yen)83,001 million ($805,835
thousand), (Yen)87,643 million and (Yen)96,829 million, respectively.

     Summarized financial information for affiliated companies at March 31, 2000
and 1999, and for the years ended March 31, 2000, 1999 and 1998, is as follows:

<TABLE>
<CAPTION>
                                                                                                  Thousands of
                                                                           Millions of yen        U.S. dollars
                                                                      --------------------------  ------------
                                                                          2000         1999            2000
--------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>           <C>
Current assets..................................................      (Yen)155,703  (Yen)172,767   $ 1,511,680
Net property, plant and equipment...............................            60,649        61,183       588,825
Other assets....................................................            32,792        36,862       318,369
--------------------------------------------------------------------------------------------------------------
Total assets....................................................      (Yen)249,144  (Yen)270,812   $ 2,418,874
==============================================================================================================
Current liabilities.............................................      (Yen)153,662  (Yen)187,504   $ 1,491,864
Noncurrent liabilities..........................................            21,256        23,724       206,369
Shareholders' equity............................................            74,226        59,584       720,641
--------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity......................      (Yen)249,144  (Yen)270,812   $ 2,418,874
==============================================================================================================
</TABLE>

50
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                  Thousands of
                                                                                   Millions of yen                U.S. dollars
                                                                      ----------------------------------------    ------------
                                                                          2000         1999            1998            2000
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>           <C>             <C>
Net sales.....................................................        (Yen)271,831  (Yen)259,870  (Yen)420,989    $  2,639,136
==============================================================================================================================
Net income (loss).............................................        (Yen)  8,259  (Yen)(15,873) (Yen)  6,486    $     80,184
==============================================================================================================================
</TABLE>

     The summarized financial information as of and for the year ended March 31,
1998 included the accounts of Komatsu Zenoah Co., Komatsu Mining Germany GmbH,
formerly Demag Komatsu GmbH, and three other companies, which were newly
consolidated in fiscal 1999. The aggregated net sales of those companies for the
year ended March 31, 1998 amounted to (Yen)124,324 million and the aggregated
net income of those companies amounted to (Yen)2,739 million.

     The aggregate net sales and net losses of those consolidated companies for
the year ended March 31, 1999 would have amounted to (Yen)79,385 million and
(Yen)717 million, respectively, if those companies were consolidated
subsidiaries at the beginning of fiscal 1999.

     The impact on net loss per share would not have been material if those
companies were consolidated at the beginning of fiscal 1999.

7. Property, Plant and Equipment
================================================================================

The major classes of property, plant and equipment at March 31, 2000 and 1999,
are as follows:

<TABLE>
<CAPTION>
                                                                                                     Thousands of
                                                                             Millions of yen         U.S. dollars
                                                                      ----------------------------   ------------
                                                                          2000           1999             2000
-----------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>            <C>
Land..............................................................    (Yen)  58,856   (Yen)  59,745   $   571,417
Buildings.........................................................          270,961         272,279     2,630,689
Machinery and equipment...........................................          533,075         527,026     5,175,486
Construction in progress..........................................           56,252          91,687       546,136
-----------------------------------------------------------------------------------------------------------------
Total.............................................................          919,144         950,737     8,923,728
Less: accumulated depreciation....................................         (521,610)       (510,031)   (5,064,175)
-----------------------------------------------------------------------------------------------------------------
Net property, plant and equipment.................................    (Yen) 397,534   (Yen) 440,706   $ 3,859,553
=================================================================================================================
</TABLE>

8. Pledged Assets

At March 31, 2000, assets pledged as collateral for short-term debt and
long-term debt are as follows:

<TABLE>
<CAPTION>
                                                                                              Thousands of
                                                                       Millions of yen        U.S. dollars
--------------------------------------------------------------------------------------        ------------
<S>                                                                    <C>                    <C>
Time deposits........................................................      (Yen)   707           $   6,864
Trade notes and accounts receivable..................................              671               6,514
Property, plant and equipment-Less accumulated depreciation..........           45,809             444,748
----------------------------------------------------------------------------------------------------------
Total................................................................      (Yen)47,187           $ 458,126
==========================================================================================================
</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) 1,428           $  13,864
     Long-term debt..................................................           45,759             444,262
----------------------------------------------------------------------------------------------------------
Total................................................................      (Yen)47,187           $ 458,126
==========================================================================================================
</TABLE>

                                                                              51

<PAGE>

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, 2000 and 1999, were 2.4% and 3.9%, respectively. The Company and certain
consolidated subsidiaries have unused committed lines of credit amounting to
(Yen)49,282 million ($478,466 thousand) with certain financial institutions at
the end of fiscal 2000.

     Long-term debt at March 31, 2000 and 1999, consisted of the following:

<TABLE>
<CAPTION>
                                                                                                               Thousands of
                                                                                   Millions of yen             U.S. dollars
                                                                            -------------------------------  ----------------
                                                                                 2000            1999               2000
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>             <C>
Long-term debt with collateral (Note 8):
   Banks, insurance companies and other financial institutions,
     maturing serially through 2000-2029, weighted-average rate 4.3%
        Government-owned banks and government agencies.....................   (Yen) 14,608    (Yen) 23,658        $  141,825
        Other..............................................................          6,459           8,136            62,709
Long-term debt without collateral:
   Banks, insurance companies and other financial institutions,
     maturing serially through 2000-2022, weighted-average rate 3.3%.......        104,818         127,494         1,017,650
   Euro Medium-Term Notes with various interest rates maturing serially
     through 2000-2009.....................................................         90,959          82,984           883,097
   9.6% Bonds due 1999 (payable in U.S. dollars)...........................             --           3,942                --
   6.9% Senior Notes due 2003 (payable in U.S. dollars)....................         11,981          13,537           116,320
   1.8% Convertible Unsecured Bonds due 2004...............................         27,447          25,741           266,476
   7.0% Senior Notes due 2005 (payable in U.S. dollars)....................          7,270           8,215            70,583
   1.9% Unsecured Bonds due 2006...........................................         35,000          35,000           339,806
   Other...................................................................          1,053           1,148            10,224
----------------------------------------------------------------------------------------------------------------------------
Total......................................................................        299,595         329,855         2,908,690
Less: current maturities...................................................        (54,306)        (37,605)         (527,243)
----------------------------------------------------------------------------------------------------------------------------
Long-term debt.............................................................   (Yen)245,289    (Yen)292,250        $2,381,447
============================================================================================================================
</TABLE>

     The conversion price per share of the 1.8% convertible unsecured bonds at
March 31, 2000, was (Yen)971.2, which is subject to adjustments under certain
conditions. These bonds are redeemable anytime before maturity at the option of
the Company, at the initial redemption price of 104% of the principal.

     In 1996, the Company, Komatsu Finance America Inc., and Komatsu Finance
(Netherlands) B.V. (the "Issuers") registered the US$1.0 billion Euro Medium-
Term Note Program on the London Stock Exchange. On April 1, 1999, the registered
amounts of Euro Medium-Term Notes Program were increased to US$1.2 billion. On
March 31, 2000, Komatsu Australia 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)29,800 million ($289,320
thousand) and US$0 million during fiscal 2000, and (Yen)50,900 million and US$39
million during fiscal 1999 of Euro Medium-Term Notes with various interest rates
and maturity dates. Komatsu Finance (Netherlands) B.V. issued (Yen)8,139 million
($79,019 thousand) during fiscal 2000 of Euro Medium-Term Notes with various
interest rates and maturity dates. To offset market risk exposure arising from
changes in foreign exchange rates and interest rates on debts under the Program,
cross-currency interest rate swap and interest rate swap contracts are utilized.
The cross-currency interest rate swap contracts effectively convert yen-
denominated debts and related interest into U.S. dollar 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%, and LIBOR minus 0.10% to LIBOR flat for the
years ended March 31, 2000 and 1999, respectively, depending upon the contract.
The floating interest rates for fiscal 2000 and 1999 ranged from 4.87% to 6.69%
and 5.10% to 6.00%, 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.

52

<PAGE>

Annual maturities of long-term debt subsequent to March 31, 2000, are as
follows:

<TABLE>
<CAPTION>
                                                  Thousands of
Year ending March 31           Millions of yen    U.S. dollars
----------------------------------------------   --------------
<S>                            <C>               <C>
2001..........................  (Yen)  54,306      $   527,243
2002..........................         40,147          389,777
2003..........................         42,074          408,485
2004..........................         70,426          683,748
2005..........................         11,918          115,709
2006 and thereafter...........         80,724          783,728
--------------------------------------------------------------
Total.........................  (Yen) 299,595      $ 2,908,690
==============================================================
</TABLE>

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, 2000,
1999 and 1998, included the following components:

<TABLE>
<CAPTION>
                                                                                                      Thousands of
                                                                     Millions of yen                  U.S. dollars
                                                     ---------------------------------------------    ------------
                                                        2000               1999            1998            2000
------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>               <C>              <C>           <C>
Service cost--Benefits earned during the year....... (Yen) 5,122       (Yen) 4,828      (Yen) 4,909      $ 49,728
Interest cost on projected benefit obligation.......       3,907             4,428            4,448        37,932
Expected return on plan assets......................      (1,294)           (1,147)          (1,404)      (12,563)
Net amortization and deferral.......................       2,834             1,726            1,648        27,515
-----------------------------------------------------------------------------------------------------------------
Net periodic cost................................... (Yen)10,569       (Yen) 9,835      (Yen) 9,601      $102,612
=================================================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                                               Thousands of
                                                                                   Millions of yen             U.S. dollars
                                                                            -------------------------------  ----------------
                                                                                 2000            1999               2000
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>             <C>
Change in benefit obligation:
   Benefit obligation, beginning of year.................................   (Yen)126,051     (Yen)126,538        $1,223,797
   Service cost..........................................................          5,122            4,828            49,728
   Interest cost.........................................................          3,907            4,428            37,932
   Actuarial loss........................................................          3,460            7,208            33,592
   Benefits paid.........................................................        (15,111)         (16,951)         (146,709)
---------------------------------------------------------------------------------------------------------------------------
   Benefit obligation, end of year.......................................   (Yen)123,429     (Yen)126,051        $1,198,340
===========================================================================================================================

Change in plan assets:
   Fair value of plan assets, beginning of year..........................   (Yen) 60,312     (Yen) 54,365        $  585,552
   Actual return on plan assets..........................................          4,045              499            39,272
   Employer contribution.................................................         13,192           10,692           128,078
   Benefits paid.........................................................         (5,114)          (5,244)          (49,650)
---------------------------------------------------------------------------------------------------------------------------
   Fair value of plan assets, end of year................................   (Yen) 72,435     (Yen) 60,312        $  703,252
===========================================================================================================================
</TABLE>

                                                                              53
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                    Thousands of
                                                                                          Millions of yen           U.S. dollars
                                                                                   ------------------------------   ------------
                                                                                         2000           1999              2000
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>               <C>            <C>
Funded status..................................................................    (Yen)(50,994)     (Yen)(65,739)    $ (495,087)
Unrecognized net loss..........................................................          21,251            32,032        206,320
Unrecognized net obligation at transition being recognized over 15 years.......           3,133             3,915         30,417
Unrecognized prior service cost being recognized over 15 years.................           4,718             5,264         45,806
--------------------------------------------------------------------------------------------------------------------------------
Net amount recognized..........................................................    (Yen)(21,892)     (Yen)(24,528)    $ (212,544)
================================================================================================================================
Net amounts recognized in the consolidated balance sheets consist of:
  Liability for postretirement benefits........................................    (Yen)(36,031)     (Yen)(50,550)    $ (349,816)
  Intangible assets included in other assets...................................           7,851             9,179         76,223
  Amount included in accumulated other comprehensive
   income (loss), gross of tax.................................................           6,288            16,843         61,049
--------------------------------------------------------------------------------------------------------------------------------
Net amount recognized..........................................................    (Yen)(21,892)     (Yen)(24,528)    $ (212,544)
================================================================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
                                          2000      1999         1998
---------------------------------------------------------------------
<S>                                       <C>       <C>          <C>
Weighted-average discount rate.........   3.1%      3.1%         3.5%
Rate of increase in future
  compensation levels..................   2.1%      2.4%         2.4%
Expected long-term rate of
  return on plan assets................   2.3%      2.1%         2.6%
---------------------------------------------------------------------
</TABLE>

  As a result of the changes in the discount rate in fiscal 1999, the benefit
obligation as of March 31, 1999, was approximately (Yen)3,749 million more than
it would have been using the previous 3.5% discount rate. The effect of those
changes had no material impact on the net periodic costs.

  Certain foreign subsidiaries have various funded pension plans, of which the
plan assets and the projected benefit obligations were calculated under the
provisions of SFAS No. 87. The aggregated fair value of plan assets as of March
31, 2000 and 1999, was approximately (Yen)8,297 million ($80,553 thousand) and
(Yen)8,195 million, respectively, and the aggregated benefit obligations as of
March 31, 2000 and 1999, were approximately (Yen)7,865 million ($76,359
thousand) and (Yen)9,063 million, respectively. Discount rates of 6.5% to 7.5%
and expected long-term rates of return on plan assets of 7.5% to 9.0% were used
as assumptions in determining the actuarial value of benefit obligations for the
years ended March 31, 2000, 1999 and 1998.

  Certain domestic subsidiaries also have unfunded severance payment plans
and/or pension plans similar to those of the Company for their employees with
estimated accumulated benefit obligations of approximately (Yen)11,000 million
($106,796 thousand) as of March 31, 2000, which were approximately equal to the
aggregated fair value of plan assets and accruals. The amounts of net periodic
costs of certain foreign and domestic subsidiaries for the years ended March 31,
2000, 1999 and 1998, were (Yen)2,945 million ($28,592 thousand), (Yen)2,901
million and (Yen)3,110 million, respectively.

  Directors of the Company and domestic subsidiaries are primarily covered by
unfunded retirement allowances plans.

  Under the unfunded plans described in the preceding paragraphs, the amounts
required if all employees and directors had voluntarily terminated their
employment at each balance-sheet date are fully accrued. The payments to
directors are subject to shareholders' approval.

  During fiscal 1999, the Company and certain consolidated subsidiaries offered
retirement incentive programs to employees. Expenses of (Yen)215 million ($2,087
thousand) and (Yen)6,476 million under this program were charged to income in
fiscal 2000 and 1999, respectively, and paid or accrued severance payments for
the employees who had accepted their entitlement to such programs up to March
31, 1999. Accrual for those employees as of March 31, 1999 was included in
liability for postretirement benefits in the accompanying consolidated balance
sheets, which amounted to (Yen)2,765 million.

  Total expenses of all severance-payment and pension plan premiums charged to
income for the years ended March 31, 2000, 1999 and 1998, were (Yen)14,140
million ($137,282 thousand), (Yen)17,015 million and (Yen)13,297 million,
respectively. Total expenses of all severance payments for the years ended March
31, 2000 and 1999 included the additional severance payment under the retirement
incentive programs paid up to March 31, 2000.

  Certain foreign subsidiaries have postretirement benefit plans other than
pensions, which are primarily not funded. The accumulated postretirement benefit
obligation at March 31, 2000 and 1999, was (Yen)3,714 million ($36,058 thousand)
and (Yen)4,869 million, respectively, and the accrued postretirement benefit
obligation at March 31, 2000 and 1999, was (Yen)2,955 million ($28,689 thousand)
and (Yen)3,229 million, respectively. The amounts of net periodic postretirement
benefits other than pensions for the years ended March 31, 2000, 1999 and 1998,
were not material.

54
<PAGE>

11. Shareholders' Equity
================================================================================

(1) Common Stock and Capital Surplus

Under the Commercial Code of Japan ("the Code"), certain issuance of common
shares, including conversions of debt issued and exercises of warrants, are
required to be credited to the common stock account for at least the greater of
par value or 50% of the proceeds.

  The Code permits, upon approval of the Board of Directors, transfer of amounts
from capital surplus to the common stock. Pursuant to resolutions of the Board
of Directors, the Company from time to time has made free share distributions
(Note 1). Such free share distributions have been accounted for by a transfer
from capital surplus to common stock of the aggregate par value of shares issued
or no change in common stock and capital surplus. Publicly owned corporations in
the United States issuing shares in similar transactions would be required to
account for them as stock dividends as of the shareholders' record date by
reducing retained earnings and increasing appropriate capital accounts by an
amount equal to the fair value of the shares issued.

  If such United States practice had been applied to the cumulative free
distributions made by the Company, capital surplus at March 31, 2000, would have
been increased by (Yen)103,189 million ($1,001,835 thousand) with a
corresponding decrease in unappropriated retained earnings. If all convertible
bonds were converted at March 31, 2000, 28,260,914 shares of the Company's
common stock would be issuable. At March 31, 2000 and 1999, affiliated companies
owned 4,368,021 and 7,179,857 shares of the Company's common stock,
respectively.

(2) Retirement of the Company's Outstanding Shares

The Commercial Code of Japan permits a company to retire a portion of its
outstanding shares upon approval of the shareholders at the annual general
shareholders' meeting or of the Board of Directors if stipulated in the Articles
of Corporation. On November 10, 1997, the Board of Directors passed a resolution
approving the purchase and the retirement of the outstanding shares of the
Company up to a maximum aggregate acquisition cost of (Yen)10,000 million and up
to a maximum of 15,000,000 shares.

  By March 31, 1999, the Company purchased 15,000,000 shares based on the
resolution of the Board of Directors on November 10, 1997, and had retired
shares totaling (Yen)9,203 million in 1998 and (Yen)570 million in 1999.

  On May 2, 2000, the Board of Directors passed a resolution approving the
purchase and retirement of outstanding shares of the Company up to a maximum
aggregate acquisition cost of (Yen)7,000 million ($67,961 thousand) and up to a
maximum of 10,000,000 shares before the close of the next general shareholders'
meeting in 2001 as permitted by the Company's Articles of Corporation.

  By May 17, 2000, the Company purchased and retired 10,000,000 shares having a
market value of (Yen)6,340 million
($61,553 thousand) based on the resolution of the Board of Directors on May 2,
2000.

(3) Appropriated for Legal Reserve

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

(4) Unappropriated Retained Earnings and Dividends

The amount of retained earnings available for dividends under the Code is based
on the amount recorded in the Company's general books of account maintained in
accordance with generally accepted Japanese accounting practices. The
adjustments included in the accompanying financial statements but not recorded
in the general books of account, as explained under "Basis of Financial
Statements" in Note 1, have no effect on the determination of retained earnings
available for dividends under the Code. In addition to the Code provision
requiring an appropriation for legal reserve as discussed above, the Code
imposes certain limitations on the amount of retained earnings available for
dividends. Retained earnings of (Yen)271,680 million ($2,637,670 thousand),
shown by the Company's general books of account as of March 31, 2000, is not
restricted by the limitations under the Code.

  The Code permits transfers, upon approval of shareholders, of a portion of
unappropriated retained earnings available for dividends to capital stock
account without issuance of any shares. Dividends are approved by the
shareholders at the meeting held subsequent to the statutory fiscal period to
which the dividends are applicable. A semiannual interim dividend payment may be
made by resolution of the Board of Directors. Such dividends are payable to
shareholders of record at the end of each such fiscal or interim six-month
period.

  On June 28, 2000, the shareholders authorized payment of a cash dividend
totaling (Yen)2,900 million ($28,155 thousand) to shareholders of record on
March 31, 2000. In accordance with the Code, the declaration of this dividend
has not been reflected in the consolidated financial statements as of March 31,
2000. Dividends are reported in the Consolidated Statements of Shareholders'
Equity when paid.

                                                                              55
<PAGE>

(5) Stock Option Plan

On June 26, 1998, the shareholders authorized the acquisition of 1,000,000
shares of the Company's common stock for the total consideration not exceeding
(Yen)1,000 million during the period up to the close of the following annual
general shareholders' meeting in fiscal 1999.

  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 ($11,650 thousand) 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 26,
1998, and June 29, 1999, the Company acquired 1,000,000 shares and 1,200,000
shares of its common stock from the market for the plan during the years ended
March 31, 1999 and 2000, respectively. The options vest 100% on each of the
grant dates and were and will be exercisable from July 1, 1999 and 2000,
respectively.

  SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair value
based method of accounting for a stock option. This statement gives entities a
choice of recognizing related compensation expense by adopting the new fair
value method or to continue to measure compensation using the intrinsic value
approach under APB Opinion No. 25 ("Accounting for Stock Issued to Employees"),
the former standard. The Company chose to use the measurement prescribed by APB
Opinion No. 25 and no additional compensation cost was incurred in fiscal 2000
and 1999. Had compensation cost for the Company's stock option plans been
determined consistent with SFAS No. 123, the Company's net income (loss) and net
income (loss) per share for the years ended March 31, 2000 and 1999 would have
been as follows:

<TABLE>
<CAPTION>
                                                                                                              Thousands of
                                                                               Millions of yen                U.S. dollars
                                                                       -----------------------------          ------------
                                                                             2000            1999                  2000
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>            <C>       <C>
Net income (loss)................................................       (Yen)13,451  (Yen)(12,648)              $ 130,592

                                                                                      Yen                       U.S. cents
                                                                       -----------------------------            ----------
                                                                              2000         1999                    2000
-------------------------------------------------------------------    -----------------------------            ----------
Net income (loss) per share
  Basic............................................................        (Yen)13.60   (Yen)(13.05)               13.2c
  Diluted..........................................................             13.51        (13.05)               13.1
</TABLE>

The following table summarizes information about stock option activity for
fiscal 2000 and 1999:

<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, 1998...........           --             --
Granted.................................    1,000,000       (Yen)700
Exercised...............................           --             --
Cancelled or Expired....................           --             --
----------------------------------------   ----------------------------------------------------------------------------------------
Outstanding at March 31, 1999...........    1,000,000       (Yen)700
Granted.................................    1,200,000       (Yen)820                7.96
Exercised...............................           --             --                 --
Cancelled or Expired....................      (20,000)      (Yen)820                7.96
----------------------------------------   ----------------------------------------------------------------------------------------
Outstanding at March 31, 2000...........    2,180,000       (Yen)765                7.43      4.79 years         (Yen)700  (Yen)820

[Exercisable at March 31, 1999].........           --             --
[Exercisable at March 31, 2000].........    1,000,000       (Yen)700                6.80
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>
                                         2000               1999
--------------------------------------------------------------------
<S>                                <C>                    <C>
Grant-date fair value............  (Yen)207 (2.01)        (Yen)270
Expected life....................      6 years             6 years
Risk-free rate...................       1.23%              1.35%
Expected volatility..............      29.00%             44.00%
Expected dividend yield..........       0.63%              1.14%
--------------------------------------------------------------------
</TABLE>

  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 ($9,709 thousand), with the same conditions as the aggregated
acquisition of 2,200,000 shares made prior to March 31, 2000.

56
<PAGE>

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

Accumulated other comprehensive income (loss) at March 31, 2000, 1999 and 1998,
is as follows:

<TABLE>
<CAPTION>
                                                                                                                      Thousands of
                                                                               Millions of Yen                         U.S. dollars
                                                            ------------------------------------------------------    -------------
                                                                    2000               1999               1998              2000
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>               <C>                 <C>
Foreign currency translation adjustments:
  Balance, beginning of year...............................    (Yen)(24,159)       (Yen)(15,706)      (Yen)(17,147)     $  (234,553)
  Aggregate adjustment for the year resulting from
   translation of foreign currency financial statements....         (15,565)             (8,453)             1,441         (151,117)
-----------------------------------------------------------------------------------------------------------------------------------
  Balance, end of year.....................................    (Yen)(39,724)       (Yen)(24,159)      (Yen)(15,706)     $  (385,670)
===================================================================================================================================
Net unrealized holding gains on securities available for sale:
  Balance, beginning of year...............................    (Yen) 25,650        (Yen) 20,803       (Yen) 40,964      $   249,029
  Net increase (decrease)..................................          (2,183)              4,847            (20,161)         (21,194)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year.......................................    (Yen) 23,467        (Yen) 25,650       (Yen) 20,803      $   227,835
===================================================================================================================================
Pension liability adjustments:
  Balance, beginning of year...............................    (Yen) (8,927)       (Yen) (5,268)      (Yen) (4,090)     $   (86,670)
  Adjustment for the year..................................           5,594              (3,659)            (1,178)          54,311
-----------------------------------------------------------------------------------------------------------------------------------
  Balance, end of year.....................................    (Yen) (3,333)       (Yen) (8,927)      (Yen) (5,268)     $   (32,359)
===================================================================================================================================

Total accumulated comprehensive income (loss)
  Balance, beginning of year...............................    (Yen) (7,436)       (Yen)   (171)      (Yen) 19,727      $   (72,194)
  Adjustment for the year..................................         (12,154)             (7,265)           (19,898)        (118,000)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year.......................................    (Yen)(19,590)       (Yen) (7,436)      (Yen)   (171)     $  (190,194)
===================================================================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                          Millions of Yen
                                                                         -------------------------------------------------
                                                                                          Tax (expense)     Net of tax
                                                                          Pretax amount    or benefit         amount
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>              <C>
2000:
Foreign currency translation adjustments................................   (Yen)(15,565)      (Yen)    --     (Yen)(15,565)
Net unrealized holding gains on securities available for sale:
  Unrealized holding gains or (losses) arising during the year..........          2,585            (1,079)           1,506
  Less: reclassification adjustment for (gains) or losses
   included in net income (loss)........................................         (6,848)            3,159           (3,689)
--------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)...........................................         (4,263)            2,080           (2,183)
Pension liability adjustments...........................................         10,555            (4,961)           5,594
--------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss).......................................   (Yen) (9,273)      (Yen)(2,881)    (Yen)(12,154)
==========================================================================================================================
1999:
Foreign currency translation adjustments................................   (Yen) (8,453)      (Yen)    --     (Yen) (8,453)
Net unrealized holding gains on securities available for sale:
  Unrealized holding gains or (losses) arising during the year..........         (3,932)            1,723           (2,209)
  Less: reclassification adjustment for (gains) or losses
   included in net income (loss)........................................          9,182            (2,126)           7,056
--------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)...........................................          5,250              (403)           4,847
Pension liability adjustments...........................................         (6,904)            3,245           (3,659)
--------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss).......................................   (Yen)(10,107)      (Yen) 2,842     (Yen) (7,265)
==========================================================================================================================
1998:
Foreign currency translation adjustments................................   (Yen)  1,441       (Yen)    --     (Yen)  1,441
Net unrealized holding gains on securities available for sale:
  Unrealized holding gains or (losses) arising during the year..........        (34,589)           17,559          (17,030)
  Less: reclassification adjustment for (gains) or losses
   included in net income (loss)........................................         (5,908)            2,777           (3,131)
--------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)...........................................        (40,497)           20,336          (20,161)
Pension liability adjustments...........................................         (1,593)              415           (1,178)
--------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss).......................................   (Yen)(40,649)      (Yen)20,751     (Yen)(19,898)
==========================================================================================================================
</TABLE>

                                                                              57
<PAGE>

<TABLE>
<CAPTION>
                                                                                    Thousands of U.S. dollars
                                                                           --------------------------------------------------
                                                                                              Tax (expense)     Net of tax
                                                                             Pretax amount     or benefit         amount
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>               <C>              <C>
2000:
Foreign currency translation adjustments.................................    $  (151,117)       $        --       $  (151,117)
Net unrealized holding gains on securities available for sale:
  Unrealized holding gains or (losses) arising during the year...........         25,097            (10,476)           14,621
  Less: reclassification adjustment for (gains) or losses
   included in net income (loss).........................................        (66,485)            30,670           (35,815)
-----------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)............................................        (41,388)            20,194           (21,194)
Pension liability adjustments............................................        102,476            (48,165)           54,311
-----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss)........................................    $   (90,029)       $   (27,971)      $  (118,000)
=============================================================================================================================
</TABLE>

13. Income Taxes
================================================================================

Income (loss) before income taxes, minority interests and equity in earnings for
the years ended March 31, 2000, 1999 and 1998, is as follows:

<TABLE>
<CAPTION>
                                                                                                         Thousands of
                                                                             Millions of Yen             U.S. dollars
                                                                 -----------------------------------   ----------------
                                                                    2000         1999        1998             2000
-----------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>           <C>          <C>
Income (loss) before income taxes:
  Domestic.....................................................  (Yen)13,431   (Yen)(20,598)  (Yen)26,929     $ 130,398
  Foreign......................................................        5,964         10,994        13,323        57,903
-----------------------------------------------------------------------------------------------------------------------
                                                                 (Yen)19,395   (Yen) (9,604)  (Yen)40,252     $ 188,301
=======================================================================================================================
Income taxes:
  Current-
    Domestic...................................................  (Yen)11,542   (Yen)(11,108   (Yen)15,144     $ 112,058
    Foreign....................................................        6,616          7,975         6,292        64,233
-----------------------------------------------------------------------------------------------------------------------
                                                                      18,158         19,083        21,436       176,291
-----------------------------------------------------------------------------------------------------------------------
  Deferred-
    Domestic...................................................       (9,403)       (15,105)          227       (91,291)
    Foreign....................................................        1,195         (1,917)         (822)       11,602
-----------------------------------------------------------------------------------------------------------------------
                                                                      (8,208)       (17,022)         (595)      (79,689)
-----------------------------------------------------------------------------------------------------------------------
Total..........................................................  (Yen) 9,950   (Yen)  2,061   (Yen)20,841     $  96,602
=======================================================================================================================
</TABLE>

   Total income taxes recognized for the years ended March 31, 2000, 1999 and
1998 were applicable to the following:

<TABLE>
<CAPTION>
                                                                                                                Thousands of
                                                                                Millions of Yen                U.S. dollars
                                                                         --------------------------------     ---------------
                                                                                20000        1999        1998         2000
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>          <C>         <C>           <C>
Income (loss) before income taxes, minority interests and equity in
 earnings...............................................................  (Yen) 9,950  (Yen)(2,061  (Yen) 20,841   $   96,602
Other comprehensive income (loss):
  Net unrealized holding gains (losses) on securities available for sale       (2,080)         403       (20,336)     (20,194)
  Pension liability adjustments.........................................        4,961       (3,245)         (415)      48,165
-----------------------------------------------------------------------------------------------------------------------------
Total income taxes......................................................  (Yen)12,831  (Yen)  (781) (Yen)     90   $  124,573
=============================================================================================================================
</TABLE>

   Temporary differences and tax loss carryforwards which gave rise to deferred
tax assets and liabilities at March 31, 2000 and 1999, are as follows:

<TABLE>
<CAPTION>
                                                                                                                Thousands of
                                                                                Millions of Yen                U.S. dollars
                                                                         --------------------------------     ---------------
                                                                                    2000            1999            2000
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                 <C>              <C>
Deferred tax assets:
  Unrealized intercompany profit.......................................        (Yen) 29,734   (Yen) 18,622       $  288,680
  Allowances provided, not yet recognized for tax......................               6,923          5,829           67,214
  Accrued expenses.....................................................               5,099         15,881           49,505
  Inventories..........................................................               7,823          6,004           75,951
  Net operating loss carryforwards.....................................              30,608         16,603          297,165
  Research and development expenses....................................              10,712          6,004          104,000
  Other................................................................               6,133          8,078           59,543
  Less valuation allowance.............................................             (20,551)       (20,412)        (199,524)
-----------------------------------------------------------------------------------------------------------------------------
                                                                               (Yen) 76,481     (Yen) 56,609       $  742,534
=============================================================================================================================
</TABLE>

58
<PAGE>

<TABLE>
<CAPTION>
                                                                                             Thousands of
                                                                   Millions of Yen           U.S. dollars
                                                              -------------------------     --------------
                                                               2000              1999           2000
----------------------------------------------------------------------------------------------------------
<S>                                                           <C>              <C>          <C>
Deferred tax liabilities:
   Unrealized holding gains on securities available for
    sale..................................................... (Yen)23,088      (Yen)23,641   $224,155
   Deferral of profit from installment sales.................       5,664            6,154     54,990
   Deferred gains on sales of property for tax purposes......      26,828            9,899    260,466
   Other.....................................................       2,543            3,531     24,690
----------------------------------------------------------------------------------------------------------
                                                              (Yen)58,123      (Yen)43,225   $564,301
==========================================================================================================
</TABLE>

     The net change in the total valuation allowance for the years ended March
31, 2000 and 1999, was an increase of (Yen)139 million ($1,350 thousand) and
(Yen)1,995 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, 2000,
47.0% for the year ended March 31, 1999, and 51.0% for the year ended March 31,
1998. However, due to a change in Japanese income tax regulations, effective
April 1, 1999, the normal statutory tax rate was reduced to approximately 41.7%
and such a rate was used in calculating the deferred taxes for the years ended
March 31, 2000 and 1999.

     The overall effective tax rates reflected in the consolidated statements of
income (income taxes as a percentage of income (loss) before income taxes,
minority interests and equity in earnings) for the years ended March 31, 2000,
1999 and 1998, were 51.3%, 21.5% and 51.8%, respectively.

     The differences between the normal tax rates and the effective tax rates
for the years ended March 31, 2000, 1999 and 1998, are summarized as follows:

<TABLE>
<CAPTION>
                                                                                   2000     1999     1998
------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>     <C>       <C>
Normal tax rate................................................................... 41.7%   (47.0)%   51.0%
Increase (decrease) in tax rates resulting from:
   Operating losses of subsidiaries...............................................  6.1     70.5     12.1
   Expenses not deductible for tax purposes....................................... 11.1     11.6      3.5
   Gain on sale of minority interest..............................................   --       --     (5.4)
   Realization of tax benefits on operating losses of subsidiaries................ (0.4)    (1.0)    (8.6)
   Income of foreign subsidiaries taxed at lower than Japanese normal rate........ (5.9)   (17.5)    (2.8)
   Effect of tax rate change......................................................   --      3.8      0.9
   Other, net..................................................................... (1.3)     1.1      1.1
------------------------------------------------------------------------------------------------------------
Effective tax rate................................................................ 51.3%    21.5%    51.8%
============================================================================================================
</TABLE>

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

     At March 31, 2000 and 1999, no deferred tax liabilities were recognized for
undistributed earnings of foreign subsidiaries and affiliated companies
aggregating (Yen)40,063 million ($388,961 thousand) and (Yen)27,219 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, 2000, certain subsidiaries had operating loss carryforwards
aggregating approximately (Yen)77,116 million ($748,699 thousand), which may be
used as a deduction in determining taxable income in future periods. The
operating loss carryforwards of (Yen)63,798 million ($619,398 thousand) expire
through December 31, 2019, while the remainder have 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)13,468 million ($130,757 thousand), (Yen)10,680
million and (Yen)12,059 million, respectively, for the years ended March 31,
2000, 1999 and 1998. Certain lease contracts for equipment that would be
classified as capital lease in conformity with SFAS No. 13 "Accounting for
Leases," were not capitalized because of immateriality.

     At March 31, 2000, the future minimum lease payments under these operating
leases are as follows:

                                    Thousands of
Year ending       Millions of Yen   U.S. dollars
--------------------------------------------------
2001............... (Yen) 5,300      $ 51,456
2002...............       4,381        42,534
2003...............       3,626        35,204
2004...............       3,491        33,893
2005...............       2,758        26,777
Thereafter.........       4,030        39,126
--------------------------------------------------
Total.............. (Yen)23,586      $228,990
==================================================

                                                                              59
<PAGE>

15. Research and Development and Advertising Expenses
================================================================================

Research and development expenses charged to costs and expenses for the years
ended March 31, 2000, 1999 and 1998, amounted to (Yen)42,460 million ($412,233
thousand), (Yen)45,712 million and (Yen)44,058 million, respectively.

     Advertising expenses charged to costs and expenses as incurred for the
years ended March 31, 2000, 1999 and 1998, amounted to (Yen)4,327 million
($42,010 thousand), (Yen)5,579 million and (Yen)4,691 million, respectively.

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

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

<TABLE>
<CAPTION>
                                                                                                  Thousands of
                                                            Millions of yen                       U.S. dollars
                                                  -------------------------------------------    -------------
                                                    2000           1999            1998              2000
--------------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>              <C>            <C>
Net income (loss)................................ (Yen)13,395    (Yen)(12,378)    (Yen)19,241      $ 130,049
Effect of dilutive securities:
  1.8% Japanese yen convertible bonds, due 2004..         300              --             237          2,912
--------------------------------------------------------------------------------------------------------------
Diluted net income (loss)........................ (Yen)13,695    (Yen)(12,378)    (Yen)19,478      $ 132,961
==============================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                               Number of shares
                                                               ---------------------------------------------
                                                                   2000              1999            1998
------------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>              <C>
Average common shares outstanding, less treasury stocks.....  967,057,543       968,941,887      981,508,534
Dilutive effect of:
  1.8% Japanese yen convertible bonds, due 2004.............   28,260,914                --       26,504,325
------------------------------------------------------------------------------------------------------------
Diluted common shares outstanding...........................  995,318,457       968,941,887    1,008,012,859
============================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                Yen                               U.S. cents
                                                    ------------------------------------------   -----------
                                                     2000                1999        1998             2000
------------------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>             <C>            <C>
Net income (loss) per share:
   Basic............................................(Yen)13.85     (Yen)(12.77)    (Yen)19.60     13.4(cent)
   Diluted..........................................     13.76          (12.77)         19.32     13.4
------------------------------------------------------------------------------------------------------------
</TABLE>

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

17. Commitments and Contingent Liabilities
================================================================================

At March 31, 2000, the companies were contingently liable for discounted and
transferred receivables on a recourse basis with the financial institutions of
(Yen)7,424 million ($72,078 thousand) and also as guarantors of indebtedness of
others, including letter of awareness and keep-well agreement aggregating
(Yen)23,665 million ($229,757 thousand), including (Yen)4,007 million ($38,903
thousand) relating to affiliated companies.

     Commitments for capital expenditures outstanding at March 31, 2000,
aggregated approximately (Yen)599 million ($ 5,816 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.

60
<PAGE>

18. Derivative Financial Instruments
================================================================================

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

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

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

The companies have entered into interest rate swap and cap agreements, partly
concurrent with currency swap agreements for the purpose of managing their
interest rate and foreign currency exposure for certain short-term and
long-term debts and investment securities in an aggregate notional amount of
(Yen)210,615 million ($2,044,806 thousand) and (Yen)224,453 million at March 31,
2000 and 1999, respectively.

Financial Instruments Not Qualifying as Hedge

The Company has entered into interest rate swap contracts as a means of managing
the Company and its group companies' interest rate exposures for short-term and
long-term debts in a notional amount of (Yen)40,000 million ($388,350 thousand)
at March 31, 2000. These contracts do not qualify as a hedge and are accounted
for accordingly as more fully explained in Note 1 (12).

(2) Foreign Exchange Contracts

Notional principal amounts of foreign exchange contracts outstanding at March
31, 2000 and 1999, are set forth below.

<TABLE>
<CAPTION>
                                                              Thousands of
                                   Millions of Yen            U.S. dollars
                               ------------------------     ----------------
                                  2000          1999               2000
----------------------------------------------------------------------------
<S>                            <C>           <C>            <C>
Forwards and swaps:
    To sell foreign
       currencies............  (Yen)28,755   (Yen)50,663        $ 279,175
    To purchase foreign
       currencies............       19,196        10,579          186,369
----------------------------------------------------------------------------
</TABLE>

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

     Net foreign currency transaction losses of (Yen)4,323 million ($41,971
thousand), losses of (Yen)2,596 million, and gains of (Yen)529 million for the
years ended March 31, 2000, 1999 and 1998, respectively, were included in the
determination of net income (loss).

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) Marketable Securities and Investment Securities

The fair values of marketable securities and 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.

                                                                              61
<PAGE>

The carrying amounts and the estimated fair values of the financial instruments,
including financial instruments not qualifying as hedge, as of March 31, 2000
and 1999, are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                                  Thousands of
                                                    Millions of Yen                                               U.S. dollars
                                             ---------------------------------------------------------
                                                          2000                         1999                         2000
----------------------------------------------------------------------------------------------------------------------------------
                                                 Carrying     Estimated       Carrying      Estimated       Carrying    Estimated
                                                   amount     fair value        amount       fair value       amount    fair value
----------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>             <C>             <C>          <C>
Marketable securities....................... (Yen) 40,219   (Yen) 40,219   (Yen)54,434     (Yen) 54,434    $  390,476   $  390,476
Investment securities.......................       75,935         75,935        88,447           88,447       737,233      737,233
Long-term debt, including current portion...      299,595        299,622       329,855          339,636     2,908,690    2,908,951
Derivatives:
  Foreign exchange contracts
      Assets................................          190            466           234              604         1,845        4,525
      Liabilities...........................           94            333           453              735           913        3,232
  Interest rate swap and cap agreements
      Assets................................           45         15,333           186            4,559           437      148,864
      Liabilities...........................           --            629            --            1,199            --        6,107
----------------------------------------------------------------------------------------------------------------------------------
</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, 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 Company operates on a worldwide basis principally with five operating
segments: 1) Construction and mining equipment, 2) Electronics, 3) Civil
engineering and construction, 4) Industrial machinery, and 5) Others.

     The following tables present certain information regarding the companies'
operating segments and geographic information at March 31, 2000, 1999 and 1998,
and for the years then ended:

<TABLE>
<CAPTION>
Operating segments:                                                                                 Thousands of
                                                                  Millions of Yen                   U.S. dollars
                                                -------------------------------------------------   ------------
                                                        2000             1999            1998           2000
----------------------------------------------------------------------------------------------------------------
<S>                                             <C>               <C>              <C>               <C>
Net sales:
   Construction and mining equipment--
      Customers................................ (Yen)  713,529    (Yen)  731,077   (Yen)  721,875   $ 6,927,466
      Intersegment.............................          3,271             1,693              320        31,757
----------------------------------------------------------------------------------------------------------------
          Total................................        716,800           732,770          722,195     6,959,223
   Electronics--
      Customers................................         90,335            86,608          104,265       877,039
      Intersegment.............................             80               102              154           777
----------------------------------------------------------------------------------------------------------------
          Total................................         90,415            86,710          104,419       877,816
   Civil engineering and construction--
      Customers................................         78,653            77,020           94,889       763,621
      Intersegment.............................          6,599            13,695            9,554        64,068
----------------------------------------------------------------------------------------------------------------
          Total................................         85,252            90,715          104,443       827,689
   Industrial machinery--
      Customers................................         30,856            42,676           51,231       299,573
      Intersegment.............................          2,929             1,499            1,891        28,437
----------------------------------------------------------------------------------------------------------------
          Total................................         33,785            44,175           53,122       328,010
   Others--
      Customers................................        142,281           124,216          131,817     1,381,369
      Intersegment.............................         89,465            60,815           55,465       868,592
----------------------------------------------------------------------------------------------------------------
          Total................................        231,746           185,031          187,282     2,249,961
   Elimination.................................       (102,344)          (77,804)         (67,384)     (993,631)
----------------------------------------------------------------------------------------------------------------
   Consolidated................................ (Yen)1,055,654    (Yen)1,061,597   (Yen)1,104,077   $10,249,068
================================================================================================================
</TABLE>

62
<PAGE>

<TABLE>
<CAPTION>
                                                                                                            Thousands of
                                                                           Millions of yen                   U.S. dollars
                                                        -------------------------------------------------   -------------
                                                               2000              1999            1998            2000
-------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>              <C>               <C>
Operating income (loss):
   Construction and mining equipment..................  (Yen)   28,445    (Yen)   30,963   (Yen)   36,976   $   276,165
   Electronics........................................          (9,839)          (18,074)           4,043       (95,524)
   Civil engineering and construction.................             801            (2,984)             338         7,777
   Industrial machinery...............................          (1,719)           (1,961)              88       (16,689)
   Others.............................................           3,788             1,133            4,907        36,776
-------------------------------------------------------------------------------------------------------------------------
      Total...........................................          21,476             9,077           46,352       208,505
   Corporate expenses and elimination.................          (4,158)           (4,796)          (3,254)      (40,369)
-------------------------------------------------------------------------------------------------------------------------
   Consolidated operating income......................          17,318             4,281           43,098       168,136
   Interest and other income..........................          55,857            25,655           24,319       542,301
   Interest expense...................................          24,392            21,219           17,138       236,816
   Other expenses.....................................          29,388            18,321           10,027       285,320
-------------------------------------------------------------------------------------------------------------------------
   Consolidated income (loss) before income taxes.....  (Yen)   19,395    (Yen)   (9,604)  (Yen)   40,252   $   188,301
=========================================================================================================================
Identifiable assets:
   Construction and mining equipment..................  (Yen)  711,475    (Yen)  837,637   (Yen)  801,875   $ 6,907,524
   Electronics........................................         231,317           263,951          235,456     2,245,796
   Civil engineering and construction.................          78,508            82,506           98,629       762,214
   Industrial machinery...............................          30,614            41,463           50,761       297,223
   Others.............................................         254,251           218,495          255,199     2,468,457
   Corporate assets and elimination...................          69,115            80,548          119,742       671,019
-------------------------------------------------------------------------------------------------------------------------
   Consolidated.......................................  (Yen)1,375,280    (Yen)1,524,600   (Yen)1,561,662   $13,352,233
=========================================================================================================================
Depreciation and amortization:
   Construction and mining equipment..................  (Yen)   29,425   (Yen)   26,511    (Yen)   23,401   $   285,680
   Electronics........................................          20,860           16,328            16,891       202,524
   Civil engineering and construction.................           2,141            2,547             2,540        20,786
   Industrial machinery...............................           1,058            1,119               943        10,272
   Others.............................................           8,016            5,645             4,854        77,825
-------------------------------------------------------------------------------------------------------------------------
   Consolidated.......................................  (Yen)   61,500   (Yen)   52,150    (Yen)   48,629   $   597,087
=========================================================================================================================
Capital expenditures:
   Construction and mining equipment..................  (Yen)   34,856   (Yen)   45,531    (Yen)   32,845   $   338,408
   Electronics........................................          13,089           61,854            79,557       127,078
   Civil engineering and construction.................           1,543            1,656             4,157        14,980
   Industrial machinery...............................             707              862               994         6,864
   Others.............................................           7,533            4,971             5,473        73,136
-------------------------------------------------------------------------------------------------------------------------
   Consolidated.......................................  (Yen)   57,728   (Yen)  114,874    (Yen)  123,026   $   560,466
=========================================================================================================================
</TABLE>

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

                                                                              63

<PAGE>

Geographic information:

Net sales recognized by sales destination for the years ended March 31, 2000,
1999 and 1998 areas follows:

<TABLE>
<CAPTION>
                                                                                                  Thousands of
                                                                Millions of yen                   U.S. dollars
                                              -------------------------------------------------   ------------
                                                     2000             1999             1998           2000
--------------------------------------------------------------------------------------------------------------
<S>                                           <C>               <C>              <C>              <C>
Japan........................................ (Yen)  553,822    (Yen)  523,946   (Yen)  605,901   $ 5,376,913
Americas.....................................        242,609           272,091          230,824     2,355,427
Europe.......................................        123,633           119,270          113,427     1,200,320
Asia (excluding Japan) and Oceania...........         99,558            96,853          109,572       966,583
Middle East and Africa.......................         36,032            49,437           44,353       349,825
--------------------------------------------------------------------------------------------------------------
Consolidated net sales....................... (Yen)1,055,654    (Yen)1,061,597   (Yen)1,104,077   $10,249,068
==============================================================================================================
</TABLE>


Net sales recognized by geographic origin and long-lived assets at March 31,
2000, 1999 and 1998, and for the years then ended are as follows:

<TABLE>
<CAPTION>
                                                                               Thousands of
                                              Millions of yen                  U.S. dollars
                           -------------------------------------------------   ------------
                                  2000             1999             1998           2000
-------------------------------------------------------------------------------------------
<S>                        <C>               <C>              <C>              <C>
Net sales:
   Japan.................  (Yen)  615,580    (Yen)  601,583   (Yen)  740,313   $ 5,976,505
   U.S.A.................         245,002           281,337          242,275     2,378,660
   Europe................         114,742           114,247           91,335     1,114,000
   Other.................          80,330            64,430           30,154       779,903
-------------------------------------------------------------------------------------------
     Total...............  (Yen)1,055,654    (Yen)1,061,597   (Yen)1,104,077    10,249,068
===========================================================================================
Long-lived assets:
   Japan.................  (Yen)  277,693    (Yen)  310,412   (Yen)  296,590   $ 2,696,049
   U.S.A.................         134,991           159,899          137,360     1,310,592
   Europe................           9,032            17,997           15,101        87,689
   Other.................          26,087            25,962           14,047       253,272
-------------------------------------------------------------------------------------------
     Total...............  (Yen)  447,803    (Yen)  514,270   (Yen)  463,098   $ 4,347,602
===========================================================================================
</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, 2000, 1999 and 1998.

The following information shows net sales and operating income (loss) recognized
by geographic origin for the years ended March 31, 2000, 1999 and 1998. 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
                       -------------------------------------------------  ------------
                              2000             1999             1998           2000
--------------------------------------------------------------------------------------
<S>                    <C>               <C>              <C>              <C>
Net sales:
  Japan-
     Customers........ (Yen)  615,580    (Yen)  601,583   (Yen)  740,313   $ 5,976,505
     Intersegment.....        143,569           152,148          124,740     1,393,874
--------------------------------------------------------------------------------------
         Total........        759,149           753,731          865,053     7,370,379
  Americas-
     Customers........        245,367           287,006          251,745     2,382,204
     Intersegment.....          8,624            12,778            7,403        83,728
--------------------------------------------------------------------------------------
         Total........        253,991           299,784          259,148     2,465,932
  Europe-
     Customers........        114,742           114,247           91,335     1,114,000
     Intersegment.....         14,665             7,267            5,223       142,379
--------------------------------------------------------------------------------------
         Total........        129,407           121,514           96,558     1,256,379
  Other-
     Customers........         79,965            58,761           20,684       776,359
     Intersegment.....          4,750             4,174            2,269        46,117
--------------------------------------------------------------------------------------
         Total........         84,715            62,935           22,953       822,476
     Elimination......       (171,608)         (176,367)        (139,635)   (1,666,098)
--------------------------------------------------------------------------------------
     Consolidated..... (Yen)1,055,654    (Yen)1,061,597   (Yen)1,104,077   $10,249,068
======================================================================================
</TABLE>

64
<PAGE>

<TABLE>
<CAPTION>
                                                                                            Thousands of
                                                      Millions of yen                       U.S. dollars
                                        -------------------------------------------------   ------------
                                               2000              1999            1998           2000
-----------------------------------------------------------------------------------------   ------------
<S>                                     <C>               <C>              <C>              <C>
Operating income (loss):
    Japan.............................. (Yen)      955    (Yen)  (10,052)  (Yen)   27,650   $     9,272
    Americas...........................         12,354             7,594           14,064       119,942
    Europe.............................          4,284             9,253            4,390        41,592
    Other..............................          2,202               534              126        21,379
    Corporate and elimination..........         (2,477)           (3,048)          (3,132)      (24,049)
-------------------------------------------------------------------------------------------------------
    Consolidated....................... (Yen)   17,318    (Yen)    4,281   (Yen)   43,098   $   168,136
=======================================================================================================
Identifiable assets:
    Japan.............................. (Yen)  961,674    (Yen)1,008,678   (Yen)1,012,279   $ 9,336,641
    Americas...........................        289,258           341,414          319,577     2,808,330
    Europe.............................         73,558            93,482           93,467       714,155
    Other..............................         83,760            89,151           35,655       813,204
    Corporate assets and elimination...        (32,970)           (8,125)         100,684      (320,097)
-------------------------------------------------------------------------------------------------------
    Consolidated....................... (Yen)1,375,280    (Yen)1,524,600   (Yen)1,561,662    13,352,233
=======================================================================================================
Export sales........................... (Yen)   65,733    (Yen)   80,081   (Yen)  137,936   $   638,184
=======================================================================================================
</TABLE>

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

21. Subsequent Events
================================================================================

In April 2000, the Company sold 65.0% of the outstanding shares of Komatsu Soft
Ltd., a 91.8% owned subsidiary, to Toyo Information Systems Co., Ltd., a third
party, and the recognized gain on the sale of a subsidiary will be reflected in
the consolidated statements of income for the year ending March 31, 2001.

On May 19, 2000, the Company and Komatsu Forklift Co., Ltd., an affiliated
company, entered into a mutual agreement with Linde AG of Germany that outlines
Komatsu Forklift Co., Ltd., and Linde AG's intent to establish global
collaboration for the manufacture and sales of forklift trucks and related
products. Under the agreement, Komatsu Forklift Co., Ltd., acquired 10% of Fiat
OM Carrelli Elevatori S.p.A. (a Linde AG subsidiary) shares, while Linde AG
acquired 10% of Komatsu Forklift Co., Ltd., shares made through third-party
allotment of new shares.

As a result of such an allotment and acquisition of shares from the open market,
the Company's ownership interest in Komatsu Forklift Co., Ltd., increased from
the previous 39.2% to 50.8% in June 2000.

                                                                              65
<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, 2000 and
1999, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended March 31, 2000,
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, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States of America (see Note 1).

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



/s/ Arthur Andersen

Tokyo, Japan
June 29, 2000

66
<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 3.3% to
    5.3% annually.

    At March 31, 2000 and 1999 trade notes and accounts receivable were
    comprised of the following:

<TABLE>
<CAPTION>
                                                                                                  Thousands of
                                                                Millions of Yen                   U.S. dollars
                                                       ----------------------------------      -----------------
                                                            2000                1999                  2000
                                                       --------------      --------------      -----------------
<S>                                                    <C>                 <C>                 <C>
    Notes:
     Affiliated companies                                (Yen)  1,184        (Yen)  1,805             $   11,495
     Other                                                    137,205             173,292              1,332,088
                                                         ------------        ------------        ---------------
         Total                                                138,389             175,097              1,343,583
                                                         ------------        ------------        ---------------

    Accounts:
     Affiliated companies                                      42,866              45,732                416,175
     Other                                                    204,256             170,001              1,983,068
                                                         ------------        ------------        ---------------
         Total                                                247,122             215,733              2,399,243
                                                         ------------        ------------        ---------------

    Unearned interest                                          (4,851)             (4,138)               (47,098)
    Allowance for doubtful receivables                        (12,208)            (12,535)              (118,524)
                                                         ------------        ------------        ---------------
         Total                                           (Yen)368,452        (Yen)374,157             $3,577,204
                                                         ============        ============        ===============
</TABLE>

B.  DEFERRED INCOME TAXES AND OTHER CURRENT ASSETS

    At March 31, 2000 and 1999 deferred income taxes and other current assets
    were comprised of the following:

<TABLE>
<CAPTION>
                                                                                                  Thousands of
                                                                Millions of Yen                   U.S. dollars
                                                       ----------------------------------      -----------------
                                                            2000                1999                  2000
                                                       --------------      --------------      -----------------
<S>                                                    <C>                 <C>                 <C>
    Prepaid expenses                                     (Yen)  2,744       (Yen)  3,807              $ 26,641
    Short-term loans receivable:
     Affiliated companies                                      19,200             21,146               186,408
     Other                                                     26,083             32,813               253,233
                                                         ------------       ------------        --------------
         Total                                                 45,283             53,959               439,641
                                                         ------------       ------------        --------------

    Deferred income taxes                                      29,346             18,503               284,913
    Other                                                      15,974             25,675               155,087
                                                         ------------       ------------        --------------
         Total                                            (Yen)93,347       (Yen)101,944              $906,282
                                                         ============       ============        ==============
</TABLE>

                                      A-1
<PAGE>

C.   DEFERRED INCOME TAXES AND OTHER CURRENT LIABILITIES

     At March 31, 2000 and 1999 deferred income taxes and other current
     liabilities comprised of the following:

<TABLE>
<CAPTION>
                                                                                                Thousands of
                                                                 Millions of Yen                U.S. dollars
                                                       ---------------------------------     -----------------
                                                            2000               1999                  2000
                                                       --------------     --------------     -----------------
<S>                                                      <C>                <C>                <C>
     Accrued expenses                                     (Yen)97,577       (Yen)100,300            $  947,349
     Customers' advances and employees' deposits               15,816             17,772               153,553
     Deferred income taxes                                      4,983              8,274                48,379
                                                       --------------     --------------     -----------------
          Total                                          (Yen)118,376       (Yen)126,346            $1,149,281
                                                       ==============     ==============     =================
</TABLE>

D.   UNAPPROPRIATED RETAINED EARNINGS

     At March 31, 2000 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)8,891
     million ($86,320 thousand).


E.   INTEREST AND OTHER INCOME

     Interest and other income for the years ended March 31, 2000, 1999 and 1998
     were comprised of the following:

<TABLE>
<CAPTION>
                                                                                                         Thousands of
                                                                  Millions of Yen                        U.S. dollars
                                                -------------------------------------------------     -----------------
                                                     2000             1999               1998                2000
                                                -------------     -------------     -------------     -----------------
     <S>                                          <C>               <C>               <C>               <C>
     Interest and other income:
      Interest-
        Installment receivables                    (Yen)6,842        (Yen)7,521        (Yen)7,224              $ 66,427
        Other                                           5,028             6,020             4,215                48,815
      Dividends                                         1,062             1,880             1,590                10,311
      Net gains on sales of marketable
        securities and investments                     16,993                --             8,285               164,981
      Gains on sales of property                       23,777             7,912             1,740               230,845
      Insurance commission                                504               613               269                 4,893
      Miscellaneous                                     1,651             1,709               996                16,029
                                                -------------     -------------     -------------     -----------------
          Total                                   (Yen)55,857       (Yen)25,655       (Yen)24,319              $542,301
                                                =============     =============     =============     =================
</TABLE>




                                      A-2
<PAGE>

F. OTHER EXPENSE

   Other expense for the year ended March 31, 2000, 1999 and 19998 were
comprised of the following:


<TABLE>
<CAPTION>
                                                                                                    Thousands of
                                                              Millions of Yen                       U.S. dollars
                                           -------------------------------------------------     -----------------
                                               2000              1999              1998                  2000
                                           -------------     -------------     -------------     -----------------
<S>                                        <C>               <C>               <C>               <C>
Other expense:
 Loss on marketable securities               (Yen)    --       (Yen) 4,679       (Yen)    --         $          --
 Loss on disposal or sale of fixed assets         14,367             6,418             4,524               139,485
 Impairment loss on long-lived assets              4,474                 -                 -                43,437
 Amortization of Goodwill                          1,735             1,726             2,127                16,845
 Exchange gain or loss, net                        4,323             2,596                 -                41,971
 Other                                             4,489             2,902             3,376                43,582
                                           --------------    --------------    --------------    ------------------
          Total                              (Yen)29,388       (Yen)18,321       (Yen)10,027         $     285,320
                                           ==============    ==============    ==============    ==================
</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, 2000                         (Yen)12,535        (Yen) 1,150               -          (Yen) 1,477     (a)
                                                    =============       ===========    ============          ===========
   Year ended March 31, 1999                         (Yen)11,644        (Yen) 1,571               -          (Yen)   680     (a)
                                                    =============       ===========    ============          ===========
   Year ended March 31, 1998                         (Yen)11,282        (Yen)   460               -          (Yen)    98     (a)
                                                    =============       ===========    ============          ===========
 Valuation allowance of deferred tax assets
   Year ended March 31, 2000                         (Yen)20,412        (Yen)11,322               -          (Yen)11,183     (b)
                                                    =============       ===========    ============          ===========
   Year ended March 31, 1999                         (Yen)18,417        (Yen) 6,466               -          (Yen) 4,471     (b)
                                                    =============       ===========    ============          ===========
   Year ended March 31, 1998                         (Yen)17,900        (Yen) 4,016               -          (Yen) 3,499     (b)
                                                    =============       ===========    ============          ===========
 Liability for post-retirement benefits
   Year ended March 31, 2000                         (Yen)78,551        (Yen) 5,825               -          (Yen)28,970     (d)
                                                    =============       ===========    ============          ============
   Year ended March 31, 1999                         (Yen)80,294        (Yen) 5,378      (Yen)7,642   (c)    (Yen)14,763     (e)
                                                    =============       ===========    ============          ============
   Year ended March 31, 1998                         (Yen)81,140        (Yen) 6,757      (Yen)  325   (c)    (Yen) 7,928     (e)
                                                    =============       ===========    ============          ============

<CAPTION>
                                                                        Thousands of
                                                                        U.S. dollars
                                                   -----------------  ------------------
               Column A                               Column E           Column E
-----------------------------------------------    -----------------  ------------------

                                                    Balance at end
                                                      of fiscal         Balance at end
               Description                             period          of fiscal period
----------------------------------------------    ------------------  ------------------
<S>                                                 <C>                 <C>
Valuation and qualifying accounts deducted
from assets to which they apply:

 Allowance for doubtful receivables
   Year ended March 31, 2000                         (Yen)12,208          $ 118,524
                                                    =============       ============
   Year ended March 31, 1999                         (Yen)12,535
                                                    =============
   Year ended March 31, 1998                         (Yen)11,644
                                                    =============
 Valuation allowance of deferred tax assets
   Year ended March 31, 2000                         (Yen)20,551          $ 199,524
                                                    =============       ============
   Year ended March 31, 1999                         (Yen)20,412
                                                    =============
   Year ended March 31, 1998                         (Yen)18,417
                                                    =============
 Liability for post-retirement benefits
   Year ended March 31, 2000                         (Yen)55,406          $ 537,922
                                                    =============       ============
   Year ended March 31, 1999                         (Yen)78,551
                                                    =============
   Year ended March 31, 1998                         (Yen)80,294
                                                    =============
</TABLE>

           (a) Principally uncollectible accounts and notes charged to the
               allowance
           (b) Realization or expiration of net operating loss carryforwards
           (c) Charged to other assets and other comprehensive income (loss)
           (d) Principally reversal due to retirement and termination of
               employees and directors and due to reduction of accumulated
               benefit obligation
           (e) Principally reversal due to retirement and termination of
               employees and directors

                                      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, 2000 and
1999, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended March 31, 2000,
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, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States of America (see Note 1).

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

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



/s/ Arthur Andersen



Tokyo, Japan
June 29, 2000

                                      B-1
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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, 2000

                        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.

                                  968,921,701

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

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

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

In this document, KOMATSU LTD. is hereinafter referred to as the "Company," and
together with its consolidated subsidiaries, as "Komatsu."

Cautionary Statement with respect to forward-looking statements:
 Statements in this annual report contain forward-looking statements which
 reflect management's current views with respect to certain future events,
 including expected financial position, operating results, and business
 strategies.  These statements can sometimes be identified by the use of
 forward-looking words such as "will," "believes," "should," "projects," and
 similar terms and expressions that identify future events or expectations.
 Actual results may differ materially from those projected and the achievement
 of such forward-looking statements cannot be assured.

 Factors that may cause actual results to differ materially from those
 contemplated by such forward-looking statements include unanticipated changes
 in the demand for Komatsu's principal products which may come about by changes
 in economic conditions in Komatsu's principal markets, changes in exchange
 rates or the impact of increased competition; unanticipated cost or delays
 encountered in achieving Komatsu's objectives with respect to globalized
 production sourcing and new Information Technology tools; uncertainties as to
 the results of Komatsu's research and development efforts and its ability to
 access and protect certain intellectual property rights; and the impact of
 regulatory changes and accounting principle and practice.

                                    PART I

Item 1.  Description of Business
         -----------------------

General
-------

     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.

     Komatsu is a worldwide, integrated manufacturing and sales organization
engaged in the manufacture, development, marketing and sale of industrial
equipment and products. For fiscal 2000, Komatsu recorded worldwide net sales of
(Yen)1,055,654 million (US$10,249 million) and net income of (Yen)13,395 million
(US$130 million).

                                       2
For purposes of this report, Komatsu's business activities are divided into
five categories: construction and mining equipment, electronics, industrial
machinery, civil engineering and construction, 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)713,529 million (US$6,927 million) for fiscal 2000, a 2.4% decrease from
the previous year, and represented 67.6% of Komatsu's total net sales.

     While sales to customers in Japan increased 8.8%, to (Yen)268,867 million
(US$2,610 million), sales to customers outside Japan decreased by 8.1% to
(Yen)444,662 million (US$4,317 million) in fiscal 2000.  Sales to customers in
Japan represented 37.7% of total sales of construction and mining equipment, up
3.9% from the previous year, while the proportion of sales to customers outside
Japan decreased by 3.9% to 62.3% of total sales of construction and mining
equipment.

     Komatsu's construction and mining equipment segment consists of two broad
categories: construction equipment (including utility products) and mining
equipment.

     Construction Equipment.  Komatsu's construction equipment business operates
worldwide with its primary headquarters located in Tokyo, Japan and three
regional headquarters in each of the United States, Europe and Southeast Asia.
This global strategy permits Komatsu to diversify its sourcing of raw materials,
components and finished products to maximize economic and production
efficiencies.  This global strategy also permits Komatsu to mitigate the effects
on the construction equipment segment of downturns in general economic
conditions and reductions in construction activity in any single geographic
segment and protect against exchange rate risks.

     Komatsu's line of construction equipment includes large earthmoving,
excavating and transportation equipment, including bulldozers, dozer shovels,
hydraulic excavators, wheel-type hydraulic excavators, wheel loaders, reach
loaders, motor graders, dump trucks, articulated dump trucks, rough-terrain
cranes, compactors, vibratory rollers, pipelayers, various types of mini-sized
construction equipment, coal haulers, slag dump trucks, road stabilizers, tunnel
boring machines, shield machines, small-diameter pipe jacking machines,
amphibious bulldozers, underwater rubble leveling robots, mobile debris crushers
and construction robots.  The construction equipment product line also includes
a variety of "utility" equipment - mini to small machines (e.g., mini hydraulic
excavators, mini wheel loaders, backhoe loaders, skid steer loaders, and other
similar products) for landscaping and general construction.

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

                                       3
JAPAN.  While demand for construction equipment had been deteriorating
since April 1997, it began to recover in the beginning of fiscal 2000, supported
by the positive effects of the government's comprehensive economic stimulus
package and improved housing investment. Recovery of demand in Japan centered on
hydraulic excavators.

     In November 1998, Komatsu began consolidating and restructuring production
in response to the slowdown in the Japanese market and intensified global
competition, and the restructuring of production in Japan was completed in
August 2000, all plans for the year were carried out on time, including the
transfer of motor graders from the Kashiwazaki Plant and large wheel loaders
from the Kawagoe Plant to the Mooka Plant, and of small and medium-sized wheel
loaders from the Kawagoe Plant to the Awazu Plant with these 10 assemble line
cut to 7, and as a result Komatsu expects the cost saving from fiscal 2001.

Coupled with streamlined sales, service and logistics already in place, Komatsu
has solidified its position and ability to generate stable earnings even at the
current level of demand in Japan.

Komatsu has joined forces across the country, reinforcing sales, rental and
service capabilities by focusing its efforts on high-growth products and market
segments. Since the introduction of the AVANCE NRO series in 1998,which serves
the dual functions of working in confined spaces and general use, Komatsu has
strengthened its leading market position for its mainstay hydraulic excavators
with small, rear-swing radius for extensive use from urban civil engineering and
demolition to forestry. During the year, Komatsu introduced nine additional
models to this line and boosted sales of mini and hydraulic excavators with
small, rear-swing radius. Komatsu also continued to expand sales of large
equipment, notably the D475A bulldozer to the quarrying and mining industries.

The innovative line of construction equipment specifically designed for use in
environmental conservation--namely the mobile debris crusher, mobile soil
stabilizer and mobile tub grinder--continued to win enthusiastic customer
response for its part in eliminating waste disposal costs. Sales of mobile tub
grinders, introduced in March 1999, were particularly strong against the
backdrop of the Waste Disposal Act revised in 1992, which bans field burning of
foliage, stumps and tree roots felled for the purpose of land development, as
well as driftwood and other wood-related materials in dams and reservoirs.

Today, rental equipment accounts for approximately half of all machines working
on-site in Japan. In addition to a greater awareness of cost, a rapid shift to
rental use also reflects the need for a wider diversity of machines resulting
from changes in construction methods, as well as an increased awareness of the
environment as a result of more stringent regulations concerning emissions.
During the year, Komatsu remained committed to strengthening its rental
business. As part of this strategy, Komatsu introduced the GPS (global
positioning system)-incorporated Tele-Management System for efficient allocation
of rental equipment and management of machine operation information. This system
also ensures prompt  maintenance service, while improving profitability in the
rental business.

In the used equipment business during the year, Komatsu reinforced global
marketing of the G-URECA network system for sales of Komatsu used equipment on
the Web. As the Internet is making rapid headway as a tool for the marketing of
used equipment, the G-URECA network system offers valuable real-time search and
negotiation for all registered used machines to potential buyers around the
world.

                                       4
This system provides speedy information and has strengthened Komatsu's sales
capacity for used equipment globally. Komatsu Used Equipment Corp., the central
unit of Komatsu specializing in sales of used equipment, held three regular
auctions during the year. At the 39th auction held in March 2000, which
attracted about 400 Japanese and foreign customers, Komatsu Used Equipment Corp
recorded cumulative sales of 10,000 units since its first auction in November
1994.

     ASIA.  Demand for construction and mining equipment began to show
encouraging signs of recovery in the logging and mining industries in Southeast
Asia, where economies have remained depressed since the currency crisis of 1997.
A significant increase in the sales of supply parts also indicates a growing use
of construction equipment. In China, demand for construction equipment remained
strong, reflecting infrastructure development investments started in the latter
half of 1998.

In September 1999, Komatsu acquired part of the shares held by Thai partner,
Bangkok Motor Works Co., Ltd., becoming the majority shareholder of Bangkok
Komatsu.

In Singapore, Komatsu Asia & Pacific Pte Ltd, the regional headquarters and
marketing center for Southeast Asia, advanced both sales and earnings in fiscal
2000, mainly attributable to an upsurge in demand for supply parts from the
logging industry in Indonesia and Malaysia. In China, Komatsu Shantui
Construction Machinery Co., Ltd., continued to boost sales of hydraulic
excavators by capitalizing on expanded market demand in fiscal 2000 and
successfully established a solid position in the Chinese market. Komatsu
Changlin Construction Machinery Corp., also established in 1995 as a production
base for wheel loaders, added hydraulic excavators and motor graders to its
production. With a new molding line in operation during the year, Komatsu
Changlin Foundry Corporation supplied high-quality, cost-competitive foundry
products to Komatsu Castex Ltd. in Japan. Komatsu Changlin Foundry Corporation
also increased sales of foundry products outside Komatsu.

     THE AMERICAS.   North American demand for construction equipment dropped 8%
from the previous year, despite eight consecutive years of growth in the U.S.
economy. Having anticipated the decline in demand, Komatsu America International
Company was well prepared with improved efficiency in both production and sales.
As a result, Komatsu America International generated both sales and profits
comparable to the record-high figures a year ago and continued to enhance its
position in the North American market.

In May 1999, Komatsu Reman North America, Inc., was established to
remanufacture, sell and market key components for construction and mining
equipment, such as engines, transmissions and hydraulic equipment. Through
remanufacturing, Komatsu Reman North America, Inc., is better prepared to meet a
wide range of customer needs, offering a level of quality comparable to that of
new components but at a lower cost, quick delivery and a reduction of waste. By
reusing and recycling parts and components, this business also saves resources
and reduces waste.

     EUROPE. In Europe, demand remained brisk throughout the year under review.
Each business unit ( Komatsu UK Ltd. for hydraulic excavators, Komatsu Hanomag
AG for wheel loaders, and Komatsu Utility Europe S.p.A. for utility equipment )
reinforced its sales operations, expanded respective market-driven product mix
and advanced sales in fiscal 2000. Komatsu UK continued to increase sales of
hydraulic excavators designed for the European market, surpassing the record-
high sales set last year. In fiscal 2000, Komatsu UK introduced its third
wheeled type hydraulic excavator, a 15-ton model positioned between its existing
13-

                                       5
and 17-ton models. Komatsu UK also delivered the 20,000th machine since its
establishment. In Germany, Komatsu Hanomag boosted both sales and earnings from
the previous year, particularly with expanded sales and market share of mini
wheel loaders. In Italy, Komatsu Utility Europe continued to enjoy rising sales
and profits in fiscal 2000. In addition to an outstanding growth in demand in
Europe of over 20% from the previous year, Komatsu Utility Europe capitalized on
the positive outcome of their sales efforts outside Europe, notably in North
America, achieving an annual production of 7,000 units in fiscal 2000.
Komatsu Europe International N.V., Komatsu's European head-quarters in Belgium,
also continued to expand sales and earnings in fiscal 2000, with increased sales
and market share of large construction and mining equipment. As the regional
headquarters, Komatsu Europe International N.V introduced the cash management
system to European operations to optimize the use of available funds and reduce
costs, by centralizing the settlement of funds at Komatsu Europe Coordination
Centre N.V., a financial service company also based in Belgium.

     Utility Equipment. Demand for utility equipment remained strong in North
America and Europe throughout the year under review, exemplified by the North
American market topping the 100,000 mark. Meanwhile, the Japanese market
appeared to have bottomed out, beginning to show some signs of recovery. In the
United States, the largest market in the world, Komatsu Utility Corporation
continued to boost sales by about 110% from the previous year, posting US$54
million in sales of over 1,300 units in fiscal 2000, after two full years of
operation since its establishment in July 1997. This outstanding result was
further driven by full-scale import sales of backhoe loaders from Komatsu
Utility Europe in Italy. Komatsu utility equipment business now boasts sales
operations in three major world markets, and will further reinforce global
teamwork by building a development and production setup designed to respond
flexibly to market changes and foreign exchange rate fluctuations.

     Mining Equipment.  Komatsu's mining equipment business continued to suffer
from cautious investment by the mining industry, which was hit by sluggish
prices for gold, copper, coal and other commodities. As a result, sales of
mining equipment fell from the previous year. In preparation for the recovery of
demand, during the year under review Komatsu introduced the superlarge WA1200
wheel loader and the remodeled version of the large D475 bulldozer. To
strengthen the business foundation in preparation for a recovery in demand,
Komatsu also facilitated the integration of product development, production and
product support operations. Komatsu Mining Systems, Inc. won an order for 25
units of the world's largest-class 930E dump trucks for a copper mine in Chile,
completing shipment by March 2000. Komatsu Mining Germany GmbH, in charge of
hydraulic mining excavators, recorded shipment of six units of the superlarge
PC8000 hydraulic excavator in fiscal 2000. In March of the same year, Komatsu
Mining Germany GmbH successfully launched production of the PC1100, shipping 10
units to the European market, and has secured an additional order backlog of
more than 20 units for production in 2000. In technology development, Modular
Mining Systems, Inc., specializing in computer-controlled mine management
systems, together with Komatsu Mining Systems and the Company, are diligently
working on applying the latest advanced technologies to the mining industry.
Combining Modular Mining Systems' strength with Komatsu's product development
know-how, the team is in the final stages of development of the world's first
driverless truck system. Designed to provide significant returns to customers,
especially in large-scale operations, which has been confirmed by recent trials,
this system offers a technological edge over any competitor in the mining
equipment business. More-over, bringing together engineering talent from
different

                                       6
parts of the world, this joint development highlights Komatsu's commitment to
globalization.

Underground Construction Machinery   To help customers reduce construction costs
and improve safety, Komatsu continued the efforts in technological development
of the underground construction machinery. For example, Komatsu worked to reduce
the number of shafts required in high-speed and long-distance excavation. Thanks
to their technological superiority, sales of small-diameter shield machines,
large-diameter rock shield machines and tunnel boring machines (TBM) were
strong. As a result, fiscal 2000 sales of underground machinery improved from
the previous year.

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

     The core business of Komatsu's electronics segment consists of its
semiconductor materials operations, which includes the production of silicon
wafers for the semiconductor industry; polycrystalline silicon, the raw material
used in the production of silicon wafers; and silane gas, which is used in the
manufacture of polycrystalline silicon.  The electronics segment also produces
LCD manufacturing equipment, excimer lasers and various electronic equipment and
devices. Komatsu's electronics segment accounted for (Yen)90,335 million (US$877
million), or 8.5%, of total net sales for fiscal 2000, representing a 4.3%
increase in these sales over the prior fiscal year. Sales in Japan rose 9.9%, to
(Yen)62,530 million (US$607 million); however, sales outside Japan dropped 6.4%,
to 27,805 million (US$270 million).

     Silicon Wafers   Reflecting improved conditions in the semi-conductor
market, worldwide demand for silicon wafers recovered and prices began to
rebound during the year. Komatsu Electronic Metals Co., Ltd., a 63.4% owned
subsidiary of the Company and the core unit of the electronics business, worked
to improve earnings by concentrating production of silicon wafers exclusively in
Japan and Taiwan, increasing productivity, reducing costs across the board and
shortening lead-time for delivery. In fiscal 2000, Komatsu Electronic Metals
increased sales 2.5% from the previous year, to (Yen)63.8 billion (US$620
million). Of this, domestic sales accounted for (Yen)39.9 billion (US$388
million), up 7.3%, while sales outside Japan totaled (Yen)23.9 billion (US$233
million), a drop of 4.6%. To further enhance production efficiency, Komatsu
Electronic Metals Co., Ltd. will transfer production of discrete wafers from the
Hiratsuka Manufacturing Department to the Nagasaki and Miyazaki plants over the
next two years. In March 1999 in the fast-growing Taiwan market, which is
expected to become the hub of semiconductor production based exclusively on
orders, Formosa Komatsu Silicon Corporation, a subsidiary of Komatsu Electronic
Metals, opened its new integrated facility handling single crystal pulling to
polishing. In the second half of fiscal 2000, the Mailiao Plant commenced mass
production of 200mm silicon wafers at an initial monthly capacity of 50,000
wafers. Current plans call for a monthly output of 100,000 wafers in June 2000,
ultimately rising to 200,000 depending on future market demand. In December
1999, Formosa Komatsu Silicon attained ISO 9002 for quality assurance.

     Polycrystalline Silicon   Advanced Silicon Materials LLC., a 100% owned
subsidiary of the Company, reorganized and changed its name from Advanced
Silicon Materials Inc. in April 2000, continued to face a sluggish market
environment for polycrystalline silicon, the raw material for silicon wafers,
during the year, adversely affected by inventory adjustments in the silicon
wafer manufacturing industry. Advanced Silicon Materials LLC. was further
challenged by significant increases in depreciation at its Butte Plant in
Montana, which raised production in fiscal 2000. To overcome such adverse
conditions, Advanced Silicon Materials focused on sales of differentiated
products based on monosilane gas, such as Float Zone and

                                       7
Charge Replenishment rods, as well as monosilane gas for use in semiconductor
production. Advanced Silicon Materials LLC. anticipates a strong recovery of
demand for polycrystalline silicon in the summer of 2000 or soon after.

Electronic Equipment and Devices   In fiscal 2000 Komatsu Electronics, Inc.,
Japan's leading manufacturer of thermoelectric modules and temperature control
equipment, boosted sales, particularly of micromodules, which have recorded an
average annual growth rate of approximately 70% over the last three years. This
outstanding rate of growth has been reinforced by the recent full-scale shift to
the new Wavelength Division Multiplexing (WDM) method in response to
skyrocketing communications, propelled largely by the huge dispersal of the
Internet. Allowing for a dramatic increase in data transmission volume and
significant cuts in installation costs for fiber optic circuits, the WDM method
requires extensive use of semiconductor lasers as the light source and light
amplifier. As micro modules are essential for controlling the temperature of
these lasers, it is projected that demand will accelerate in line with the
future proliferation of fiber optic communication networks. Komatsu Electronics,
Inc. is a 100% owned subsidiary of the Company.
During the year, the Company continued to expand sales of our Excimer lasers as
the light source for lithographic tools, commonly known as steppers, for
semiconductor manufacturing, by aggressively implementing service and marketing
activities in Japan and overseas. During the year, the Company also introduced
the G20K and G21K models of the KrF (Krypton Fluorine) Excimer laser for use in
0.15 micron and 0.13 micron designing, respectively. In December 1999, the
Company led the industry by commercializing the G20A model, the world's first
ArF (Argon Fluorine) Excimer laser for mass production of steppers.
The Company reached a basic agreement with Ushio Inc., Japan's leading
manufacturer of industrial lamps, to form a 50-50 joint venture to undertake
R&D, production, sales, service and all other aspects of business related to
Excimer lasers for steppers. In addition to the two companies' technological
expertise in Excimer lasers, Gigaphoton Inc., the joint venture established in
August 2000, is expected to expand on a global scale by maximizing the combined
strengths of Ushio's extensive domestic and international sales and service
networks, and Komatsu's advanced Excimer laser technologies and production know-
how.

Sales of LAN-related peripheral devices, such as multi-protocol print servers,
increased. Sales of touch panel computers also increased with the introduction
of new models during the year.

Applied Komatsu Technology, Inc., a joint venture manufacturer of liquid crystal
display (LCD) manufacturing systems, accounted for by the equity method,
significantly improved sales and earnings for the year ended October 31,1999,
reflecting the positive results of large-scale restructuring implemented in
1998. Increased demand for flat panel displays in Taiwan and other Asian
countries also made a positive contribution to improved results.
While the market is expected to continue growing on a long-term basis, the
percentage of the company's sales in Japan is sliding. The market is also highly
unpredictable, with the cycle of fluctuations getting shorter each year. In such
market conditions, there are limitations to making speedy, accurate management
decisions as a joint venture. With such considerations in mind, the Company
transferred full management control of Applied Komatsu Technology to U.S.
partner, Applied Materials Inc., selling its 50% stake in the joint venture as
of the end of October 1999.

     Industrial Machinery Segment
     ----------------------------

                                       8
In its industrial machinery segment, Komatsu manufactures a variety of
metal forging and stamping presses, machine tools, sheet-metal machines and
industrial robots.  Except for large metal forging and stamping presses,
Komatsu's industrial machinery, which are presently manufactured by the
Company's operating subsidiaries located principally in Japan, are marketed and
sold to a variety of customers worldwide.  In addition, Komatsu's industrial
machinery operations include a number of foreign affiliates, for example, in the
United States, Komatsu Cutting Technologies, Inc., a Massachusetts-based
manufacturing and distributor of fine plasma cutting systems, and Komatsu
America Industries LLC, an Illinois-based distributor of industrial machinery.

     The industrial machinery segment accounted for approximately 2.9% of
Komatsu's total revenues for fiscal 2000.

Restructuring of the automotive parts manufacturing industry is progressing,
accompanied by global mergers and acquisitions by automakers. However, this
reorganization effort has not yet generated sufficient demand to lift the entire
market for large presses, although it has stimulated. Despite such a challenging
environment, the Company won an order for a 3,250-ton transfer press for the
first time from PSA Peugeot Citroen of France as a result of the active sales
promotion efforts in Europe during the year. At the same time, the Company
continued to reinforce the engineering businesses, centering on large presses
for the automobile industry, including preventive maintenance service and
retrofitting peripheral equipment. The Company works closely with the customers
and provide engineering solutions designed to improve their productivity and
safety. During the year, to better serve local customers, Komatsu America
Industries LLC. opened its third office, this one in Kentucky,to provide
preventive maintenance service for large presses.
In the retrofitting equipment business, the Company won a large-scale order from
a leading automaker.

In July 1999, the Industrial Machinery Division implemented thorough
organizational reform in the sheet metal forming machine and small and medium-
sized press business. As a result, under a new, younger management team, Komatsu
Industries Corporation is now responsible for the entire operation, from
planning, development and production to sales and service. Within this
framework, Komatsu Industries Corporation was divided into four business units:
sheet metal forming machines, small and medium-sized presses, service and
international business, each with clearly defined roles and responsibilities.
After selecting and focusing on strategic products with technological advantages
for timely market introduction, as well as restructuring distribution channels,
Komatsu Industries Corporation increased the value of about 40% from July 1999
to the present, over the corresponding months of the previous year.

Strategic products introduced during the year by Komatsu Industries Corporation
include the HCP press equipped with an AC servomotor, featuring high-precision
and value-added processing, and which successfully captured new customers from a
variety of industries that are new to Komatsu Industries Corporation.

During the year, Komatsu Industries further strengthened its current alliance
with TRUMPF GmbH + Co. KG of Germany, originally entered into in 1995. Under the
new agreement, the two partners will take full advantage of their service net-
works, customer support and other management resources, in addition to mutually
supplying competitive machines to reinforce the complementary relationship.

As a first step, Komatsu Industries will supply its PAS18x40 and PAS35x125 AC

                                       9
servomotor-driven press brake models to TRUMPF. Utilizing the trademarks of both
Komatsu Industries and TRUMPF, the two will commence marketing of these models
in North America and Europe.

At the same time, Komatsu Industries and TRUMPF will introduce the new TRUMATIC
L 2530 laser cutting machine to the Japanese market and undertake sales and
service.

     Civil Engineering and Construction Segment
     ------------------------------------------

     Komatsu's civil engineering and construction operations are conducted
exclusively within Japan.  Komatsu's operations in this segment are conducted
primarily through Komatsu Construction Ltd. ("Komatsu Construction"), a 68.5%
owned subsidiary of Komatsu, which was established in Japan in 1950. Komatsu
Construction operates principally as a subcontractor for the construction of
condominiums and public sector civil engineering projects.  Public sector civil
engineering projects and condominium construction generate virtually all of
Komatsu Construction's revenues.

     While public works projects advanced in the latter half of the year,
Komatsu Construction and Komatsu House Co. Ltd. ("Komatsu House"), an 85.2%
owned Japanese subsidiary of the Company, were adversely affected by the
protracted stagnation in private-sector investments and housing starts.

Fiscal 2000 sales by Komatsu Construction fell 7.9% from the previous year to
(Yen)63.0 billion (US$612 million). In the year under review, Komatsu
Construction reduced its interest-bearing debt by (Yen)4.0 billion (US$39
million). In February 2000, Komatsu Construction issued new shares in the form
of a third-party allotment to the Company, which now owns 68.5%, thus increasing
its shareholders' equity.

Komatsu Construction will reorganize its management structure and introduce an
executive officer system to effectively meet changes in the business
environment, including intensified market competition. On the business front,
Komatsu Construction continued to emphasize specialized fields of construction
by capitalizing on 29 years of engineering expertise with the radio-controlled
amphibious bulldozer D155W-1 and other specialized equipment for over 800
coastal projects.

Sales by Komatsu House, specializing in the manufacture, sales, and lease and
rental of commercial-use prefabricated structures, rose 3.6% from the previous
year, to (Yen)18.9 billion (US$184 million). Komatsu House registered profits
for the year, in contrast to a loss in the previous fiscal year.

In the market for prefabricated office structures, Komatsu House introduced a
new series of units with a construction time of only a third of that of
conventional models. This outstanding reduction in construction time results
from the fact that approximately 80% of all components are manufactured in the
factory, which has the added advantage of ensuring better uniformity of quality
at the time of construction.

Also during the year, Komatsu House attained ISO9001, demonstrating the advanced
level of its quality assurance system for design and manufacturing of
prefabricated structures and their components.

Sales in the civil engineering and construction segment increased 2.1% to
(Yen)78,653million

                                       10
(US$764 million) (or 7.5% of Komatsu's total net sales) in fiscal 2000.

     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 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 and the production of
business systems and software packages through separate subsidiaries and
affiliates.

     Komatsu Diesel Co., Ltd. has been strengthening sales of diesel engines for
both stationary and portable generators to leading manufacturers in the
industry. As a result, Komatsu Diesel increased sales and profits for the year.
They are also emphasizing solutions-based business expansion through promptly
and astutely meeting customer needs by supporting their overseas business
expansion and reducing maintenance costs .

Komatsu Zenoah, a manufacturer of mini agricultural and forestry equipment, mini
construction equipment, general-purpose two-stroke engines and hydraulic
equipment, advanced sales 7.5% from the previous year, to (Yen)43.5 billion
(US$423 million). Komatsu Zenoah recorded buoyant sales of agricultural and
forestry equipment, centering on eco-friendly systems such as the mobile
chipper-shredder, launched in April 1999. Komatsu Zenoah expanded overseas
sales, notably in the United States with the introduction of a new, eco-friendly
strat-charged engine and increased orders for hobby engines. Komatsu Zenoah also
boosted export sales of hydraulic equipment.

Fiscal 2000 sales by Komatsu Forklift Co.,Ltd., a subsidiary accounted for by
the equity method, amounted to (Yen)88.3 billion (US$858million), a decrease of
6.6% from the previous year, against the backdrop of sluggish demand for
forklift trucks in Japan. By continuing to cut fixed and other costs, however,
Komatsu Forklift generated profits, making a good recovery from substantial
loss.

In May 2000, the Company and Komatsu Forklift entered a basic agreement with
Linde AG, a German manufacturer of forklift trucks with a leading international
market share, to build a global collaborative relationship for production and
sales.

Under this agreement, Komatsu Forklift acquired 10% of Linde subsidiary, Fiat OM
Carrelli Elevatori S.p.A. shares, while Linde obtained 10% of Komatsu Forklift's
shares.

Komatsu purchased new shares through third-party allotment and shares from the
open market, increasing its equity holding in Komatsu Forklift to 50.8%. As a
result, Komatsu Forklift is now a consolidated subsidiary of the Company.

Sales by Komatsu Soft Ltd. amounted to (Yen)21.2 billion (US$206 million) in
fiscal 2000, up 1.7% from the previous year. The software development market was
overshadowed by restrained corporate investment in large-scale IT due to
concerns about the Y2K issue.

Meanwhile, Komatsu Soft's service revenues posted healthy gains, thanks to the
rapid proliferation of the Internet among individuals and solid growth of
outsourcing by companies.

                                       11
In March 2000, the Company established an alliance with Toyo Information Systems
Co., Ltd., to accelerate its involvement in IT, transferring 65% of Komatsu
Soft's outstanding shares to Toyo Information Systems in April 2000, whereupon
the former became a subsidiary of the latter.

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

     Financial information (other than net sales figures by geographic segment)
is produced and discussed in this report as such information is presented in
Komatsu's audited consolidated financial statements.  Net sales figures by
geographic region presented and discussed herein reflect sales of Komatsu's
products by the geographic location of the 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, 2000, 1999, and 1998:

                       Net Sales by Category of Activity
                       ---------------------------------
===========================================================================================================
                           Fiscal Year                     Fiscal Year                    Fiscal Year
                         Ended 3/31/2000                 ended 3/31/1999                ended 3/31/1998
                         ---------------                 ---------------                ---------------
                                                                                     (Millions of Yen)
-----------------------------------------------------------------------------------------------------------
Construction   (Yen)713,529            67.6%    (Yen)731,077          68.9%    (Yen)721,875          65.4%
and Mining
Equipment
-----------------------------------------------------------------------------------------------------------
Electronics           90,335             8.5%          86,608           8.2%         104,265           9.4%
-----------------------------------------------------------------------------------------------------------
Civil                 78,653             7.5%          77,020           7.2%          94,889           8.6%
Engineering
and
Construction
-----------------------------------------------------------------------------------------------------------
Industrial            30,856             2.9%          42,676           4.0%          51,231           4.7%
Machinery
-----------------------------------------------------------------------------------------------------------
Other                142,281            13.5%         124,216          11.7%         131,817          11.9%
-----------------------------------------------------------------------------------------------------------
Total         (Yen)1,055,654           100.0%  (Yen)1,061,597         100.0%  (Yen)1,104,077         100.0%
===========================================================================================================
* Operating income (loss) for the fiscal year ended March 31, 2000, 1999,
       and 1998 was also organized according to the same five categories, as
       follows:

                                             (Millions of Yen)

                                       12
2000             1999       1998
                                                                                   ----             ----       ----
Construction and
                    Mining Equipment                                           (Yen)28,445    (Yen)30,963    (Yen)36,976

                    Electronics                                                     (9,839)       (18,074)        4,043

                    Civil Engineering and
                     Construction                                                      801         (2,984)          338

                    Industrial Machinery                                            (1,719)        (1,961)           88
                    Others

                    Corporate expenses and
                     Elimination                                                     (4,158)        (4,796)       (3,254)

                    -----------------------------------------------------------------------------------------------------
                    TOTAL                                                      (Yen)17,318     (Yen)4,281    (Yen)43,098
                                                                                    ======          =====    ===========
The following table sets forth Komatsu's net sales by geographic markets for
the years ended March 31, 2000, 1999, and 1998 :

                              Net Sales by Geographic Markets
                              -------------------------------
============================================================================================================
                        Fiscal Year                     Fiscal Year                    Fiscal Year
                      Ended 3/31/2000                 Ended 3/31/1999                ended 3/31/1998
              -------------------------------  -----------------------------  ------------------------------
------------------------------------------------------------------------------------------------------------
                                                  (Millions of Yen)
Japan          (Yen)553,822             52.5%   (Yen)523,946           49.4%   (Yen)605,901            54.9%
------------------------------------------------------------------------------------------------------------
Americas             242,609            23.0%         272,091          25.6%         230,824           20.9%
------------------------------------------------------------------------------------------------------------
Europe               123,633            11.7%         119,270          11.2%         113,427           10.3%
------------------------------------------------------------------------------------------------------------
Asia (excluding)      99,558             9.4%          96,853           9.1%         109,572            9.9%
Japan) &
Oceania
------------------------------------------------------------------------------------------------------------
Middle East           36,032             3.4%          49,437           4.7%          44,353            4.0%
& Africa
------------------------------------------------------------------------------------------------------------
Total         (Yen)1,055,654           100.0%  (Yen)1,061,597         100.0%  (Yen)1,104,077          100.0%
============================================================================================================
Sales and Distribution
     ----------------------

     Komatsu's domestic and international sales and distribution functions in
its construction and mining equipment segment, its principal and largest
business segment, are conducted primarily through a network of subsidiaries,
affiliates and independent distributors, and to a lesser extent by joint venture
partners. While Komatsu's construction and mining equipment sales and
distribution operations in Japan focus principally on retail sales to

                                       13
customers, Komatsu utilizes its extensive Japanese sales distributor network to
offer rental programs to its customers, especially within its construction and
utility equipment businesses.

     Domestic Market:

     Komatsu used to sell construction and mining equipment throughout Japan
through its direct sales system.  Komatsu has, however, shifted away from a
direct sales system to an indirect system of authorized distributors.  At the
beginning of fiscal 1999, Komatsu established a sales network of authorized
distributors for its construction and mining equipment throughout Japan, and
substantially all of Komatsu's sales are now made by such distributors.
Distributors perform comprehensive sales and service functions mainly at each
prefecture.  Six of the 43 companies that compose Komatsu's authorized
distributor network in Japan are independent companies, 20 are affiliates of the
Company and 17 are consolidated subsidiaries of the Company.

     In order to support its sales and to improve its sales network and
competitive position, Komatsu has directed its efforts towards expanding its
after-sales services and maintaining adequate inventories of products and spare
parts to ensure prompt deliveries.

     Overseas Markets:

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

     Komatsu's overseas sales of construction and mining equipment are made
through a sales and service network consisting of approximately 180
distributors.  The distributors are supplied through trading companies and the
Company's subsidiaries and affiliated companies and are supported by Komatsu's
liaison offices in major cities around the world. The subsidiaries and
affiliated companies are located in Australia, Belgium, Brazil, the Federal
Republic of Germany, Hong Kong, India, Indonesia, Italy, Mexico, the Republic of
China, the Republic of South Africa, Singapore, 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 and facilitate delivery of emergency spare parts.

     Komatsu launched the SMAP network system in 1998,directly linking
distributors and plants in Japan with product quality information. During the
year under review, Komatsu launched the system, known as the G-SMAP, globally.
With this network system, Komatsu is now able to transmit prompt information
worldwide on its construction and mining equipment to the distributors and
production bases around the world.

All such information is simultaneously stored in the main database of the G-SMAP
and is available to all users of the network, including distributors. Komatsu's
development, production, sales and service personnel around the world can
utilize the G-SMAP system to reduce the time needed for troubleshooting, to keep
abreast of quality issues, and incorporate relevant information in new product
development. In this way, the G-SMAP improves product quality and helps
customers reduce costs. In addition, the G-SMAP is designed to improve total
customer support through processing, utilizing and mutually sharing all
information concerning sales, service and parts supply.

                                       14
Research and Development
------------------------

     Komatsu places a high priority on research and development in order to
maintain a competitive advantage in all of its existing lines of products, as
well as to develop new business ventures.

     Research and development ("R&D") expenses for fiscal 2000 decreased 7.1%
from the previous year, to (Yen)42,460 million (US$412 million), representing
4.0% of net sales.  Komatsu's consolidated R&D expenditures for the years ended
March 31, 1999 and 1998 amounted to (Yen)45,712 million and (Yen)44,058 million,
respectively.  The construction and mining equipment segment accounted for R&D
expenses of (Yen)23,757 million in fiscal 2000 compared to (Yen)26,595 million
in fiscal 1999.  The electronics segment recorded R&D expenses of (Yen)8,857
million in fiscal 2000 compared to (Yen)9,861 million in fiscal 1999.

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

     Komatsu will focus on the following technical issues as part of its mid-to
long-term R&D goals:

(1)  Information Technology (IT)

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

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

(2)  Environmental Control Assessment and Development

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

                                       15
(3)  Supporting Geometry-shrink of Semiconductor Circuits

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

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, and that it is the
largest manufacturer of large-sized presses in Japan.

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

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

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

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

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 and various environmental controls regulating manufacturing
processes.  Komatsu's

                                       16
operations and products are designed to comply with all applicable environmental
regulations currently in effect in the relevant jurisdictions.

     Komatsu believes that it is 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 results of operations. In 1992, Komatsu issued the Earth
Environment Charter, a comprehensive corporate policy statement representing
Komatsu's commitment to compliance with all applicable regulations and industry
standards for the protection of the environment. Komatsu annually reviews its
compliance with applicable environmental regulations governing its operations.

Employee Relations
------------------

     At March 31, 2000, Komatsu had 28,522 full-time employees in Japan and
overseas.  Komatsu considers its labor relations to be satisfactory.

     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
to July 31, 2001.  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 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.

Item 2.  Description of Property
         -----------------------

     Komatsu's manufacturing operations are conducted in 22 principal plants, 10
of which are located in Japan. As of March 31, 2000, the 22 plants had aggregate
manufacturing floor space of 1,299 thousand square meters (13,970 thousand
square feet).  In addition, Komatsu utilizes additional floor space at such
plants and elsewhere for laboratories, office buildings, and employee housing
and welfare facilities.  Komatsu's plants are currently operating regularly, on
a year-round basis, based upon at least one full shift per plant. Komatsu could
increase its production by, among other 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, 2000, the net book value of the
property owned by Komatsu was (Yen)397,534 million, of which (Yen)45,809 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, 2000, are as follows:

                                       17
Name of                                                 Approximate
   Plant            Operator            Location          Floor Space              Principal Products
-----------    -------------------  ----------------   ------------------  -----------------------------------
                                                          Square meters
                                                         (thousand sq ft)
Awazu          Komatsu Ltd.         Komatsu            286,000             Small and mediuml-sized
Plant                               (Jpn)               (3,077)            bulldozers, mini and small-sized
                                                                           hydraulic excavators,
                                                                           mini,small,and medium-sized
                                                                           wheel loaders, machine tools,
                                                                           presses, tunnel boring machines,
                                                                           armed vehicles and ammunition

Osaka Plant    Komatsu Ltd.         Hirakata           138,000             Large-sized bulldozers, large and
                                    (Jpn)               (1,485)            medium-sized hydraulic excavators,
                                                                           mobile crushers, mobile soil
                                                                           improving equipment, and mobile wood
                                                                           crushers

Oyama Plant    Komatsu Ltd.         Oyama              184,000             Diesel engines, diesel generators,
                                    (Jpn)               (1,980)            diesel compressors, marine engines,
                                                                           hydraulic components and excimer laser

Mooka          Komatsu Ltd.         Mooka               65,000             Rough-terrain cranes and dump trucks,
Plant                               (Jpn)                 (699)            large sized wheel loaders, motor
                                                                           graders, road construction machinery,
                                                                           trash compactors, and towing tractors

Himi Plant     Komatsu Castex       Himi                56,000             Cast steel, cast iron and casting
               Ltd.                 (Jpn)                 (603)            patterns

Hiratsuka      Komatsu              Hiratsuka           14,000             High purity single crystalline
Plant          Electronic Metals    (Jpn)                 (151)            silicon
               Co., Ltd.

Nagasaki       Komatsu              Nagasaki            23,000             High purity single crystalline
Plant          Electronic Metals    (Jpn)                 (247)            silicon and high purity single
               Co., Ltd.                                                   crystalline silicon wafers

Miyazaki       Komatsu              Miyazaki            23,000             High purity silicon wafers
Plant          Electronic Metals    (Jpn)                 (247)
               Co., Ltd.

Tachikawa      Komatsu Zenoah Co.   Higashi-            22,007             Mini-sized construction equipment,
Plant                               yamato                (237)            mini-sized agricultural and forestry
                                    (Jpn)                                  equipment, general purpose engines,
                                                                           hydraulic equipment

Koriyama       Komatsu Zenoah Co.   Koriyama            14,900             Mini-sized construction equipment,
Plant                               (Jpn)                 (160)            mini-sized agricultural and forestry
                                                                           equipment, general purpose engines,
                                                                           hydraulic equipment
18
Name of                                                 Approximate
   Plant            Operator            Location          Floor Space              Principal Products
-----------    -------------------  ----------------   ------------------  -----------------------------------
                                                          Square meters
                                                         (thousand sq ft)
Chattanooga    Komatsu America      Chattanooga           29,730           Hydraulic excavators, wheel loaders,
Plant          International        (U.S.A.)                (320)          graders and cranes
               Company

Peoria Plant   Komatsu Mining       Illinois             108,000           Large-sized wheel loaders and
               Systems, Inc.        (U.S.A.)              (1,162)          dump trucks

Candiac        Komatsu America      Quebec (Can.)          8,280           Wheel loaders
Plant          International                                 (89)
               Company

Suzano Plant   Komatsu do Brasil    Suzano (Brazil)       57,000           Bulldozers and hydraulic excavators
               Ltda.                                        (613)

Birtley        Komatsu UK Ltd.      Birtley               59,700           Medium and large sized hydraulic
Plant                               (U.K.)                  (642)          excavators

Este Plant     Komatsu Utility      Padova                33,876           Mini and small-sized hydraulic
               Europe S.p.A.        (Italy)                 (365)          excavators, backhoe loaders and
                                                                           skid-steer loaders

Changlin       Komatsu Shantui      Jiangsu               14,240           Wheel loaders, motor gradors, and
Plant          Construction         (China)                 (153)          hydraulic excavators
               Machinery Co.,
               Ltd.

Hanomag        Komatsu              Hannover              37,000           Wheel loaders and compactors
Plant          Hanomag AG           (F.R.G.)                (398)

Jakarta        P.T. Komatsu         Jakarta               43,066           Hydraulic excavators, wheel loaders,
Plant          Indonesia Tbk        (Indonesia)             (463)          bulldozers, motor graders, dump
                                                                           trucks, sheet metal parts for
                                                                           construction equipment

Dusseldorf     Komatsu Mining       Dusseldorf            23,269           Super-large-sized hydraulic excavators
Plant          Germany GmbH         (F.R.G.)                (250)

Moses Lake     Advanced Silicon     Moses Lake            27,078           Polycrystal silicon and silane gas
Plant          Materials LLC.       (U.S.A.)                (291)

Butte Plant    Advanced Silicon     Montana               31,383           Polycrystal silicon and silane gas
               Materials LLC.       (U.S.A.)                (338)
The head office of the Company is located in a ten-story office
     building in Tokyo which is leased from Komatsu Building Co., Ltd., a 100%-
     owned consolidated subsidiary of the Company.

     Item 3.        Legal Proceedings
                    -----------------

                                       19
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.

Item 4.   Control of Registrant
          ---------------------

(a)  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 its best knowledge does any person
own more than ten percent of the Company's Common Stock.

(b)  (1)       No person owns more than ten percent of the Company's common
               stock.

     (2)       The total amount of the Company's voting securities owned by the
               officers, directors and statutory auditors as a group (31
               persons) as of June 30, 2000 was as follows:
Class of Stock           Identity of Person or Group      Amount Owned of Class    Percent
    --------------           ---------------------------      ---------------------    -------
Common Stock           officers, directors and statutory           686,069            0.072%
                         auditors as a group                         shares
(c)  The Company is not aware of any arrangement, the operation of which might
at a subsequent date, result in the acquisition of or a change in the control of
the Company.

Item 5.   Nature of Trading Market
          ------------------------

     The shares of common stock of the Company are principally listed on the
Tokyo Stock Exchange.

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

     As of July 31, 2000,  958,921,701 shares of common stock were outstanding.
On the same date, 12,218,305 ADSs (equivalent to 48,873,220 shares of common
stock, or approximately 5.1% of the total number of shares of common stock
outstanding on that date) were outstanding and were held by 14 record holders of
ADRs.

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 the
reported high and low sales prices of ADSs.

                                       20
Tokyo Stock Exchange              ADS's Prices in the
                                           Price                      over-the-counter
                               Per Share of Common Stock market

                                    high        Low                     High          Low
The fiscal year ended March 31,2000
     1st quarter                        820        605  Yen                 27 3/4    20 3/8  US$
     2nd quarter                        793        606                      27 1/2    23 1/2
     3rd quarter                        742        460                      27 1/2        18
     4th quarter                        574        444                      20 5/8    16 3/4
The fiscal year ended March 31,1999
     1st quarter                        703        526  Yen                 21 3/8        16  US$
     2nd quarter                        745        575                      20 1/4    16 1/2
     3rd quarter                        691        548                      23 5/8        16
     4th quarter                        655        505                          23    18 1/4
Item 6.   Exchange Controls and Other Limitations
          Affecting Security Holders
          ---------------------------------------

A.   Foreign Exchange and Foreign Trade Law
     --------------------------------------

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

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

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

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

     The Foreign Exchange Law requires that a resident of Japan whose debt
securities are being issued outside of Japan file a post facto report of
                                                    ---- -----
"capital transaction" with the Minister of Finance.  Under the Foreign Exchange
Law, payment of the principal of and interest on the 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.

                                       21
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.

     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. (See "B. Commercial Code - Subscription Rights"
below.)

                                       22
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.

B.   Commercial Code
     ---------------

     A brief description of certain material provisions of the Commercial Code
of Japan (the "Commercial Code") relevant to shares of common stock of
companies, such as the Company, whose shares are listed on any Japanese stock
exchange are set forth below:

Transfer of Shares
------------------

     Under the Commercial Code, the transfer of shares is effected by delivery
of share certificates, but in order to assert shareholders' rights against the
company, the transferee must, in general, have its name and address registered
on the company's register of shareholders, through a transfer agent of the
company. Non-resident shareholders are required to appoint a standing proxy in
Japan or to designate a mailing address in Japan.

"Unit" Share
------------

     A company whose shares are listed on any Japanese stock exchange is
generally required to adopt as one "unit" of shares either: (i) the number of
shares obtainable by dividing (Yen)50,000 by the par value of such company's
shares; or (ii) such other number as the company determines in its Articles of
Incorporation, if the portion of the net assets of the company shown in the
latest balance sheet attributable to such number of shares is not less than
(Yen)50,000. If the company does not provide for a different number of shares as
a unit, it is deemed to have adopted as one unit the number of shares set forth
in (i) above.

(Transferability of Shares Representing Less Than One Unit)

     Certificates for shares representing less than one unit are allowed to be
issued only in certain limited circumstances.  Since the transfer of shares
normally requires delivery of the certificates therefor, fractions of a unit for
which no share certificates are issued may not be transferable.  Shares
representing less than one unit for which share certificates have been issued
prior to adoption of the unit share system in 1982 continue to be transferable,
but the transfer may only be registered on the company's register of
shareholders if the transferee is already a registered shareholder (whether in
respect of units or of shares representing less than one unit).

(Rights of a Holder of Shares Representing Less Than
One Unit to Require the Company to Purchase Such Shares)

     A holder of shares representing less than one unit may at any time require
the company to purchase such shares at their last reported sale price on the
Japanese stock exchange on which the shares are listed (or, if the shares are
listed on more than one stock exchange, the stock exchange which is provided by
law) on the day when such requirement is made or, if no sale

                                       23
takes place on such stock exchange on such day, the price at which the first
sale of the shares is effected on such stock exchange thereafter, less
applicable brokerage commission. The usual securities transfer tax is applicable
to such a purchase.

(Other Rights of a Holder of Shares Representing Less Than One Unit)

     A holder of shares representing less than one unit continues to enjoy in
respect of such shares: (i) the right to receive cash dividends; (ii)the right
to receive shares issuable upon stock splits; (iii) the right to be allotted
subscription rights with respect to new shares, convertible bonds and bonds with
warrants to subscribe for shares when such rights are granted to shareholders;
(iv) the right to participate in the distribution of surplus assets in the event
of the liquidation of the company; and (v) certain other rights, including the
right to require the company to issue replacement share certificates for lost,
stolen and destroyed share certificates.  All other rights, including voting
rights, the right to institute derivative actions and the right to examine the
company's books and records, cannot be exercised with respect to shares
representing less than one unit.

Voting Rights
-------------

     A holder of shares representing less than one unit is not able to exercise
any voting rights with respect to such shares. In calculating the quorum for
various voting purposes, the aggregate number of such shares representing less
than one unit is excluded from the number of outstanding shares. A holder of
shares representing one or more whole units has one vote for each such share,
except that a corporate shareholder one-quarter or more of whose outstanding
shares are directly or indirectly owned by the company may not exercise its
voting rights. In the case of a company (regardless of whether or not listed on
any stock exchange) whose stated capital is not less than (Yen)500 million or
whose total debt as appearing on its latest balance sheet is not less than
(Yen)20 billion and the number of holders of whose voting shares is not less
than 1,000, shareholders having voting rights may cast their votes in writing
unless, for the time being, the company is listed on a stock exchange in Japan
and solicits proxies from all shareholders.

Stock Splits
------------

     The entire amount of the issue price of new shares is required to be
accounted for as stated capital, although the company may account for an amount
not exceeding one-half of such issue price as capital surplus (subject to the
remainder being not less than the total par value of the new shares being
issued). The company may at any time transfer the whole or any part of its
capital surplus and legal reserve to stated capital by resolution of the Board
of Directors. The whole or any part of retained earnings which are distributable
as annual dividends may also be transferred to stated capital by resolution of
an ordinary general meeting of shareholders.

     The company may at any time split the shares in issue into a greater number
of shares by resolution of the Board of Directors if: (i) the total par value of
the shares in issue after the stock split does not exceed the stated capital;
and (ii) the net assets of the company (as appearing in the latest balance
sheet) divided by the number of the shares in issue after the stock split is at
least (Yen)50. Generally, unless a stock split involves a change in the par
value of the shares (which would be subject to shareholders' approval),
shareholders will not be required to exchange share certificates for new share
certificates, but certificates representing the additional shares resulting

                                       24
from the stock split will be issued to shareholders subject to the limitations
of the unit share system as described above. If the exchange of share
certificates is not required, the company must give public notice of the stock
split, specifying a record date therefor, not less than two weeks prior to such
record date and, in addition, promptly after the stock split takes effect, give
notice to each shareholder specifying the number of shares to which such
shareholder is entitled by virtue of the stock split. If exchange of share
certificates is required, the company must give public notice (and, in addition,
notice to each shareholder) that, within a period of not less than one month
specified in such notice, share certificates must be submitted to the company
for exchange.

Subscription Rights
-------------------

     Holders of shares of the Company have no pre-emptive rights. The authorized
but unissued shares may be issued generally at such times and upon such terms as
the Board of Directors shall determine. The Board of Directors may, however,
determine that all shareholders as of a record date be given rights to subscribe
to new shares of the company on uniform terms. Such subscription rights may be
made generally transferable by the Board of Directors in its discretion,
however, an active market in subscription rights has not yet been developed in
Japan.

Repurchase by a Company of Its Own Shares
-----------------------------------------

     Except as otherwise permitted by the Commercial Code as set out below, a
company may not, in general, acquire its own shares except by means of a
reduction in capital in the manner provided for in the Commercial Code.
However, a company shall acquire its own shares in response to a shareholder's
request for purchase of his shares representing less than one unit.  Shares so
purchased must be sold or otherwise transferred to a third party within a
reasonable time thereafter.

     The amendments to the Commercial Code which took effect in June 1997, as
well as those which took effect on October 1, 1994, enable the company to
acquire its own shares (i) for the purpose of transferring such shares to its
employees and/or directors if there is any justifiable reason or (ii) for the
purpose of cancellation. In either case, the acquisition is subject to
authorization granted by resolution (in the case of a company whose shares are
not listed on any stock exchange in Japan or traded on the over-the-counter
market in Japan, by special resolution) of an ordinary general meeting of
shareholders. Acquisition by a company of its shares for the purpose of transfer
to its employees and/or directors is subject to, among other things, the
following restrictions: (a) the purchase shall be made for due cause, such as
for the purpose of a transfer to its employees' shareholding association or for
the purpose of sale to specific directors and/or employees based on stock option
arrangements; (b) the number of shares held by the company as a result of such
acquisition may not at any time exceed ten percent of the total number of shares
in issue; (c) the number of shares to be purchased by the company for such
purpose during the period from the time of the relevant resolution of the
ordinary general meeting of shareholders to the time of conclusion of the
immediately following ordinary general meeting of shareholders may not exceed
ten percent of the total number of shares in issue; (d) the total amount of the
purchase price of the shares purchased by the company for such purpose during
the period referred to in (c) above may not exceed the amount of profits
distributable by the company as year-end dividends, less the aggregate of any
amount to be paid out by the company by way of appropriation of retained
earnings and any amount of

                                       25
retained earnings transferred to stated capital, if any such appropriation and
transfer is authorized pursuant to resolution of the ordinary general meeting of
the shareholders at which such purchase of shares is also authorized; and (e)
(in the case of a listed company such as the Company) the purchase shall be
effected only on any of the stock exchanges on which the shares are then listed
or by way of tender offer in the manner prescribed by the Securities and
Exchange Law (as amended). Purchase by a company of its shares for the purpose
of cancellation is subject to the restrictions referred to in (d) and (e) above
shares purchased by the company for the purpose of transfer to its employees
and/or directors must be transferred to them within six months after such
purchase, or (if purchased for stock option arrangements) within the option
exercise period, and shares purchased by the company for the purpose of
cancellation must be canceled without delay after such purchase.

  However, a special law to the Commercial Code, which was introduced on 1 June
1997, enables the Company to acquire shares in order to cancel the same without
the authorization of shareholders, provided that the Articles of Incorporation
authorize the Board of Directors to do so.  With respect to such acquisition,
the restrictions referred to in (c) and (e) are applicable, together with the
additional restriction that the total amount of the purchase price must not
exceed 1/2 of the amount of the retained earnings available for dividend
payments as of the latest fiscal year end, minus the amount (to be) paid by way
of appropriation of earnings and transferred to capital, the aggregate total
purchase price of shares to be acquired under (1) and (2) above, and other
certain amounts.

  In addition, an amendment to the special law to the Commercial Code, which was
introduced on March 30, 1998, enables the Company to acquire shares by way of
appropriation of capital surplus in order to cancel the same without the
authorization of shareholders, provided that the Articles of Incorporation
authorizes the Board to do so.  With respect to such acquisition, the
restriction referred to in (e) is applicable together with the additional
restrictions that (i) the total amount of the purchase price must not exceed the
aggregate amount of capital surplus and legal reserve less 1/4 of stated
capital, provided that such repurchase cannot be done in cases where the Company
does not have retained earnings available for dividend payments as of the latest
fiscal year end because of deductions of the amount (to be) paid by way of
appropriation of earnings and transfer to capital, the aggregate total purchase
price of shares to be acquired under (1) and (2) above, and other certain
amounts; (ii) the resource of such acquisition must be capital reserve; and
(iii) public notice to the creditors of the Company must be done during the two
weeks after the board resolution.

  By a resolution adopted at the annual shareholders' meeting on June 27, 1997,
the Company's Articles of Incorporation were amended to enable the Company to
acquire its shares for cancellation by appropriation of retained earnings, up to
a maximum of ninety million (90,000,000) shares, pursuant to a resolution of the
Board of Directors.  The Company completed such acquisition at the total
acquisition price of (Yen)9,773 million by April 12, 1998 and canceled the
15,000,000 shares, and at the total acquisition price of (Yen)6,340 million in
May, 2000 and canceled the 10,000,000 shares.

  Also, by a resolution adopted at the annual shareholders' meeting on June 26,
1998, the Company was authorized to acquire up to one million (1,000,000) shares
at a maximum total acquisition price of (Yen)1 billion for transfer to certain
of its directors and employees.  As of August 3, 1998, the Company completed the
acquisition of one million (1,000,000) shares at the total acquisition price of
(Yen)696 million.

                                       26
Also, by a resolution adopted at the annual shareholders' meeting on June 29,
1999, the Company was authorized to acquire up to 1.2 million (1,200,000) shares
at a maximum total acquisition price of (Yen)1.2 billion for transfer to certain
of its directors and employees.  As of July 23, 1999, the Company completed the
acquisition of 1.2 million (1,200,000) shares at the total acquisition price of
925 million. On December 7,1999, the Company sold 20,000 of the 1,200,000 shares
on the market.

  Also, by a resolution adopted at the annual shareholders' meeting on June 28,
2000, the Company was authorized to acquire up to 1.2 million (1,200,000) shares
at a maximum total acquisition price of (Yen)1 billion for transfer to certain
of its directors and employees.

The Commercial Code generally prohibits any subsidiary from acquiring shares in
its parent company.

C.  Other Regulations
    -----------------

  The Securities and Exchange Law of Japan, as amended, requires any person who
has become, beneficially and solely or jointly, a holder of more than five
percent of the total issued voting shares of a company listed on any Japanese
stock exchange or traded on the over-the-counter market in Japan, to file with
the Director of the appropriate Local Finance Bureau of the Ministry of Finance
of Japan, within five business days, a report concerning such shareholdings. A
similar report must also be made if the ratio of such holding subsequently
changes by one percent or more.  Copies of any such report must also be
furnished to the issuer of such shares and to all Japanese stock exchanges on
which the shares are listed or the Japan Securities Dealers Association in the
case of over-the-counter shares.  For this purpose, shares issuable to such
person upon conversion of convertible bonds or exercise of warrants (and similar
shares) are taken into account in determining both the number of shares held by
such holder and the issuer's total number of issued shares.

Item 7.  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, 2002) and the difference, if any, between the issue
price and the amount payable upon redemption of such debt securities will not be
subject to the withholding of Japanese income tax, if such interest or
difference is payable outside of Japan to a non-resident of Japan or non-
Japanese corporation which (in the case of interest) has submitted documents
certifying its non-Japanese residency in accordance with the requirements set
out in Japanese tax laws.

                                       27
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 (but, in general, not capital surplus) to stated
capital (whether made in connection with a stock split or otherwise) is treated
as a dividend payment to shareholders for Japanese tax purposes and is, in
general, subject to Japanese income tax.  No such transfer would be necessary in
connection with a stock split if the total par value of the shares in issue
after the stock split does not exceed the stated capital.

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

                                       28
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.

Item 8.  Selected Financial Data
         -----------------------

  Attached hereto and incorporated in full by reference are pages 38 and 39 of
the Company's 2000 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)109.65=U.S.$1 as of July 31, 2000.)

Item 9.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations
         ---------------------------------------------

Outlook

     The statements contained in this Outlook section are based on management's
current expectations.  With the exception of the historical information
contained herein, the statements presented in this Outlook section are forward-
looking statements that involve numerous risks and uncertainties that could
significantly affect expected results.  Actual results may differ materially.

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

Preceding this restructuring program Komatsu had streamlined sales and logistics
operations. With the completion of the restructuring program, Management
believes that Komatsu's construction and mining equipment is in a position to
generate stable earning over the foreseeable future even when total demand in
the Japanese market remains at about the current level.

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

                                       29
directions as the hub of the growth strategy:

(1) Globalization

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

(2) Full-line offering

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

(3) Environmental business

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

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

Komatsu will take active steps to expand the solutions-centered business in the
areas of after-sales, ranging from lease and rental, parts and service, and
sales of used equipment to logistics, and non-life insurance, all of which will
expand sales and profits. In these after-sales markets, Komatsu is confident of
differentiating its products and technologies, notably through IT utilization.
Komatsu also believes IT will have a major positive impact on changing the way
of doing business and the business models.

Electronics.  Management believes Komatsu's electronics business is now on track
for recovery, with prospects for mid- and long-range growth.

Operating loss from the electronics segment improved to (Yen)9,839 million
(US$96 million) in fiscal 2000 from a loss of (Yen)18,074 million in fiscal
1999.  This year, further improvement in this segment is expected to continue to
reduce the level of losses.  Management believes, however, that improvement in
the silicon wafer business will likely depend on the rebound and normalization
of price.

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

Komatsu Silicon America, Inc. is planning to transfer its processing equipment
to other group companies, which could effectively utilize the same, with a view
to reducing the costs of maintaining unused equipment, which was one of the
major reasons for the loss Komatsu Silicon America, Inc. suffered in fiscal
2000.

Sales of polycrystalline silicon by Advanced Silicon Materials LLC. were slow
during fiscal 2000, reflecting an overall weak demand for the product.  To
overcome such adverse conditions, Advanced Silicon Materials focused on sales of
differentiated products from monosilane gas, such as float zone and charge
replenishment rods, as well as monosilane gas itself for use in semiconductor
production.

Management believes the Excimer laser business will be further strengthened in
the global

                                       30
market by capitalizing on an alliance with Ushio Inc. In thermoelectric modules
and other products with established technological superiority, the Company is
reinforcing the business bases with the goal of achieving substantial gains in
both sales and profits. Committed to securing a reputation for total
reliability, the Company is making strong efforts to support its customers in
improving their quality, cost and delivery, as well as productivity, through the
constant innovation of technology.

     Industrial Machinery.  Komatsu's industrial machinery business comprises
large presses for the automobile industry, sheet metal forming machines, small
and medium-sized presses and machine tools. Based on the results in fiscal 2000,
Komatsu is significantly increasing its efforts to reform our financial position
in the sheet metal forming machine and small and medium-sized press business. In
other industrial machinery businesses, to secure profitability, Komatsu will
restructure relevant organizations and reallocate the workforce to maximize the
strengths and match respective market sizes.

Civil Engineering and Construction. Under the flat demand and negative or slow
revenue growth of civil engineering and construction business in Japan, Komatsu
will continue to emphasize the specialized field of coastal construction
projects, such as coastal infrastructure development, environmental reclamation,
unmanned civil engineering projects at hazardous sites and other works, using
amphibious bulldozer D155W and other specialized equipment, Komatsu will also
continue to reinforce proposal-based sales of its prefabricated structures that
feature advantages in terms of quality, cost and delivery.

     Foreign Exchange Rate Fluctuations.  Sales to customers located outside
Japan represented approximately 48% and 51% of Komatsu's net revenues in fiscal
2000 and fiscal 1999, respectively. Komatsu expects that a significant portion
of its revenues will continue to be from sales to customers outside of Japan. 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
dollar could generally have an adverse effect on Komatsu's results of operations
although Komatsu has reduced its exposure to changes in the exchange rate
between the yen and the 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 9A below. The devaluation of the yen against the dollar generally
results in an increase in Komatsu's operating profit.

Results of Operations

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

     Net Sales

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

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

                                       31
Net sales in the Americas decreased 10.8% to (Yen)242,609 million (US$2,355
million) mainly attributable to the adverse effect of foreign exchange
translations, as well as dwindling demand for construction and mining equipment.

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

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

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

     Earnings

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

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

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

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

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

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

                                       32
As a result, the Company's net income in fiscal 2000 totaled (Yen)13,395 million
(US$130 million), firmly moving back into profitability.

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

Comparison of Fiscal 1999 with Fiscal 1998
------------------------------------------

     Net Sales Komatsu's net sales decreased 3.8% in fiscal 1999 to
(Yen)1,061,597 million(US$8,997 million) from (Yen)1,104,077 million in fiscal
1998. While the increase in overseas net sales, in construction and mining
equipment operation, offset a decline in domestic net sales, both domestic and
overseas net sales of other operations decreased. Overseas net sales increased
7.9% to (Yen)537,651 million (US$4,556 million) in fiscal 1999 from (Yen)498,176
million in fiscal 1998 due to construction and mining equipment operation.
Domestic net sales decreased 13.5% to (Yen)523,946 million (US$4,440 million) in
fiscal 1999 from (Yen)605,901 million in fiscal 1998 due primarily to depressed
domestic demand for construction and mining equipment which resulted from the
sluggish Japanese economy. While net sales in Asia (other than Japan) and in
Oceania decreased 11.6% to (Yen)96,853 million (US$821 million) in fiscal 1999
due to economic crises experienced by certain countries in the region, this
decline was outweighed by increased sales in other regions, including the
Americas, Europe, the Middle East and Africa. Overseas business expansion in
fiscal 1999 was particularly strong in the Americas and Europe, with net sales
in the Americas increasing 17.9% to (Yen)272,091 million (US$2,306 million) in
fiscal 1999 from (Yen)230,824 million in fiscal 1998 and net sales in Europe
increasing 5.2% to (Yen)119,270 million (US$1,011 million) in fiscal 1999 from
(Yen)113,427 million in fiscal 1998. Net sales in the Middle East and Africa
increased 11.5% to (Yen)49,437 million (US$419 million) in fiscal 1999.

     Earnings Cost of sales for fiscal 1999 declined 2.3% to (Yen)807,255
million (US$6,841 million) from (Yen)826,627 million in fiscal 1998. The cost of
salesto net sales ratio grew 1.1% to 76.0% in fiscal 1999 from 74.9% in fiscal
1998. SG&A expenses for fiscal 1999 increased 6.7% to (Yen)250,061 million
(US$2,119 million). The ratio of SG&A expenses to net sales in fiscal 1999 was
23.6%, up 2.4% over 21.2% in fiscal 1998. As a result, operating income for
fiscal 1999 declined 90.1% compared to the previous fiscal year to (Yen)4,281
million (US$36 million). Major contributing factors were weak silicon wafer
prices, one-time expenses resulting from the restructuring of manufacturing
operations and a substantial operating loss incurred in the civil engineering
and construction business. Net interest and other income and expenses for fiscal
1999 generated a loss of (Yen)13,885 million (US$118 million), compared to a
loss of (Yen)2,846 million in fiscal 1998, including a large write-down of
(Yen)14,214 million (US$120 million) due to the devaluation of domestic
marketable and investment securities precipitated by the weak stock market and
economy in Japan. Interest and other income for fiscal 1999 also included a gain
of (Yen)7,206 million (US$61 million) from the sales of property at Machida in
Japan. As a result of this loss and the increase in selling, general and
administrative expenses described above, income (loss) before income taxes,
minority interests and equity in earnings shrank in fiscal 1999, resulting in a
net loss of (Yen)9,604 million (US$81 million), compared with income of
(Yen)40,252 million in fiscal 1998, and declined 4.5% to minus 0.9% as a
percentage of net sales. Minority interests in income (loss) of consolidated
subsidiaries raised income after income tax by (Yen)6,862 million (US$58
million) in fiscal 1999, a reverse from the reduction in income after income tax
of (Yen)933 million in fiscal 1998, reflecting losses of such consolidated
subsidiaries due
                                       33
primarily to KEM. In fiscal 1999, equity in earnings (losses) of affiliated
companies fell to a loss of (Yen)7,575 million (US$64 million), from a gain of
(Yen)763 million in fiscal 1998 due primarily to one-time expenses resulting
from the restructuring of the operating base of AKT. As a result, and for the
first time since the introduction of consolidated financial statements in 1964,
Komatsu experienced a net loss in fiscal 1999 of (Yen)12,378 million (US$105
million). On a per share basis, net loss for fiscal 1999 amounted to (Yen)12.77
(US$0.11), while cash dividends per share were reduced by (Yen)1.00, to
(Yen)7.00 (US$0.06) for the year. Cash dividends per share were (Yen)8.00 in
fiscal 1998.

Performance by Segment

     Komatsu operates in five business segments:  Construction and mining
equipment, electronics, industrial machinery, civil engineering and
construction, and other operations.

     Construction and Mining Equipment.  Fiscal 2000 net sales of construction
and mining equipment totaled (Yen)713,529 million (US$6,927 million), a decrease
of 2.4% compared to (Yen)731,077 million in fiscal 1999 which represented an
increase of 1.3% compared to (Yen)721,875 million in fiscal 1998.  Construction
and mining equipment net sales accounted for 67.6% of Komatsu's worldwide net
sales in fiscal 2000.  While sales in Japan increased 8.8%, to (Yen)268,867
million (US$2,610 million) in fiscal 2000 from (Yen)247,102 million in fiscal
1999, sales outside Japan decreased 8.1% to (Yen)444,662 million (US$4,317
million) in fiscal 2000.  Sales in Japan represented 37.7% of total sales of
construction and mining equipment, up 3.9% from the previous fiscal year, while
the proportion of sales outside Japan decreased to 62.3%. Overall, net sales of
construction and mining equipment comprised 67.6% of Komatsu's total net sales
in fiscal 2000, down 1.3% from 68.9% in fiscal 1999 and up 2.3% from 65.3% in
fiscal 1998.

     Operating income from the construction and mining equipment segment for
fiscal 2000 decreased 8.1% compared to the previous fiscal year to (Yen)28,445
million (US$276 million).  In fiscal 1999 operating income decreased 16.2% to
(Yen)30,963 million from (Yen)36,976 million in fiscal 1998 due primarily to a
decrease in domestic sales and one-time expenses resulting from restructuring.

     Electronics.  In the electronics business, fiscal 2000 net sales from
electronics operations increased 4.3% to (Yen)90,335 million (US$877 million)
from (Yen)86,608 million in fiscal 1999, as sales in Japan increased 9.9% to
(Yen)62,530 million (US$607 million), and sales outside Japan decreased 6.4% to
(Yen)27,805 million (US$270 million).  Fiscal 1999 net sales decreased 16.9% to
(Yen)86,608 million from (Yen)104,265 million in fiscal 1998.  Electronics
accounted for 8.5% of Komatsu's net sales in fiscal 2000, compared with 8.2% in
fiscal 1999 and 9.4% in fiscal 1998.

     KEM, a 63.4% owned subsidiary of the Company engaged in the manufacture of
silicon wafers, had sales of (Yen)63,862 million (US$620 million) for fiscal
2000, a increase of 2.5% over sales of (Yen)62,277 million the previous fiscal
year.

     Operating income (loss) from the electronics segment for fiscal 2000 was an
operating loss of (Yen)9,839 million (US$96 million), which was an improvement
that cut the operating loss of (Yen)18,074 million in fiscal 1999, by almost one
half. This was due to improved

                                       34
conditions in semiconductor market, the recovery of worldwide demand for silicon
wafers and prices beginning to rebound during the year.

In fiscal 2000, the Company recorded impairment losses on long-lived assets at
its wholly owned subsidiary in the electronics segment. Such impairment losses
were calculated using the best estimate of discounted future cash flows based on
the assumption to continue its operation.

     Industrial Machinery.  Fiscal 2000 sales of industrial machinery decreased
27.7% to (Yen)30,856 million (US$300 million) from (Yen)42,676 million in fiscal
1999.  Fiscal 1999 sales of industrial machinery of (Yen)42,676 million
represented a decrease of 16.7% over sales of (Yen)51,231 million in fiscal
1998.  This sales decline was due to primarily depressed demand in Japan and
sales of large presses as well as a decline in sales of modular transfer
presses, reflecting restrained investments by the automobile manufacturing
industry. Sales in Japan decreased 22.3%, to (Yen)18,301 million (US$178
million), in fiscal 2000 from (Yen)23,549 million in fiscal 1999, and sales
outside Japan decreased 34.4% to (Yen)12,555 million (US$122 million).
Industrial machinery comprised 2.9% of sales of Komatsu's fiscal 2000 sales,
compared to 4.0% in the previous fiscal year and 4.7% in fiscal 1998.

     Operating income (loss) from the industrial machinery segment for fiscal
2000 totaled an operating loss of (Yen)1,719 million (US$17 million), compared
to operating loss of (Yen)1,961 million in fiscal 1999 and operating profit of
(Yen)88 million in fiscal 1998.

     Civil Engineering and Construction.  Limited to the Japanese market, sales
for Komatsu's civil engineering and construction operations increased 2.1% to
(Yen)78,653 million (US$764 million) in fiscal 2000 from (Yen)77,020 million in
fiscal 1999, which represented a 18.8% decrease from (Yen)94,889 million in
fiscal 1998. Civil engineering and construction amounted to 7.5% of sales of
Komatsu in fiscal 2000, compared to 7.2% in the previous fiscal year.

     Komatsu Construction, the major business unit of Komatsu's civil
engineering and construction operations, had sales of (Yen)63,020 million
(US$612 million) for fiscal 2000, down 7.9% over (Yen)68,400 million in fiscal
1999.

     Sales of Komatsu House, which is engaged in the sale of commercial-use
prefabricated buildings, increased 3.6% to (Yen)18,927 million (US$184 million)
in fiscal 2000 from the level of the previous fiscal year.

     Operating income (loss) from the civil engineering and construction segment
for fiscal 2000 amounted to an operating income of (Yen)801 million (US$8
million).  In fiscal 1999 operating loss amounted to (Yen)2,984 million due
primarily to a lump sum write off of delinquent receivables. Operating income
was (Yen)338 million in fiscal 1998.

     Other Operations.  Fiscal 2000 sales from Komatsu's other operations
increased 14.5% to (Yen)142,281 million (US$1,381 million) from (Yen)124,216
million in fiscal 1999.

     Operating income from other operating segments for fiscal 2000 increased
234.3% compared to the previous fiscal year to (Yen)3,788 million (US$37
million) due to increased sales of products of agricultural and forestry
equipment, centering on eco-friendly systems such as  the mobile chipper-
shredder. In fiscal 1999 operating income decreased by 76.9% to
(Yen)1,133million from (Yen)4,907 million in the previous fiscal year due to
decreased sales of

                                       35
products such as diesel engines and logistics packages due to a stagnant
domestic market for construction equipment.

Performance by Region

     Japan.  Net sales to customers in Japan increased 5.7% from (Yen)523,946
million in fiscal 1999 to (Yen)553,822 million (US$5,377 million) in fiscal
2000.  Operating income (loss) for Komatsu's operations in Japan increased from
a loss of (Yen)10,052 million in fiscal 1999 to a income of (Yen)955 million
(US$9 million) in fiscal 2000.  The increase in sales came from the recovery of
the demand for construction equipment demand in Japan and the increase of the
sales domestic electronics operation.  Compared to fiscal 1998, net sales to
customers in Japan and operating income (loss) recorded by Komatsu's operations
in Japan in fiscal 1999 decreased by 13.5% (from (Yen)605,901 million) and
decreased by 37,702 million from operating income of (Yen)27,650 million,
respectively.

     Asia (Excluding Japan) and Oceania.  Net sales to customers in the rest of
Asia and Oceania increased 2.8% to (Yen)99,558 million (US$967 million) in
fiscal 2000 compared to (Yen)96,853 million in fiscal 1999.  Net sales in fiscal
1999 decreased 11.6% from (Yen)109,572 million in fiscal 1998.  The increase in
net sales in fiscal 2000 was due to the recovery of the  market demand in Asia
for Komatsu's products.  Net sales to customers in Asia (excluding Japan) and
Oceania comprised 9.4% of Komatsu's worldwide net sales in fiscal 2000, up from
9.1% in fiscal 1999 and down from 9.9% in fiscal 1998.

     Americas.  Net sales to customers in North America, Central America and
South America, decreased 10.8% in fiscal 2000 to (Yen)242,609 million (US$2,355
million) from (Yen)272,091 million in fiscal 1999.  Fiscal 1999 net sales
increased 17.9% over net sales of (Yen)230,824 million in fiscal 1998.  The
decrease in net sales in fiscal 2000 was due to decreased demand for
construction equipment in North America.  North American, Central American and
South American net sales accounted for 23.0% of Komatsu's net sales worldwide in
fiscal 2000, down from 25.6% in fiscal 1999 and up from 20.9% in fiscal 1998.

     Operating income generated by Komatsu's operations in the Americas
increased 62.7% during fiscal 2000 to (Yen)12,354 million (US$120 million) from
(Yen)7,594 million in fiscal 1999.  Compared to fiscal 1998, operating income
recorded in fiscal 1999 decreased by 46.0% from (Yen)14,064 million due to the
substantial operating losses of KSA and ASiMI.

     Europe.  Net sales to customers in Europe in fiscal 2000 increased 3.7% to
(Yen)123,633 million (US$1,200 million) from (Yen)119,270 million in fiscal
1999. Fiscal 1999 net sales increased 5.2% over (Yen)113,427 million in fiscal
1998.  Increased sales in fiscal 2000 and 1999 were due primarily to increased
sales of hydraulic excavators, wheel loaders and utility equipment.  Net sales
to customers in Europe comprised 11.7% of Komatsu's net sales worldwide in
fiscal 2000, up from 11.2% in fiscal 1999 and 10.3% in fiscal 1998.

     In fiscal 2000, operating income from Komatsu's operations in Europe
decreased to (Yen)4,284 million (US$42 million) from (Yen)9,253 million in
fiscal 1999 due to the depreciation of Euro currency.  Compared to fiscal 1998,
operating income recorded in fiscal 1999 increased by (Yen)4,863 million from
(Yen)4,390 million.

     Middle East and Africa.  In the Middle East and Africa, Komatsu's net sales
decreased 27.1% to (Yen)36,032 million (US$350 million) in fiscal 2000 compared
to (Yen)49,437

                                       36
million in fiscal 1999, which in turn represented an 11.5% increase from net
sales of (Yen)44,353 million in fiscal 1998. The sales decline came from the
decrease of the demand for the equipment in the Middle East and Africa. Net
sales to customers in the Middle East and Africa comprised 3.4% of Komatsu's net
sales worldwide in fiscal 2000, down from 4.7% in fiscal 1999 and 4.0% in fiscal
1998.

Liquidity and Capital Resources

     Cash and cash equivalents at March 31, 2000 were (Yen)80,476 million
(US$781 million), a decrease of (Yen)6,825 million from the previous fiscal year
end.  Net cash provided by operating activities was (Yen)34,224 million (US$332
million) for fiscal 2000, approximately the same level as (Yen)34,346 million in
the previous fiscal year.

     Net cash provided by investing activities in fiscal 2000 was (Yen)18,880
million (US$183 million) and increased by (Yen)82,883 million from (Yen)64,003
million used in fiscal 1999. This increase was principally due to the decrease
of capital expenditures by (Yen)57,146 million and the increase in the proceeds
from sales of property by (Yen)23,515 million in fiscal 2000 compared to fiscal
1999. Net cash used in financing activities increased to (Yen)61,565 million
(US$598 million) in fiscal 2000, an increase of (Yen)68,179 million over
(Yen)6,614 million provided by financing activities in fiscal 1999, principally
reflecting the repayment of the debt during fiscal 2000.

Working capital in fiscal 2000 increased 2.2% from the previous year, to
(Yen)261,736 million (US$2,541 million).

     The current ratio (current assets divided by current liabilities) in fiscal
2000 increased by 7.2% over the previous year to 149.3%, compared with 142.1% in
fiscal 1999.

Capital expenditures in fiscal 2000 decreased 49.7% over the previous fiscal
year, to (Yen)57,728 million (US$560 million), caused primarily by the
completion of an investment cycle in the electronics business, which resulted in
reduced capital expenditures of (Yen)48,765 million (US$473 million) in the
electronics business segment. Capital expenditures in fiscal 1999 decreased 6.6%
over the amount in fiscal 1998.  Commitments for capital expenditures
outstanding as of March 31, 2000, totaled approximately (Yen)599 million (US$6
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 would need to
incur significant capital expenditures or other investments to expand its
production in this segment.

     At March 31, 2000, Komatsu had a cash balance of (Yen)80,476 million
(US$781 million).  At that date, Komatsu's consolidated total debt was
(Yen)460,259 million (US$4,469 million), (Yen)214,970 million (US$2,087 million)
of which was short-term debt (including current portions of long-term debt).  As
of March 31, 2000, (Yen)54,306 million of Komatsu's long-term debt was scheduled
to mature in fiscal 2001, (Yen)40,147 million in fiscal 2002, and (Yen)205,142
million in fiscal 2003 and thereafter.

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

                                       37
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, 2000, Komatsu had securitized accounts
receivable totaling (Yen)72,320 million (US$702 million) (or 16.4% of total
accounts receivable at that date).  Of this amount, (Yen)31,360 million related
to receivables generated by Komatsu's Japanese operations and (Yen)40,960
million related to receivables generated by Komatsu's North American operations.
As of March 31, 1999, Komatsu had securitized accounts receivable totaling
(Yen)63,714 million (or 14.6% of total accounts receivable at that date).  Of
this amount, (Yen)23,219 million related to receivables generated by Komatsu's
Japanese operations and (Yen)40,495 million related to receivables generated by
Komatsu's North American operations.

     Komatsu sold idle properties of the Osaka Plant in Nakamiya district for
(Yen)26.0 billion in fiscal 2000.

     As of July 31, 2000, the Company had outstanding (Yen)19,000 million of
commercial paper issued under its (Yen)50,000 million commercial paper program,
scheduled to mature in September 2000 and October 2000. As of July 31, 2000,
Komatsu Finance America Inc. ("KFA") had outstanding US$200 million of
commercial paper issued under its US$400 million commercial paper program (the
"CP Program") and US$764 million of notes issued under its US$1,200 million Euro
Medium Term Note Program ("EMTN Program"). Under EMTN Program, the Company, KFA,
Komatsu Finance (Netherlands) B.V. ("KFN") and Komatsu Australia Pty., Ltd. may
from time to time issue notes denominated in any currency. The commercial paper
issued under the CP Program have scheduled maturities during August and
September of 2000 and the notes issued under the EMTN Program are scheduled to
mature on various dates through November 2008. As of July 31, 2000, Komatsu
Europe Coordination Center N.V. had outstanding EUR81 million of commercial
paper issued under its EUR150 million commercial paper program, which have
scheduled maturities during August, September, and October of 2000 and April of
2001. As of July 31, 2000, Komatsu Finance (Netherlands) B.V. had EUR74 million
of notes issued under its EMTN program, which are scheduled to mature on various
dates through April 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 the 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 the 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.

Dividend Policy

     The Company  maintains returns on shareholders' equity while striving to
secure internal funds for reinvestment. In fiscal 2000, the Company paid its
year-end dividend for fiscal 2000 to (Yen)3 (annual dividend to be (Yen)6 per
share) based on the policy as above, and payout ratio of fiscal 2000 was 42.6%.
In fiscal 1997, 1998 and 2000, the Company implemented acquisition and writeoff
of its outstanding common shares.  In its endeavor to increase returns on
shareholders' equity, the Company will continue to take such actions on a

                                       38
continual basis in the years ahead, taking into account stock market trends,
cash flows and other relevant financial conditions.

Environmental Policy

     As Japan's top manufacturer and an international leader in construction and
mining equipment, the Company is aware of its social responsibility toward the
environment. Komatsu regards the protection of the environment as an important
goal of business and seeks to lead the industry in setting environmental
protection standards.

Energy Saving

     The Company is working to reduce energy consumption at its plants by 15%
from the 1990 level by the end of March 2011, which would surpass the rate of
10% set by the Japan Construction Equipment Manufacturers Association.  As of
the end of March 2000, the Company attained a reduction of approximately 12.5%
from 1990 levels.

Protecting the Ozone Layer

     The Company had virtually discontinued use of ozone-depleting chemicals by
the end of March 1993, and completely discontinued their use by the end of March
1996.

Efficient Use of Resources

     The Company plans to reduce industrial waste to near-zero levels by the end
of March 2011.  As of the end of March 2000, the Company had reduced levels by
68%.

Soil and Underground Water Pollution Prevention Measures

     By the end of March 1997, the Company had completely discontinued the use
of organic chlorine-based solvents.

     In its life cycle assessment (LCA) of its construction equipment, the
Company focuses on the following four goals:  curbing owning and operating (O&O)
costs, reducing CO2 emissions, cutting toxic matter and improving recyclability.

     In the area of recyclability, its PC200-6 hydraulic excavators and WA100-3
wheel loaders currently stand at 81% and 92%, respectively.  For all its
construction equipment, Komatsu is working to improve this percentage to over
97% in 2005 and 99.5% in 2010.

     The Company has made a priority of promoting the recycling of rubber shoes
for the undercarriage, as well as recycling of oil filters, used oil, batteries,
hoses, antifreeze and sludge from the cleaning of equipment.

     The Company has also been working to promote remanufacturing of components
through design modifications and advances in engineering technologies.

     The Company committed to reducing CO//2// emissions from its diesel
engines. The Company will strive to reduce emissions by 5% in 2005 and 10% in
2010 from the 1998 level.

     In January 1998, the Company teamed up with Cummins, the world's top
manufacturer of engines, to establish Industrial Power Alliance, Ltd. ("IPA"), a
50-50 joint

                                       39
venture based at the Company's Oyama Plant. IPA is engaged specifically in the
research and development of next-generation diesel engines with reduced CO2
emissions, enhanced cost competitiveness and durability, and low noise. As a
partner and international engine development center to both Cummins and the
Company, IPA is poised to be a leader in next-generation engines.

Year 2000 Issues

Defining the Y2K issue as one of the most important management tasks to assure
the Quality and Reliability of its management, Komatsu has been addressing the
problem since late 1996, when it instituted a Companywide program. As a result,
no problems worthy of note have occurred within the Group. Although Komatsu will
continue to monitor the issue, Komatsu does not anticipate any serious problems
in the future.

Komatsu expenditures for the counter-Y2K activities totaled approximately
(Yen)6.0 billion, of which about (Yen)5.5 billion was expended by the end of
March 31, 1999, while the balance of about (Yen)0.5 billion (US$5 million) was
used in fiscal 2000. These expenditures did not have any serious impact on the
business and cash flows of the Company.

The above statement concerning the Year 2000 Readiness Disclosure does not
constitute a statement of warranty and may not be interpreted to expand any
warranty provided with any Komatsu product.

  Financial Review
  ----------------

  Attached hereto and incorporated in full by reference are pages 34, 35, 36 and
37 of the Company's 2000 Annual Report to Shareholders pertaining to "Financial
Review", which pages comprise part of the Consolidated Financial Statements
attached hereto.

Item 9A.  Quantitative and Qualitative Disclosures About Market Risk
          ----------------------------------------------------------

Market Risk Exposure

  Komatsu is exposed to market risk primarily from changes in foreign currency
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, Komatsu enters into various hedging
transactions pursuant to its policies and procedures. Komatsu does not hold or
issue derivative financial instruments for non-hedging or speculation purposes.

  Komatsu is exposed to risk of 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 default
on their obligations.

Foreign Exchange Risk

  To reduce foreign exchange risks relating to foreign currency denominated
assets and liabilities, Komatsu executes forward exchange contracts ranging from
50% to 100% based on its projection of use of time deposits in foreign
currencies. Furthermore, to reduce foreign exchange risks in relation to medium-
term and long-term foreign currency denominated assets

                                       40
and liabilities and to fix related costs, Komatsu has executed such forward
contracts for a portion of its bonds and loans.

  The following table provides information concerning derivative financial
instruments of Komatsu in relation to foreign currency exchange transactions
existing as of March 31, 2000, 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, 2000.

                                       41
Millions of yen
                                                             (except average contractual rates)
                                   ----------------------------------------------------------------------------------------
Forwards to sell foreign
 currencies:                         US$/Yen         GBP/EUR       EUR/Yen        US$/EUR        Others          Total
---------------------------------------------------------------------------------------------------------------------------
Contract amounts                   (Yen)14,3915    (Yen)6,568     (Yen)3,330    (Yen)3,007      (Yen)935      (Yen)28,755
Average contractual rates                105.92          1.57         102.22          0.95
---------------------------------------------------------------------------------------------------------------------------

Forwards to buy foreign
 currencies:                          GBP/EUR         US$/Yen       Yen/ZAR       GBP/US$        Others         Total
---------------------------------------------------------------------------------------------------------------------------
Contract amounts                   (Yen)10,854     (Yen)2,155     (Yen)2,133    (Yen)907        (Yen)3,147    (Yen)19,196
Average contractual rates                 0.64           0.01          16.05        0.62
---------------------------------------------------------------------------------------------------------------------------
Thousands of U.S. dollars
                                -------------------------------------------------------------------------------------------
Forwards to sell foreign
 currencies:                          US$/Yen         GBP/EUR        EUR/Yen       US$/EUR        Others         Total
---------------------------------------------------------------------------------------------------------------------------
Contract amounts                     $144,806          $63,767       $32,330        $29,194        $ 9,098        $279,175
---------------------------------------------------------------------------------------------------------------------------

Forwards to buy foreign
 currencies:                          GBP/EUR         US$/Yen        Yen/ZAR       GBP/US$        Others         Total
---------------------------------------------------------------------------------------------------------------------------
Contract amounts                     $105,379          $20,922       $20,709        $ 8,806        $30,553        $186,369
---------------------------------------------------------------------------------------------------------------------------
Interest Rate Risk

  To reduce risks and hedge the cash flow, Komatsu engages in interest rate
swaps and cap option transactions for payment of certain floating rate
liabilities.

  Certain interest rate swap contracts are not qualified as hedge and are
recorded at the fair value and the resultant gains are recognized as income.

The following tables provide information concerning derivatives and other
financial instruments of Komatsu that are sensitive to changes in interest
rates, mainly including interest rate swaps and debt obligations.  For debt
obligations, the table presents 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, 2000, the notional
amount of interest cap transactions is (Yen)35,026 million (US$340 million) and
the average strike rate is 5.83%, respectively.
Millions of yen
                                       Long-term debt (including due within one year)
---------------------------------------------------------------------------------------------------------------------------------
                            Average                                            Expected maturity date
                           Interest               -------------------------------------------------------------------------------
                             rate        Total             2001         2002         2003         2004         2005   Thereafter
---------------------------------------------------------------------------------------------------------------------------------
U.S. dollar bonds            6.97%     (Yen)19,251   (Yen)   --   (Yen)   --   (Yen)   --  (Yen)11,981   (Yen)   --    (Yen)7,270

Japanese yen
convertible                  1.86%          62,447           --           --           --       27,447           --        35,000

Debentures/debentured bonds

Euro medium-term
notes                        1.50%          90,959       40,139       12,289       20,012        2,702        6,480         9,337

Loans, principally
from banks                   3.49%         126,938       14,167       27,858       22,062       28,296        5,438        29,117
---------------------------------------------------------------------------------------------------------------------------------
Total                                 (Yen)299,595  (Yen)54,306  (Yen)40,147  (Yen)42,074  (Yen)70,426  (Yen)11,918   (Yen)80,724
=================================================================================================================================
42
Millions of yen
                                              Interest rate and cross-currency swaps

------------------------------------------------------------------------------------------------------------------------------------
                            Average
                         Interest rate                                          Expected maturity date
                       -----------------                 ---------------------------------------------------------------------------
                        Receive    Pay       Total         2001         2002         2003         2004         2005      Thereafter
------------------------------------------------------------------------------------------------------------------------------------
Japanese yen              0.87%   2.12%  (Yen)21,710      (Yen)350      (Yen)374   (Yen)1,074   (Yen)3,874   (Yen)8,865   (Yen)7,173
 Interest rate swap
U.S. dollar               5.49%   5.65%       62,368         3,736         7,043       17,991       33,086           --          512
 Interest rate swap
Australia dollar          5.61%   7.31%          138           138            --           --           --           --           --
 Interest rate swap
Japanese yen              5.03%   4.52%       10,339         4,139         1,000        1,000        3,000        1,200           --
 cross-currency swap
U.S. dollar               5.84%   6.09%       79,798        33,048        10,355       19,220        1,799        6,197        9,179
 cross-currency swap
Singapore dollar          3.35%   3.37%        1,236           618           618           --           --           --           --
 Interest rate swap
------------------------------------------------------------------------------------------------------------------------------------
  Total                                 (Yen)175,589   (Yen)42,029   (Yen)19,390  (Yen)39,285  (Yen)41,759  (Yen)16,262  (Yen)16,864
------------------------------------------------------------------------------------------------------------------------------------
Thousands of U.S. dollars
                                          Long-term debt (including due within one year)

------------------------------------------------------------------------------------------------------------------------------------

                                                                                  Expected maturity date
                                                            ------------------------------------------------------------------------
                                   Average
                                   Interest
                                     rate          Total       2001       2002         2003        2004        2005     Thereafter
------------------------------------------------------------------------------------------------------------------------------------
U.S. dollar bonds                        6.97%   $  186,903  $     --    $     --    $     --    $116,320    $     --   $  70,583
Japanese yen convertible                 1.86%      606,282        --          --          --     266,476          --     339,806
Debentures/debentured bonds
Euro medium-term notes                   1.50%      883,097   389,699     119,311     194,291      26,233     62,9138      90,650
Loans, principally from banks            3.49%    1,232,408   137,544     270,466     214,194     274,719      52,796     282,689
------------------------------------------------------------------------------------------------------------------------------------
   Total                                         $2,908,690  $527,243    $389,777    $408,485    $683,748    $115,709   $ 783,728
------------------------------------------------------------------------------------------------------------------------------------
43
Thousands of U.S. dollars
                                              Interest rate and cross-currency swaps

------------------------------------------------------------------------------------------------------------------------------------
                            Average
                         Interest rate                                          Expected maturity date
                       -----------------                 ---------------------------------------------------------------------------
                        Receive   Pay        Total         2001         2002         2003         2004         2005      Thereafter
------------------------------------------------------------------------------------------------------------------------------------
Japanese yen               0.87%  2.12%  $  210,777    $  3,398      $  3,631     $ 10,427     $ 37,612     $ 86,068     $  69641
 interest rate swap
U.S. dollar                5.49%  5.65%     605,515      36,272        68,379      174,670      321,223           --        4,971
 interest rate swap
Australia dollar           5.61%  7.31%       1,340       1,340            --           --           --           --           --
 interest rate swap
Japanese yen               5.03%  4.52%     100,378      40,184         9,709        9,709       29,126       11,650           --
 cross-currency swap
U.S. dollar                5.84%  6.09%     774,738     320,854       100,534      186,602       17,466       60,165       89,117
 cross-currency swap
Singapore dollar           3.35%  3.37%      12,000       6,000         6,000           --           --           --           --
 Interest rate swap
------------------------------------------------------------------------------------------------------------------------------------
   Total                                 $1,704,748    $408,048      $188,253     $381,408     $405,427     $157,883     $163,729
------------------------------------------------------------------------------------------------------------------------------------
Euro Conversion

     On January 1, 1999, 11 of 15 member countries of the European Union
established fixed conversion rates between their existing currencies (the
"legacy currencies") and adopted the euro as their new common currency. The euro
trades on currency exchanges and the legacy currencies remain legal tender in
the participating countries for a transition period until January 1, 2002.
Beginning on January 1, 2002, euro denominated bills and coins will be issued
and legacy currencies will be withdrawn from circulation.

     The introduction of the euro has increased the pace of price harmonization
throughout Europe. Komatsu is analyzing its pricing strategy to minimize any
potential risk of this pricing harmonization.

     The introduction of the euro reduces Komatsu's exposure to changes in
multiple foreign exchange rates, as assets and liabilities previously
denominated in legacy currencies are now denominated in a single currency.

     Komatsu believes that the euro conversion will not have an adverse material
impact on its financial position or results of operations.

Item 10.  Directors and Officers of Registrant
          ------------------------------------

                                       44
All Directors and Statutory Auditors are elected by a general meeting of
shareholders to serve terms of approximately two years and three years,
respectively, 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 elects 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 Executive Vice Presidents 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 of Directors, may at any time request the directors to report on the
business activities of the Company and may investigate the business as well as
the financial situation of the Company. Certain powers are provided under the
Commercial Code of Japan to enable the Statutory Auditors to carry out these
functions. Further, each Statutory Auditor continues to perform the function of
examining the annual financial documents and the rendering of an opinion thereon
for the general meeting of shareholders. The Statutory Auditors may not at the
same time be Directors, managers or employees of the Company or of any of its
subsidiaries.

     Set forth below are the names of the Company's Directors and Statutory
Auditors (who constituted the Directors and Statutory Auditors as of June 28,
2000), their positions and offices with the Company and the dates when they
assumed such positions.
Current Positions
        Name                  with the Company                   Date of Office
Tetsuya Katada           Chairman of the Board         Mar.  1978  Director
                                                       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

Satoru Anzaki            President (Representative     Mar.  1985  Director
                         Director)
                                                       Nov.  1988  Managing Director
                                                       Jun.  1991  Executive Managing Director
                                                       Jun.  1995  President
                                                       Jun.  1995  Rep. Director
45
Masahiro Sakane          Executive Vice President      Jun.  1989  Director
                         (Representative Director)     Jun.  1994  Managing Director
                                                       Jun.  1997  Executive Managing Director
                                                       Jun.  1999  Executive Vice President
                                                       Jun.  1999  Rep. Director

Toshitaka Hagiwara       Executive Vice President      Jun.  1990  Director
                         (Representative Director)     Jun.  1995  Managing Director
                                                       Jun.  1997  Executive Managing Director
                                                       Jun.  1999  Executive Vice President
                                                       Jun.  1999  Rep. Director

Koji Ogaki               Executive Managing Director   Jun.  1991  Director
                                                       Jun.  1996  Managing Director
                                                       Jun.  1999  Executive Managing Director

Norimichi Kitagawa       Executive Managing Director   Jun.  1993  Director
                                                       Jun.  1997  Managing Director
                                                       Jun.  1999  Executive Managing Director

Arlie G. Tucker          Director                      Jun.  1997  Director

Toshio Morikawa          Director                      Jun.  1999  Director

Toshiro Nakaya           Statutory Auditor             Mar.  1987  Director
                                                       Jun.  1989  Managing Director
                                                       Jun.  1993  Executive Managing Director
                                                       Jun.  1996  Statutory Auditor

Hiroyuki Watanabe        Statutory Auditor             Jun.  1997  Statutory Auditor

Masahiro Yoshiike        Statutory Auditor             Jun.  1997  Statutory Auditor

Takaharu Dohi            Statutory Auditor             Jun.  1999  Statutory Auditor
There are no family relationships between any Director or Statutory Auditor
and any other Director or Statutory Auditor of the Company.

     In order to strengthen its corporate governance as a global enterprise and
facilitate response to the 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
          members of Board were reduced from the current 26 to 8. The management
          decision-making and supervisory functions were separated from the
          executive functions.

                                       46
.    New external board directors were appointed in order to strengthen the
          transparency and objectivity of management.

2.   Introduction of Executive Officer System

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

     .    Executive Officers were given clearly defined responsibilities.

3.   Introduction of the Global Officer System

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

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

4.   Establishment of Committee on Reward

     .    The Company plans to establish an advisory Committee on Reward, which
          will include external members, in order to ensure 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.

Item 11.  Compensation of Directors and Officers
          --------------------------------------

Aggregate Compensation
----------------------

     The aggregate compensation, including bonuses but excluding retirement
allowances, paid by the Company in fiscal 2000, to all Directors and Statutory
Auditors as a group for services in all capacities was (Yen)463 million.

Bonuses
-------

     In accordance with customary Japanese business practices, annual bonuses
are paid to 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 thereof customarily held in June 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 paid.
Included in the figure for aggregate compensation set forth above is a total of
(Yen)76 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 1999 fiscal year as approved by the Company's Shareholders at
the General Meeting of Shareholders held on June 29, 1999.

                                       47
Retirement Allowance
--------------------

     The Company has a severance payment plan for directors and statutory
auditors. The plan provides for lump-sum severance payments based on pertinent
rules of the Company. The amount of the provision made for such severance
payments, as charged to operating income, for the year ended March 31, 2000 was
(Yen)184 million.

Item 12.  Options to Purchase Securities from Registrant or Subsidiaries
          --------------------------------------------------------------

     On June 28, 2000, the shareholders of the Company authorized the
acquisition by the Company of 1,200,000 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 Directors and certain employees
under agreements granting the 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 by 1.05 the
average of the closing prices applicable to ordinary transactions of shares of
the Company 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 shares of the Company
on the Tokyo Stock Exchange at the date of the grant. According to the
agreement, the option price is (Yen)758 per share and the option exercise period
is from July 1, 2001 to June 30, 2006.

     The following table sets forth the number of shares of the Company's common
stock allocated to each of the Company's directors under the Company's stock
option plan.
Number of                               Number of
                         ---------                               ---------
      Name                 shares              Name                shares
      ----                 ------              ----                ------
Tetsuya Katada             80,000       Satoru Anzaki              80,000
Masahiro Sakane            70,000       Toshitaka Hagiwara         70,000
Koji Ogaki                 60,000       Norimichi Kitagawa         60,000
Arlie G. Tucker            20,000
Item 13.  Interest of Management in Certain Transactions
          ----------------------------------------------

          None

                                       48
PART II

Item 14.  Description of Securities to be Registered
          ------------------------------------------

          Not applicable.

                                   PART III

Item 15.  Defaults Upon Senior Securities
          -------------------------------

          None

Item 16.  Changes in Securities and Changes in Security for Registered
          ------------------------------------------------------------
          Securities and Use of Proceeds
          ------------------------------

     (a)  Not applicable.

     (b)  Not applicable.

     (c)  Not applicable.

     (d)  Not applicable.

                                    PART IV

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

          Not applicable.

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

          See Consolidated Financial Statements and Schedules attached hereto.

Item 19.  Financial Statements and Exhibits
          ---------------------------------

     (a)  See Index to Consolidated Financial Statements and Schedules attached
          hereto.

     (b)  None.

                                       49
SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.

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

                                                  By: /s/ Masaru Fukase
                                                     ---------------------------
                                                      Masaru Fukase
                                                      Senior Executive Officer

Date: September 28, 2000

                                       50
KOMATSU  LTD.
                              ===================

                                  CONSOLIDATED
                       FINANCIAL STATEMENTS AND SCHEDULES
               FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
             -----------------------------------------------------

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

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

                                    INDEX TO
                CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
                -----------------------------------------------
Page in
                                                                                    Shareholders
                                                                                       Report
                                                                                 -------------------
Consolidated Financial Statements and Report of Independent Public Accountants
  Included in the Company's Financial Report to Shareholders for the Year Ended
  March 31, 2000 Attached Hereto and Incorporated Herein by Reference:

  Consolidated Balance Sheets, March 31, 2000 and 1999...........................    40 and 41

  Consolidated Statements of Income for the
    Years Ended March 31, 2000, 1999 and 1998....................................       42

  Consolidated Statements of Shareholders' Equity for the
    Years Ended March 31, 2000, 1999 and 1998....................................       43

  Consolidated Statements of Cash Flows for the
    Years Ended March 31, 2000, 1999 and 1998....................................       44

  Notes to Consolidated Financial Statements.....................................    45 to 65

 Report of Independent Public Accountants........................................       66
-1-
Page in
                                                                                     Annual Report
                                                                                      (Form 20-F)
                                                                                 --------------------
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, 2000, 1999 and 1998:

    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
-2-
Financial Review

Sales
-----
Net sales in fiscal 2000, ended March 31, 2000, decreased 0.6% from the previous
year, to (Yen)1,055,654 million (US$10,249 million at US$1=(Yen)103).

  Although sales in Japan rose 5.7%, to (Yen)553,822 million (US$5,377 million),
overseas sales fell 6.7%, to (Yen)501,832 million (US$4,872 million). As a
result, the ratio of overseas sales to consolidated net sales for the year
dipped from 50.6% in the previous year, to 47.5%.

  Domestic sales of construction and mining equipment were up from the previous
year, owing primarily to the positive effect of the government's economic
stimulus measures and improved housing investments in Japan. Overseas, demand
for construction and mining equipment in Southeast Asia began to show signs of
recovery from the depressed conditions brought on by the economic crisis of
1997, while sales in Europe climbed in line with robust demand. However, sales
in the United States dropped, mainly attributable to the adverse effect of
foreign exchange translations, as well as dwindling demand for construction and
mining equipment. Overall, sales of construction and mining equipment slid 2.4%,
to (Yen)713,529 million (US$6,927 million).

  In the electronics business, domestic demand for silicon wafers significantly
improved in terms of quantity, and our operation in Taiwan commenced shipments
of silicon wafers. Although demand for polycrystalline silicon as the raw
material for silicon wafers remained sluggish, that for IT-related equipment and
thermoelectric modules continued to expand. As a result, sales in the
electronics business for the year grew 4.3%, to (Yen)90,335 million (US$877
million).

  Sales by the civil engineering and construction business also rose, up 2.1%
from the previous year, to (Yen)78,653 million (US$764 million), reflecting
successful efforts to improve earnings in a market where both public works and
private-sector projects remained stagnant.

  In the meantime, the industrial machinery business continued to suffer from
weak domestic demand for industrial machinery, and sales of large presses dipped
from the previous year as automobile manufacturers curbed their equipment
investment programs. As a result, sales of industrial machinery for the year
decreased 27.7%, to (Yen)30,856 million (US$300 million).

  Elsewhere in other operations, although sales from the logistics business and
iron and steel castings declined from the previous year, sales rose for
components, including engines, and agricultural and forestry equipment,
centering on environment-related products. As a result, sales of other
operations expanded 14.5%, to (Yen)142,281 million (US$1,381 million).

  Overseas sales by region in fiscal 2000 were as follows: sales in the Americas
accounted for (Yen)242,609 million (US$2,355 million), down 10.8%; sales in
Europe advanced 3.7%, to (Yen)123,633 million (US$1,200 million); sales in Asia
(excluding Japan) and Oceania increased 2.8%, to (Yen)99,558 million (US$967
million); and sales in the Middle East and Africa fell 27.1%, to (Yen)36,032
million (US$350 million).

Earnings
--------
Cost of sales in fiscal 2000 decreased 1.3% from the previous year, to
(Yen)796,820 million (US$7,736 million). Standing at 75.5%, the ratio of cost of
sales to net sales dropped 0.5 percentage point. Selling, general and
administrative (SG&A) expenses for the year were down 3.4%, to (Yen)241,516
million (US$2,345 million), while the ratio of SG&A to net sales dipped 0.7
percentage point from the previous year, to 22.9%.

  As a result, operating income for fiscal 2000 soared 304.5% over the previous
year, to (Yen)17,318 million (US$168 million). This improvement was brought
about primarily by improved earnings in the electronics business, owing to the
recovery of demand for silicon wafers, and improved finances in the civil
engineering and construction business, attributable to a substantial operating
loss in the previous year.

  Net interest and other income and expenses in fiscal 2000 generated a profit
of (Yen)2,077 million (US$20 million), compared with a loss of (Yen)13,885
million in the previous year. This resulted from the fact that other expenses in
fiscal 1999

                             [GRAPHS APPEARS HERE]

34
included a large write-down due to the devaluation of domestic marketable and
investment securities, while net other income in fiscal 2000 included large
gains on gain on sales of assets such as an equity stake in Applied Komatsu
Technology, Inc., gain on sale of idle properties of the Osaka Plant in Nakamiya
district. As a result, income (loss) before income taxes, minority interests and
equity in earnings for the year increased to (Yen)19,395 million (US$188
million), from a net loss of (Yen)9,604 million in fiscal 1999. The percentage
of income (loss) before income taxes, minority interests and equity in earnings
to net sales rose 2.7 percentage points, to 1.8%.

  Fiscal 2000 equity in earnings (losses) of affiliated companies increased to
(Yen)4,038 million (US$39 million), from a loss of (Yen)7,575 million in fiscal
1999. This improvement was chiefly accounted for by the increased earnings of
Applied Komatsu Technology, Inc., a manufacturer of liquid crystal display (LCD)
panel manufacturing equipment, which suffered a major loss in the previous year.

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

  On a per share basis, net income for the year amounted to (Yen)13.85
(US13.4c). Dividends per share were reduced by (Yen)1.00, to (Yen)6.00 (US5.8c).

Liquidity and Capital Resources
-------------------------------
Working capital in fiscal 2000 increased 2.2% from the previous year, to
(Yen)261,736 million (US$2,541 million).

  The current ratio in fiscal 2000 rose 7.2 percentage points over the previous
year, to 149.3%. The current ratio in fiscal 1999 was up 12.7 percentage points
from the previous year.

  Capital expenditures in fiscal 2000 decreased 49.7% from the previous year, to
(Yen)57,728 million (US$560 million). The drop was caused primarily by the
completion of an investment cycle in the electronics business, which resulted in
reduced capital expenditures of (Yen)48,765 million (US$473 million), compared
with the previous year. Capital expenditures in fiscal 1999 declined 6.6% from
the previous year. Commitments for capital expenditures outstanding as of March
31, 2000, totaled (Yen)1,151 million (US$11 million), which were significantly
lower than in the previous year.

  R&D expenses in fiscal 2000 dropped 7.1% from the previous year, to
(Yen)42,460 million (US$412 million), and accounted for 4.0% of net sales.
Fiscal 2000 expenses for advertising and public relations activities dropped
22.4% from the previous year, to (Yen)4,327 million (US$42 million), or 0.4% of
net sales.

Financial Condition
-------------------
The Company is striving to reduce interest-bearing debt to increase the
soundness of its finances. To that end, in addition to increased securitization
of notes and accounts receivable, along with the establishment of commitments on
lines of credit for the United States and Europe, it also introduced a cash
management system in Japan and Europe for the effective utilization of funds
within the Group. Elsewhere, the Company also disposed of non-urgent assets. As
a result, short- and long-term debt as of March 31, 2000, decreased (Yen)104,980
million from the previous year, to (Yen)460,259 million (US$4,469 million),
which translates to DER (debt-equity ratio) of 0.94 to 1.

  Cash and cash equivalents at the end of the year amounted to (Yen)80,476
million (US$781 million), a decrease of (Yen)6,825 million from the previous
year. Net cash provided by operating activities in fiscal 2000 totaled
(Yen)34,224 million (US$332 million), a decrease of (Yen)122 million from the
previous year. Net cash provided by investing activities for the year amounted
to (Yen)18,880 million (US$183 million), an increase of (Yen)82,883 million from
the previous year. Primary factors behind this improvement include a decrease in
the purchase of tangible fixed assets owing to restrained capital expenditures,
a decline of (Yen)57,146 million from the previous year, and an increase in the
proceeds from the sales of property of (Yen)23,515 million from the previous
year. Net cash used in financing activities for the year came to (Yen)61,565
million (US$598 million), a decline of (Yen)68,179 million from the previous
year, mainly attributable to a significant drop in proceeds from long-term debt
totaling (Yen)19,798 million, in comparison with (Yen)140,708 million in the
previous year.

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

  The companies are exposed to credit-related losses in the event of
nonperformance by counterparties to derivative financial instruments. However,
because of the counterparties' high credit ratings, none are expected to fail to
meet their obligations.

                                                                              35
Foreign Exchange Risk
---------------------
To reduce foreign exchange risks against foreign currency denominated assets and
liabilities, the companies execute forward exchange contracts in a range of 50%
to 100% based on their projected cash flow in foreign currencies. Furthermore,
to reduce foreign exchange risks in relation to medium-term and long-term
foreign currency denominated assets and liabilities and to fix related costs,
the companies have executed such forwards for part of their bonds and loans.

  The following table provides information concerning derivative financial
instruments of the companies in relation to foreign currency exchange
transactions existing as of March 31, 2000, 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, 2000.
Millions of yen (except average contractual rates)
                                               -------------------------------------------------------------------------------------
Forwards to sell foreign currencies:              US$/Yen     GBP/EUR          EUR/Yen        US$/EUR       Others        Total
------------------------------------------------------------------------------------------------------------------------------------
Contract amounts............................   (Yen)14,915  (Yen)6,568      (Yen) 3,330    (Yen)3,007    (Yen)   935  (Yen)28,755
Average contractual rates...................        105.92        1.57           102.22          0.95
====================================================================================================================================

Forwards to buy foreign currencies:               GBP/EUR      US$/Yen         Yen/ZAR        GBP/US$       Others        Total
------------------------------------------------------------------------------------------------------------------------------------
Contract amounts............................   (Yen)10,854  (Yen)2,155       (Yen)2,133      (Yen)907     (Yen)3,147  (Yen)19,196
Average contractual rates...................          0.64        0.01            16.05          0.62
====================================================================================================================================
Thousands of U.S. dollars
                                               -------------------------------------------------------------------------------------
Forwards to sell foreign currencies:               US$/Yen     GBP/EUR          EUR/Yen        US$/EUR       Others        Total
------------------------------------------------------------------------------------------------------------------------------------
Contract amounts............................   $   144,806  $   63,767      $    32,330    $   29,194    $   9,078   $  279,175
====================================================================================================================================

Forwards to buy foreign currencies:               GBP/EUR      US$/Yen          Yen/ZAR        GBP/US$       Others        Total
------------------------------------------------------------------------------------------------------------------------------------
Contract amounts............................   $   105,379  $   20,922      $    20,709    $    8,806    $  30,553   $  186,369
====================================================================================================================================
Interest Rate Risk
------------------
To reduce risks and hedge the cash flow, the companies engage in certain
interest rate swaps and cap option transactions for payment of certain floating
rate liabilities. Certain interest rate swap contracts are not qualified as
hedge and are recorded at the fair value and the resultant gains are recognized
as income.

  The following tables provide information concerning derivatives and other
financial instruments of the companies that are sensitive to changes in interest
rates, mainly including interest rate swaps and debt obligations. For debt
obligations, the tables present principal cash flows and related weighted
average interest rates by expected maturity dates. For interest rate and cross-
currency swaps, the tables on the following page present notional amounts and
weighted average receive and pay interest rates. As of March 31, 2000, the
notional amount and its average strike rate of interest cap transactions are
(Yen)35,026 million (US$340 million) and 5.83%, respectively.
Long-term debt (including due within one year)                                         Millions of yen
------------------------------------------------------------------------------------------------------------------------------------
                                    Average                                            Expected maturity date
                                                             -----------------------------------------------------------------------
                                  interest rate      Total        2001         2002       2003       2004         2005    Thereafter
------------------------------------------------------------------------------------------------------------------------------------
U.S. dollar bonds................     6.97%     (Yen) 19,251 (Yen)    -- (Yen)    -- (Yen)    -- (Yen)11,981 (Yen)    -- (Yen) 7,270
Japanese yen convertible
 debentures /debentured bonds....     1.86%           62,447          --          --          --      27,447          --      35,000
Euro medium-term notes...........     1.50%           90,959      40,139      12,289      20,012       2,702       6,480       9,337
Loans, principally from banks....     3.49%          126,938      14,167      27,858      22,062      28,296       5,438      29,117
------------------------------------------------------------------------------------------------------------------------------------
Total............................               (Yen)299,595 (Yen)54,306 (Yen)40,147 (Yen)42,074 (Yen)70,426 (Yen)11,918 (Yen)80,724
====================================================================================================================================
36
Interest rate and cross-currency swaps                                                           Millions of yen
------------------------------------------------------------------------------------------------------------------------------------
                                     Average interest rate                                       Expected maturity date
                                     ---------------------           ---------------------------------------------------------------
                                     Receive    Pay         Total          2001          2002          2003        2004         2005
------------------------------------------------------------------------------------------------------------------------------------
Japanese yen interest rate swap......  0.87%    2.12%  (Yen) 21,710  (Yen)   350  (Yen)   374  (Yen)  1,074 (Yen) 3,874  (Yen) 8,865
U.S. dollar interest rate swap.......  5.49%    5.65%        62,368        3,736        7,043        17,991      33,086           --
Australian dollar interest rate swap.  5.61%    7.31%           138          138           --            --          --           --
Japanese yen cross-currency swap.....  5.03%    4.52%        10,339        4,139        1,000         1,000       3,000        1,200
U.S. dollar cross-currency swap......  5.84%    6.09%        79,798       33,048       10,355        19,220       1,799        6,197
Singapore dollar interest rate swap..  3.35%    3.37%         1,236          618          618            --          --           --
------------------------------------------------------------------------------------------------------------------------------------
Total................................                  (Yen)175,589  (Yen)42,029  (Yen)19,390  (Yen)39,285  (Yen)41,759  (Yen)16,262
====================================================================================================================================
Thereafter
--------------------------------------------------
Japanese yen interest rate swap....... (Yen) 7,173
U.S. dollar interest rate swap........         512
Australian dollar interest rate swap..          --
Japanese yen cross-currency swap......          --
U.S. dollar cross-currency swap.......       9,179
Singapore dollar interest rate swap...          --
--------------------------------------------------
Total................................. (Yen)16,864
==================================================
Long-term debt (including due within one year)                                   Thousands of U.S. dollars
-----------------------------------------------------------------------------------------------------------------------------
                                                 Average                               Expected maturity date
                                                                       ------------------------------------------------------
                                              interest rate   Total      2001     2002     2003     2004     2005  Thereafter
-----------------------------------------------------------------------------------------------------------------------------
U.S. dollar bonds............................     6.97%    $  186,903       --       --       --  116,320       --  $  70,583
Japanese yen convertible
  debentures/debentured bonds................     1.86%       606,282       --       --       --  266,476       --    339,806
Euro medium-term notes.......................     1.50%       883,097  389,699  119,311  194,291   26,233   62,913     90,650
Loans, principally from banks................     3.49%     1,232,408  137,544  270,466  214,194  274,719   52,796    282,689
-----------------------------------------------------------------------------------------------------------------------------
Total........................................              $2,908,690 $527,243 $389,777 $408,485 $683,748 $115,709  $ 783,728
=============================================================================================================================
Interest rate and cross-currency swaps                                                   Thousands of U.S. dollars
------------------------------------------------------------------------------------------------------------------------------------
                                        Average interest rate                                   Expected maturity date
                                        ---------------------           ------------------------------------------------------------
                                        Receive    Pay        Total        2001      2002       2003     2004       2005  Thereafter
------------------------------------------------------------------------------------------------------------------------------------
Japanese yen interest rate swap........   0.87%    2.12%   $  210,777   $  3,398  $  3,631   $ 10,427  $ 37,612  $ 86,068  $ 69,641
U.S. dollar interest rate swap.........   5.49%    5.65%      605,515     36,272    68,379    174,670   321,223        --     4,971
Australian dollar interest rate swap...   5.61%    7.31%        1,340      1,340        --         --        --        --        --
Japanese yen cross-currency swap.......   5.03%    4.52%      100,378     40,184     9,709      9,709    29,126    11,650        --
U.S. dollar cross-currency swap........   5.84%    6.09%      774,738    320,854   100,534    186,602    17,466    60,165    89,117
Singapore dollar interest rate swap....   3.35%    3.37%       12,000      6,000     6,000         --        --        --        --
-----------------------------------------------------------------------------------------------------------------------------------
Total..................................                    $1,704,748   $408,048  $188,253   $381,408  $405,427  $157,883  $163,729
===================================================================================================================================
Euro Conversion
================================================================================

On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies (the
"legacy currencies") and adopted the euro as their new common currency. The euro
trades on currency exchanges and the legacy currencies remain legal tender in
the participating countries for a transi tion period ending January 1, 2002.
Beginning on January 1, 2002, euro denominated bills and coins will be issued
and legacy currencies will be withdrawn from circulation.

  Introduction of the euro has increased the pace of price harmonization
throughout Europe. Komatsu is analyzing all aspects of its pricing strategy to
minimize any potential risk of this price harmonization.

  The introduction of the euro reduces the amount of Komatsu's exposure to
changes in multiple foreign exchange rates, owing to the net effect of having
assets and liabilities denominated in a single currency as opposed to the
various legacy currencies.

  The euro conversion did not have an adverse material impact on Komatsu's
consolidated financial position or results of consolidated operations.

Year 2000 Issues
================================================================================

Defining the Y2K issue as one of the most important management tasks to assure
the Quality and Reliability of its management, Komatsu has been addressing the
problem since late 1996, when it instituted a Companywide program. As a result,
no problems worthy of note have occurred within the Group. Although we will
continue to monitor the issue, we do not anticipate any serious problems in the
future.

  Groupwide expenditures for the counter-Y2K activities totaled approximately
(Yen)6.0 billion, of which about (Yen)5.5 billion was expended by the end of
March 31, 1999, while the balance of about (Yen)0.5 billion (US$5 million) was
used in fiscal 2000. These expenditures did not have any serious impact on the
business and cash flows of the Company.

                                                                              37
Ten-Year Summary
Komatsu Ltd. and Consolidated Subsidiaries
Millions of yen
                                                                                           (except per share amounts)
                                                                     ---------------------------------------------------------------
                                                                                              Years ended March 31
                                                                     ---------------------------------------------------------------
                                                                            2000                    1999                  1998
------------------------------------------------------------------------------------------------------------------------------------
For the fiscal period
Net sales...........................................................  (Yen)1,055,654         (Yen)1,061,597          (Yen)1,104,077
Cost of sales.......................................................         796,820                807,255                 826,627
Income (loss) before income taxes, minority interests, equity
  in earnings and cumulative effect of accounting changes...........          19,395                 (9,604)                 40,252
Net income (loss)...................................................          13,395                (12,378)                 19,241
    As percentage of sales..........................................             1.3%                  (1.2)%                   1.7%
Net income (loss) per share--Basic..................................  (Yen)     13.9         (Yen)    (12.8)         (Yen)     19.6
Cash dividends paid.................................................           5,803                  7,751                   7,872
Cash dividends per share............................................             6.0                    7.0                     8.0
Capital expenditures................................................          57,728                114,874                 123,026
------------------------------------------------------------------------------------------------------------------------------------

At fiscal period-end
Total assets........................................................  (Yen)1,375,280         (Yen)1,524,600          (Yen)1,561,662
Working capital.....................................................         261,736                256,039                 212,096
Property, plant and equipment.......................................         397,534                440,706                 393,603
Long-term debt--Less current maturities.............................         245,289                292,250                 196,898
Shareholders' equity................................................         490,454                495,643                 524,201
    As percentage of total assets...................................            35.7%                  32.5%                   33.6%
------------------------------------------------------------------------------------------------------------------------------------
Yen per U.S. dollar
                                                                      -------------------------------------------------------
                                                                        2000                   1999                   1998
-----------------------------------------------------------------------------------------------------------------------------
Other information
Exchange rate into U.S. dollars
    (per the Federal Reserve Bank of New York):
    At fiscal period-end..........................................    (Yen)103               (Yen)118                (Yen)133
    Average for the fiscal period.................................         110                    128                     124
    Range:
      High........................................................         121                    145                     133
      Low.........................................................         102                    113                     115
------------------------------------------------------------------------------------------------------------------------------
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.

38
Millions of yen
                                                  (except per share amounts)
        ------------------------------------------------------------------------------------------------------------------------
                                                     Years ended March 31
        ------------------------------------------------------------------------------------------------------------------------
                  1997             1996            1995           1994           1993            1992           1991
        ------------------------------------------------------------------------------------------------------------------------
(Yen)1,098,916   (Yen)  999,327     (Yen)  918,910   (Yen)  845,853    (Yen)  869,928   (Yen)) 919,753    (Yen)  988,897
               827,665          763,045            702,416          649,512           662,408          689,039           718,714

                45,769           32,431             24,482           13,933            30,757           41,911            85,015
                18,160           14,291             10,225            1,303             3,037           10,898            31,258
                   1.7%             1.4%               1.1%             0.2%              0.3%             1.2%              3.2%
        (Yen)     18.3   (Yen)     14.2     (Yen)     10.2   (Yen)      1.3    (Yen)      3.0   (Yen)     10.8    (Yen)     30.5
                 7,992            8,031              8,028            8,022             8,019            8,017             7,960
                   8.0              8.0                8.0              8.0               8.0              8.0               8.0
                70,604           47,499             41,492           30,032            47,156           73,771            75,700
        ------------------------------------------------------------------------------------------------------------------------

        (Yen)1,512,730   (Yen)1,593,003     (Yen)1,541,972   (Yen)1,375,966    (Yen)1,323,960   (Yen)1,452,818    (Yen)1,319,189
               228,404          260,296            254,992          221,274           249,419          230,751           340,614
               299,098          264,842            257,219          260,720           260,999          261,211           217,896
               163,590          140,208            140,550          142,578           207,027          222,088           171,899
               541,933          606,444            575,534          505,871           516,409          523,387           524,790
                  35.8%            38.1%              37.3%            36.8%             39.0%            36.0%             39.8%
Yen per U.S. dollar
           ------------------------------------------------------------------------------------------------------------------------
                    1997              1996               1995             1994              1993              1992             1991
           ------------------------------------------------------------------------------------------------------------------------
(Yen)124         (Yen)107           (Yen) 87         (Yen)102          (Yen)115          (Yen)133         (Yen)141
                      113               96                 99              107               124               133              141

                      124              107                105              114               135               142              160
                      105               84                 87              101               115               123              125
           ------------------------------------------------------------------------------------------------------------------------
39
Consolidated Balance Sheets
Komatsu Ltd. and Consolidated Subsidiaries
March 31, 2000 and 1999
Thousands of
                                                                                                   U.S. dollars
                                                                      Millions of yen                (Note 1)
                                                                 ----------------------------      -----------
Assets                                                                 2000             1999            2000
--------------------------------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents (Note 1)..........................  (Yen)   80,476   (Yen)   87,301     $   781,320
Time deposits (Note 8)......................................             915              844           8,883
Marketable securities (Notes 1, 5 and 19)...................          40,219           54,434         390,476
Trade notes and accounts receivable, less allowance
 for doubtful receivables of (Yen)12,208 million
 ($118,524 thousand) in 2000 and (Yen)12,535 million
 in 1999 (Notes 3 and 8)....................................         368,452          374,157       3,577,204
Inventories (Notes 1 and 4).................................         209,089          244,868       2,029,990
Deferred income taxes and other current assets
 (Notes 1 and 13)...........................................          93,347          101,944         906,282
--------------------------------------------------------------------------------------------------------------
Total current assets........................................         792,498          863,548       7,694,155
--------------------------------------------------------------------------------------------------------------

Investments
Investments in and advances to affiliated companies
 (Notes 1 and 6)............................................          26,846           31,516         260,641
Investment securities (Notes 1, 5 and 19)...................          75,935           88,447         737,233
Other.......................................................           7,982            6,612          77,495
--------------------------------------------------------------------------------------------------------------
Total investments...........................................         110,763          126,575       1,075,369
--------------------------------------------------------------------------------------------------------------

Land and buildings held for sale--At the lower of cost
 or market (including projects in progress).................          17,503           18,720         169,932
--------------------------------------------------------------------------------------------------------------
Property, plant and equipment--Less accumulated
 depreciation (Notes 1, 7 and 8)............................         397,534          440,706       3,859,553
--------------------------------------------------------------------------------------------------------------
Deferred income taxes (Notes 1 and 13)......................          17,495           20,207         169,854
--------------------------------------------------------------------------------------------------------------
Other assets (Note 10)......................................          39,487           54,844         383,370
--------------------------------------------------------------------------------------------------------------
                                                              (Yen)1,375,280   (Yen)1,524,600     $13,352,233
==============================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.

40
Thousands of
                                                                                                  U.S. dollars
                                                                    Millions of yen                 (Note 1)
                                                               -------------------------------   ---------------
Liabilities and Shareholders' Equity                                 2000             1999             2000
----------------------------------------------------------------------------------------------------------------
Current liabilities
Short-term debt (Notes 8 and 9) .............................   (Yen)160,664      (Yen)235,384       $ 1,559,845
Current maturities of long-term debt (Notes 8, 9 and 19).....         54,306            37,605           527,243
Trade notes and accounts payable ............................        184,624           193,167         1,792,466
Income taxes payable (Note 13) ..............................         12,792            15,007           124,194
Deferred income taxes and other current liabilities
  (Notes 1 and 13) ..........................................        118,376           126,346         1,149,281
----------------------------------------------------------------------------------------------------------------
Total current liabilities ...................................        530,762           607,509         5,153,029
----------------------------------------------------------------------------------------------------------------

Long-term debt (Notes 8, 9 and 19) ..........................        245,289           292,250         2,381,447
----------------------------------------------------------------------------------------------------------------
Liability for postretirement benefits (Notes 1 and 10) ......         55,406            78,551           537,922
----------------------------------------------------------------------------------------------------------------
Deferred income taxes (Notes 1 and 13) ......................         23,500            17,052           228,156
----------------------------------------------------------------------------------------------------------------
Minority interests ..........................................         29,869            33,595           289,990
----------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Note 17)

Shareholders' equity (Notes 1 and 11)
Common stock, (Yen)50 par value--
  Authorized, 3,965,000,000 shares in 2000 and 1999;
  Issued and outstanding, 968,921,701 shares
    in 2000 and 1999 ........................................         68,370            68,370           663,786
Capital surplus .............................................        117,366           117,083         1,139,476
Retained earnings:
  Appropriated for legal reserve ............................         20,431            20,200           198,359
  Unappropriated ............................................        305,483           298,122         2,965,854
Accumulated other comprehensive income (loss)
  (Notes 1, 5, 10 and 12) ...................................        (19,590)           (7,436)         (190,194)
Treasury stock at cost, 2,180,000 shares in 2000
  and 1,000,000 shares in 1999 (Note 11) ....................         (1,606)             (696)          (15,592)
----------------------------------------------------------------------------------------------------------------
Total shareholders' equity ..................................        490,454           495,643         4,761,689
----------------------------------------------------------------------------------------------------------------
                                                              (Yen)1,375,280    (Yen)1,524,600       $13,352,233
================================================================================================================
41
Consolidated Statements of Income
Komatsu Ltd. and Consolidated Subsidiaries
Years ended March 31, 2000, 1999 and 1998
Thousands of
                                                                                                 U.S. dollars
                                                                  Millions of yen                   (Note 1)
                                                ---------------------------------------------     ----------
                                                      2000            1999            1998            2000
------------------------------------------------------------------------------------------------------------
Revenues
Net sales (Note 6) ..........................   (Yen)1,055,654  (Yen)1,061,597  (Yen)1,104,077   $10,249,068
Interest and other income ...................           55,857          25,655          24,319       542,301
------------------------------------------------------------------------------------------------------------
Total .......................................        1,111,511       1,087,252       1,128,396    10,791,369
------------------------------------------------------------------------------------------------------------

Costs and expenses (Notes 14 and 15)
Cost of sales ...............................          796,820         807,255         826,627     7,736,116
Selling, general and administrative .........          241,516         250,061         234,352     2,344,816
Interest ....................................           24,392          21,219          17,138       236,816
Other .......................................           29,388          18,321          10,027       285,320
------------------------------------------------------------------------------------------------------------
Total .......................................        1,092,116       1,096,856       1,088,144    10,603,068
------------------------------------------------------------------------------------------------------------

Income (loss) before income taxes, minority
  interests and equity in earnings ..........           19,395          (9,604)         40,252       188,301
------------------------------------------------------------------------------------------------------------
Income taxes (Notes 1 and 13)
Current .....................................           18,158          19,083          21,436       176,291
Deferred ....................................           (8,208)        (17,022)           (595)      (79,689)
------------------------------------------------------------------------------------------------------------
Total .......................................            9,950           2,061          20,841        96,602
------------------------------------------------------------------------------------------------------------
Income (loss) before minority interests
  and equity in earnings ....................            9,445         (11,665)         19,411        91,699

Minority interests in income (loss) of
  consolidated subsidiaries .................              (88)          6,862            (933)         (854)

Equity in earnings (losses) of affiliated
  companies .................................            4,038          (7,575)            763        39,204
------------------------------------------------------------------------------------------------------------
Net income (loss) ...........................    (Yen)  13,395    (Yen)(12,378)    (Yen)19,241   $   130,049
============================================================================================================

                                                                Yen                                 U.S. cents
                                                  ------------------------------------------       ------------
Net income (loss) per share (Notes 1 and 16):
  Basic .....................................     (Yen)13.85    (Yen)(12.77)      (Yen)19.60        13.4(cent)
  Diluted ...................................          13.76         (12.77)           19.32        13.4
Dividends per share (Note 1) ................           6.00           7.00             8.00         5.8
=============================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

42
Consolidated Statements of Shareholders' Equity
Komatsu Ltd. and Consolidated Subsidiaries
Years ended March 31, 2000, 1999 and 1998
Thousands of
                                                                                                              U.S. dollars
                                                                            Millions of yen                     (Note 1)
                                                              ---------------------------------------------   ------------
                                                                 2000           1999              1998             2000
--------------------------------------------------------------------------------------------------------------------------
Common stock
Balance, beginning of year .................................  (Yen) 68,370     (Yen) 68,416    (Yen) 69,120    $   663,786
Purchase and retirement of common stock:
 921,000 shares in 1999 and
 14,079,000 shares in 1998 ..................................           --              (46)           (704)            --
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year .......................................  (Yen) 68,370     (Yen) 68,370    (Yen) 68,416    $   663,786
==========================================================================================================================
Capital surplus
Balance, beginning of year .................................  (Yen)117,083     (Yen)116,981    (Yen)116,981    $ 1,136,728
Sales of treasury stock ....................................           283              102              --          2,748
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year .......................................  (Yen)117,366     (Yen)117,083    (Yen)116,981    $ 1,139,476
==========================================================================================================================
Retained earnings
Appropriated for legal reserve
Balance, beginning of year .................................  (Yen) 20,200     (Yen) 19,921    (Yen) 19,846    $   196,116
Transfer from unappropriated retained earnings .............           231              279              75          2,243
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year .......................................  (Yen) 20,431     (Yen) 20,200    (Yen) 19,921    $   198,359
==========================================================================================================================
Unappropriated retained earnings
Balance, beginning of year .................................  (Yen)298,122    (Yen) 319,054    (Yen)316,259   $  2,894,388
Net income (loss) ..........................................        13,395          (12,378)         19,241        130,049
Cash dividends paid ........................................        (5,803)          (7,751)         (7,872)       (56,340)
Transfer to retained earnings appropriated for legal reserve          (231)            (279)            (75)        (2,243)
Purchase and retirement of common stock ....................            --             (524)         (8,499)            --
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year .......................................  (Yen)305,483    (Yen) 298,122    (Yen)319,054   $  2,965,854
==========================================================================================================================
Accumulated other comprehensive income (loss)
Balance, beginning of year .................................  (Yen) (7,436)   (Yen)    (171)   (Yen) 19,727    $   (72,194)
Other comprehensive income (loss) for the year, net of tax .       (12,154)          (7,265)        (19,898}      (118,000)
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year .......................................  (Yen)(19,590)   (Yen)  (7,436)   (Yen)   (171)   $  (190,194)
==========================================================================================================================
Treasury stock
Balance, beginning of year .................................  (Yen)   (696)   (Yen)      --    (Yen)     --    $    (6,757)
Purchase of treasury stock .................................          (925)          (1,175)             --         (8,981)
Sales of treasury stock ....................................            15              479              --            146
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year .......................................  (Yen) (1,606)   (Yen)    (696)   (Yen)     --    $   (15,592)
==========================================================================================================================
Total shareholders' equity .................................  (Yen)490,454    (Yen) 495,643    (Yen)524,201      4,761,689
==========================================================================================================================
Disclosure of comprehensive income (loss)
Net income (loss) for the year .............................  (Yen) 13,395    (Yen) (12,378)   (Yen) 19,241    $   130,049
Other comprehensive income (loss) for the year, net of tax .       (12,154)          (7,265)        (19,898)      (118,000)
--------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) for the year ...................  (Yen)  1,241    (Yen) (19,643)   (Yen)   (657)   $    12,049
==========================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

                                                                              43
Consolidated Statements of Cash Flows
Komatsu Ltd. and Consolidated Subsidiaries
Years ended March 31, 2000, 1999 and 1998
Thousands of
                                                                                                                       U.S. dollars
                                                                                    Millions of yen                       (Note 1)
                                                                    ------------------------------------------------   ------------
                                                                          2000              1999             1998           2000
-----------------------------------------------------------------------------------------------------------------------------------
Operating activities
Net income (loss)..................................................  (Yen)13,395        (Yen)(12,378)   (Yen) 19,241    $   130,049
Adjustments to reconcile net income (loss) to net
 cash provided by (used in) operating activities:
  Depreciation and amortization....................................       63,690              55,376          49,410        618,349
  Provision (reversal) for deferred income taxes...................       (8,208)            (17,022)           (595)       (79,689)
  Net loss (gain) from marketable securities and investments.......      (16,993)              4,679          (8,285)      (164,981)
  Gain on sale of property.........................................      (23,777)             (7,912)         (1,740)      (230,845)
  Loss on disposal or sale of fixed assets.........................       14,367               6,418           4,524        139,485
  Impairment loss on long-lived assets.............................        4,474                   -               -         43,437
  Gain on sale of minority interest in subsidiaries................            -                   -          (5,556)             -
  Provision (reversal) for postretirement benefits, net............      (10,920)             (9,282)           (725)      (106,019)
Changes in assets and liabilities:
  Decrease (increase) in trade receivables.........................      (13,448)             60,293          60,424       (130,563)
  Decrease (increase) in inventories...............................       13,683              (2,803)         (9,970)       132,845
  Increase (decrease) in trade payables............................        4,065             (47,541)        (24,612)        39,466
  Increase (decrease) in income taxes payable......................       (1,075)              5,304          (8,972)       (10,437)
Other, net.........................................................       (5,029)               (786)         (5,698)       (48,825)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities..........................       34,224              34,346          67,446        332,272
-----------------------------------------------------------------------------------------------------------------------------------
Investing activities
Capital expenditures...............................................      (57,728)           (114,874)       (123,026)      (560,466)
Proceeds from sales of property....................................       37,584              14,069           7,178        364,893
Proceeds from sales of marketable securities and investments.......      137,278              50,929          70,584      1,332,796
Purchases of marketable securities and investments.................      (98,218)            (25,062)        (27,362)      (953,573)
Proceeds from sale of minority interest............................            -                   -          13,065              -
Collection of loan receivables.....................................        5,066              13,441          10,162         49,185
Disbursement of loan receivables...................................       (4,930)            (17,731)        (27,913)       (47,864)
Decrease (increase) in time deposits...............................         (172)             15,225         (10,973)        (1,670)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities................       18,880             (64,003)        (88,285)       183,301
-----------------------------------------------------------------------------------------------------------------------------------
Financing activities
Proceeds from long-term debt.......................................       19,798             140,708          78,859        192,214
Repayments on long-term debt.......................................      (21,663)            (47,638)        (35,192)      (210,320)
Increase (decrease) in short-term debt.............................      (52,987)            (77,690)         15,803       (514,437)
Sales (repurchase) of common stock, net............................         (910)             (1,015)         (9,203)        (8,835)
Dividends paid.....................................................       (5,803)             (7,751)         (7,872)       (56,340)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities................      (61,565)              6,614          42,395       (597,718)
-----------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate change on cash and
 cash equivalents..................................................        1,636               1,082            (121)        15,883
-----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents...............       (6,825)            (21,961)         21,435        (66,262)
Cash and cash equivalents, beginning of year.......................       87,301             109,262          87,827        847,582
-----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year.............................  (Yen)80,476        (Yen) 87,301    (Yen)109,262    $   781,320
===================================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

44
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 heavy equipment, consisting of
various types of construction and mining equipment and industrial machinery
throughout the world, and also engage in manufacturing and sales of electronics
including semiconductor products, civil engineering and construction, 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, 2000, consisted of the following:

     Construction and mining equipment--67.6%, Electronics--8.5%, Civil
 engineering and construction--7.5%, Industrial machinery--2.9%, Others--13.5%.

     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
2000, 47.5% were generated outside Japan, with 23.0% in the Americas, 11.7% in
Europe, 9.4% in Asia (excluding Japan) and Oceania, and 3.4% 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, 2000, is included solely for the
convenience of readers outside Japan and has been made at the rate of (Yen)103
to $1, the approximate rate of exchange prevailing at the Federal Reserve Bank
of New York on March 31, 2000. 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 Company adopted the provision of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information" effective April 1, 1998, and made retroactive restatement
of the segment information for the year ended March 31, 1998, for which SFAS No.
14 was applied.

     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 foreign currency translation,
postretirement benefits, investments in debt and equity securities, valuation
losses of long-lived assets and accruals of certain expenses.

Summary of Significant Accounting Policies

(1) Consolidation and Investments in Affiliated Companies

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

     In September 1997, Komatsu Electronic Metals Co., Ltd. (KEM), a
consolidated manufacturing subsidiary of silicon wafers, completed an initial
public offering and listed its shares on the Tokyo Stock Exchange. The public
offering generated net proceeds to the companies of (Yen)13,065 million and a
gain of (Yen)5,556 million, reducing the companies' ownership interest in KEM
from 76.4% to 60.0%.

     In 1999, the Company increased its ownership in certain affiliated
companies namely Komatsu Zenoah Co., Komatsu Mining Germany GmbH, formerly Demag
Komatsu GmbH, and three other companies and those companies became consolidated
subsidiaries as of March 31, 1999.

     Investments in 20% to 50%-owned affiliated companies and certain minor
subsidiaries not consolidated are, with minor exceptions, accounted for by the
equity method. All significant intercompany transactions have been eliminated.
The excess cost of investments in the subsidiaries and affiliated companies over
their equity in the net assets at the dates of acquisition is generally being
amortized on a straight-line method over the estimated periods benefited, not
exceeding periods of 10 years.

(2) Translation of Foreign Currency Accounts

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

                                                                              45
(3) Marketable Securities and Investment Securities

In compliance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company has categorized current and noncurrent
marketable equity securities and debt securities as securities available for
sale and as a result are stated at fair value.

(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, 2000, 1999 and 1998, are
as follows:
2000      1999        1998
-------------------------------------------------------------------------------
Buildings.....................................        8%        8%          9%
Machinery and equipment.......................       25%       23%         26%
-------------------------------------------------------------------------------
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) Construction Contracts

Certain domestic subsidiaries engage in construction operations in Japan, which
include the construction of buildings and public works projects, such as bridges
and roads. Income from short-term construction contracts is recorded under the
completed-contract method of accounting. Income from long-term construction
contracts is generally recorded under the percentage-of-completion method of
accounting.

(7) Income Taxes

In accordance with SFAS No. 109, "Accounting for Income Taxes," the deferred tax
provision is determined by the asset and liability method. Under this method,
deferred tax assets and liabilities are recognized based on temporary
differences between financial statement and tax bases of assets and liabilities
using enacted tax rates as of each balance-sheet date. On March 31, 1999 and
1998, new income tax rates, effective April 1, 1999 and 1998, were enacted. The
effect on deferred tax assets and liabilities of changes in tax rates were
recognized in income in each year that included each enactment date.

     The companies compute and record income taxes currently payable based on
their separate determinations of taxable income which may be different from
accounting income.

     Provision for income taxes is not recorded for undistributed earnings of
foreign subsidiaries and affiliated companies because the Company considers that
such earnings are permanently reinvested and/or would not result in material
additional taxation should they be distributed to the Company under current
circumstances.

(8) Postretirement Benefits

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

     The Company adopted SFAS No. 132, "Employers' Disclosure about Pensions and
Other Postretirement Benefits," in the year ended March 31, 1999. SFAS No. 132
revised employers' disclosures about pension and other postretire-ment benefit
plans. SFAS No. 132 did not change the recognition or measurement of those plans
and did not affect the Company's consolidated financial position and results of
operations. All prior-year disclosures had been restated to conform with the
provisions of SFAS No. 132.

(9) Free Share Distribution

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

(10) Per Share Data

Basic net income (loss) per share has been computed by dividing net income
(loss) by the weighted-average number of common shares outstanding during each
fiscal year, after deducting treasury shares. Diluted net income (loss) per
share reflects the potential dilution and has been computed on the basis that
all convertible bonds were converted at the beginning of the year to the extent
that it is not antidilutive.

     Dividends per share shown in the accompanying consolidated statements of
income have been presented on an accrual basis and include, in each fiscal year
ended March 31, dividends approved or to be approved by shareholders after such
date, but applicable to the year then ended.

46
(11) Consolidated Statements of Cash Flows

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

(12) Derivative Financial Instruments

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

Financial Instruments Qualifying as Hedge

The companies enter into interest rate swap and cap agreements as a means of
managing their rate exposures. Interest differentials on those interest rate
swaps are accrued as interest rate change over the contract period. Premiums
paid for interest rate caps are amortized over the life of contracts and are
expensed as a part of interest expense.

     The companies also enter into forward exchange contracts and swaps to hedge
foreign currency exposure arising from foreign currency assets and liabilities
and sales commitments.

     Gains and losses on the foreign exchange contracts are recognized based on
changes in exchange rates, and are offset by corresponding foreign exchange
gains or losses on such assets and liabilities being hedged.

     Gains and losses on the forward exchange contracts to hedge foreign
currency commitments are deferred and included in the measurement of the related
transactions, unless it is estimated that such deferral would lead to
recognizing losses in later periods.

Financial Instruments Not Qualifying as Hedge

In May 1999, the Company entered into interest rate swap contracts with the
notional amount of (Yen)40,000 million ($388,350 thousand) as a means of
managing the Company and its group companies' interest rate exposures. Those
contracts did not meet the hedge criteria. Accordingly, those interest rate
swaps were recorded in the accompanying consolidated balance sheets at their
fair value as of March 31, 2000, and the resultant gains from those interest
rate swaps of (Yen)401 million ($3,893 thousand) were recognized in "Interest
and other income" in the accompanying consolidated statements of income for the
year ended March 31, 2000.

(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.

     On November 9, 1998, the Company announced its plans to restructure the
domestic manufacturing plants for construction equipment, which also covered
some of the group companies. Under such plans, the Company has been combining
the manufacturing facilities of certain manufacturing plants of Komatsu and
certain consolidated subsidiaries in order to achieve optimal manufacturing
operations by improving the productivity of manufacturing through disposal of
certain properties on a consolidated basis. This restructuring plan will be
completed in the first half of the fiscal year ending March 31, 2001.

     As part of this restructuring plan, specified manufacturing facilities of
certain consolidated subsidiaries were disposed of during fiscal 2000. Disposal
losses of (Yen)196 million ($1,903 thousand) and (Yen)1,000 million were charged
to income in fiscal 2000 and 1999, respectively. Expected disposal losses on
those manufacturing facilities of approximately (Yen)1,000 million as of March
31, 1999 were accrued and included in other current liabilities in the
accompanying consolidated financial statements.

     In fiscal 2000, the Company recorded impairment losses on long-lived assets
at its wholly owned subsidiary in the electronics segment. Such impairment
losses were calculated using the best estimate of discounted future cash flows
based on the assumption to continue its operation. However, because of
uncertainties in management's best estimate of future cash flows based on the
assumption to continue its operation, the actual result with regard to losses of
long-lived assets may have a materially unfavorable impact on the Company if the
assumption of cash flow projection is changed in future.

(14) Comprehensive Income

The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in the year
ended March 31, 1999. Comprehensive income consists of net income, changes in
foreign currency translation adjustments, net unrealized holding gains on
securities available for sale and pension liability adjustments, and is included
in the consolidated statements of shareholders' equity. SFAS No. 130 requires
only additional disclosures in the consolidated financial statements and does
not affect the Company's consolidated financial position and results of
operations. Consolidated financial statements for fiscal 1998 have been
reclassified to conform with the provisions of SFAS No. 130.

(15) Use of Estimates

The Company's management has made a number of estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses,
including impairment losses of long-lived assets and the disclosures of fair
value

                                                                              47
of financial instruments and contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from the estimates and assumptions.

(16) New Accounting Standards

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income (loss),
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, depending on the type of hedge transaction. The ineffective
portion of all hedges will be recognized in earnings. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133." This statement
defers the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000. The Company will adopt SFAS No. 133 for the year beginning April 1,
2001. Currently, the effect on the Company's consolidated financial statements
of adopting SFAS No. 133 has not been determined.

     In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position No. 98-1 (SOP 98-1), "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
provides guidance on when costs for internal-use computer software should be
capitalized or expensed as incurred and is effective for fiscal years beginning
after December 15, 1998. The effect of adopting this statement was immaterial on
the companies' financial positions and results of operations as of and for the
year ended March 31, 2000.

     In April 1998, the AICPA also issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that costs of start-up activities,
including organization costs, should be expensed as incurred. This is effective
for fiscal years beginning after December 15, 1998. The effect of adopting this
statement was immaterial on the companies' financial positions and results of
operations as of and for the year ended March 31, 2000.

2. Supplemental Cash Flow Information
===============================================================================
Additional cash flow information and noncash investing and financing activities for the years ended March 31, 2000, 1999 and 1998,
are as follows:
                                                                                                               Thousands of
                                                                           Millions of yen                     U.S. dollars
---------------------------------------  -------------------
2000             1999           1998            2000
-------------------------------------------------------------------------------------------------------------------------------
Additional cash flow information:
  Interest paid.......................................               (Yen)25,007    (Yen)21,235     (Yen)16,774   $  242,786
  Income taxes paid...................................                    20,922         14,172          30,286      203,126
-------------------------------------------------------------------------------------------------------------------------------
Noncash investing and financing activities:
  Assets and liabilities of certain companies consolidated
   commencing in fiscal 2000, 1999 and 1998 (Note 6):
   Total assets......................................                (Yen)9,021    (Yen)100,716     (Yen)50,392   $  87,583
   Total liabilities.................................                     6,478          67,746          32,056      62,893
-------------------------------------------------------------------------------------------------------------------------------
3. Trade Notes and Accounts Receivable
===============================================================================
The Company and certain of its subsidiaries follow the practice of including
installment receivables due after one year (less unearned interest) in current
assets. Receivables due after one year (less unearned interest) amounted to
(Yen)56,874 million ($552,175 thousand) and (Yen)37,196 million at March 31,
2000 and 1999, respectively.

48
4. Inventories
================================================================================

At March 31, 2000 and 1999, inventories comprised the following:
Thousands of
                                                                           Millions of yen        U.S. dollars
                                                                      --------------------------  ------------
                                                                          2000         1999            2000
--------------------------------------------------------------------------------------------------------------
Finished products, including finished parts held for sale.......      (Yen)138,230  (Yen)155,096    1,342,039
Work in process.................................................            45,376        59,259      440,544
Materials and supplies..........................................            25,483        30,513      247,407
--------------------------------------------------------------------------------------------------------------
Total...........................................................      (Yen)209,089  (Yen)244,868    2,029,990
==============================================================================================================
5. Marketable Securities and Investment Securities
================================================================================

Marketable securities and investment securities at March 31, 2000 and 1999,
primarily consisted of securities available for sale.

The cost, gross unrealized holding gains and losses, and fair value for such
securities by major security types at March 31, 2000 and 1999, are as follows:
Millions of yen
                                                       -------------------------------------------------------------
                                                                          Gross unrealized holding
                                                                     ----------------------------------
                                                           Cost            Gains          Losses         Fair value
--------------------------------------------------------------------------------------------------------------------
At March 31, 2000
Marketable securities available for sale:
  Marketable debt securities.....................      (Yen)   107     (Yen)     -       (Yen)  -        (Yen)   107
  Marketable equity securities...................           27,712          13,149            749             40,112
--------------------------------------------------------------------------------------------------------------------
                                                       (Yen)27,819     (Yen)13,149       (Yen)749        (Yen)40,219
--------------------------------------------------------------------------------------------------------------------
Investment securities available for sale:
  Marketable debt securities.....................      (Yen)     3     (Yen)     8       (Yen)  -        (Yen)    11
  Marketable equity securities...................           33,527          32,021            267             65,281
  Other investment securities....................           10,643               -              -             10,643
--------------------------------------------------------------------------------------------------------------------
                                                       (Yen)44,173     (Yen)32,029       (Yen)267        (Yen)75,935
====================================================================================================================
Millions of yen
                                                       -------------------------------------------------------------
                                                                          Gross unrealized holding
                                                                     ----------------------------------
                                                           Cost            Gains          Losses         Fair value
--------------------------------------------------------------------------------------------------------------------
At March 31, 1999
Marketable securities available for sale:
  Marketable debt securities......................     (Yen) 2,851     (Yen)    12      (Yen)    -       (Yen) 2,863
  Marketable equity securities....................          35,357          18,933           2,719            51,571
--------------------------------------------------------------------------------------------------------------------
                                                       (Yen)38,208     (Yen)18,945      (Yen)2,719       (Yen)54,434
--------------------------------------------------------------------------------------------------------------------
Investment securities available for sale:
  Marketable debt securities
  Marketable equity securities....................     (Yen)    30     (Yen)     -      (Yen)    -       (Yen)    30
  Other investment securities.....................          40,395          33,858           1,442            72,811
                                                            15,606               -               -            15,606
--------------------------------------------------------------------------------------------------------------------
                                                       (Yen)56,031     (Yen)33,858      (Yen)1,442       (Yen)88,447
====================================================================================================================
Millions of yen
                                                       -------------------------------------------------------------
                                                                          Gross unrealized holding
                                                                     ----------------------------------
                                                           Cost            Gains          Losses         Fair value
--------------------------------------------------------------------------------------------------------------------
At March 31, 2000
Marketable securities available for sale:
  Marketable debt securities......................     $    1,039      $        -        $     -          $    1,039
  Marketable equity securities....................        269,049         127,660          7,272             389,437
--------------------------------------------------------------------------------------------------------------------
                                                       $  270,088      $  127,660        $ 7,272          $  390,476
--------------------------------------------------------------------------------------------------------------------
Investment securities available for sale:
  Marketable debt securities......................     $       29      $       78        $     -          $      107
  Marketable equity securities....................        325,505         310,883          2,592             633,796
  Other investment securities.....................        103,330               -              -             103,330
--------------------------------------------------------------------------------------------------------------------
                                                       $  428,864      $  310,961        $ 2,592          $  737,233
====================================================================================================================
49
Maturities of marketable debt securities at March 31, 2000 and 1999
primarily fall within five years.

     Unrealized holding gains and losses are included as a component of
shareholders' equity until realized.

     Proceeds from the sales of securities available for sale were (Yen)137,278
million ($1,332,796 thousand), (Yen)50,929 million and (Yen)70,584 million for
the years ended March 31, 2000, 1999 and 1998, respectively.

     Net realized gains (losses) on the sales of securities available for sale
during the years ended March 31, 2000, 1999 and 1998, amounted to (Yen)16,993
million ($164,981 thousand), (Yen)(4,679) million and (Yen)8,285 million,
respectively. They were included in the determination of net income. The cost of
the securities sold was computed based on the average-cost method.

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

At March 31, 2000 and 1999, investments in and advances to affiliated companies
comprised the following:
Thousands of
                                                                           Millions of yen        U.S. dollars
                                                                      --------------------------  ------------
                                                                          2000         1999            2000
--------------------------------------------------------------------------------------------------------------
Investments in capital stock...................................       (Yen)26,635    (Yen)24,308    $ 258,592
Advances.......................................................               211          7,208        2,049
--------------------------------------------------------------------------------------------------------------
Total..........................................................       (Yen)26,846    (Yen)31,516    $ 260,641
==============================================================================================================
The carrying value of investments in the affiliated companies at March 31,
1999 included (Yen)908 million, representing the unamortized balance of the
excess of the cost of investments over the companies' equity in the net assets,
at date of acquisition.

     The companies own a 39.2% (27.2% in 1999) interest in Komatsu Forklift Co.,
Ltd., which manufactures and distributes forklift products. The common stock of
the above affiliated company is publicly traded. The carrying values of this
investment at March 31, 2000 and 1999, were (Yen)14,903 million ($144,689
thousand) and (Yen)9,003 million, respectively, with corresponding quoted market
values of (Yen)5,228 million ($50,757 thousand) and (Yen)3,826 million,
respectively.

     In the late part of the fiscal year ended March 31, 1999, the Company
increased its ownership percentage in Komatsu Zenoah Co., to 51.2% (33.2% in
1998). As a result, Komatsu Zenoah Co. has been reflected as a consolidated
subsidiary of the Company effective March 31, 1999.

     Dividends received from affiliated companies were (Yen)324 million ($3,146
thousand), (Yen)25 million and (Yen)485 million during the years ended March 31,
2000, 1999 and 1998, respectively.

     Trade notes and accounts receivable from affiliated companies at March 31,
2000 and 1999, were (Yen)44,050 million ($427,670 thousand) and (Yen)47,537
million, respectively.

     Short-term loans receivable from affiliated companies at March 31, 2000 and
1999, were (Yen)19,200 million ($186,408 thousand) and (Yen)21,146 million,
respectively.

     Trade notes and accounts payable to affiliated companies at March 31, 2000
and 1999, were (Yen)5,506 million ($53,456 thousand) and (Yen)7,300 million,
respectively.

     Net sales for the years ended March 31, 2000, 1999 and 1998, included net
sales to affiliated companies in the amounts of (Yen)83,001 million ($805,835
thousand), (Yen)87,643 million and (Yen)96,829 million, respectively.

     Summarized financial information for affiliated companies at March 31, 2000
and 1999, and for the years ended March 31, 2000, 1999 and 1998, is as follows:
Thousands of
                                                                           Millions of yen        U.S. dollars
                                                                      --------------------------  ------------
                                                                          2000         1999            2000
--------------------------------------------------------------------------------------------------------------
Current assets..................................................      (Yen)155,703  (Yen)172,767   $ 1,511,680
Net property, plant and equipment...............................            60,649        61,183       588,825
Other assets....................................................            32,792        36,862       318,369
--------------------------------------------------------------------------------------------------------------
Total assets....................................................      (Yen)249,144  (Yen)270,812   $ 2,418,874
==============================================================================================================
Current liabilities.............................................      (Yen)153,662  (Yen)187,504   $ 1,491,864
Noncurrent liabilities..........................................            21,256        23,724       206,369
Shareholders' equity............................................            74,226        59,584       720,641
--------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity......................      (Yen)249,144  (Yen)270,812   $ 2,418,874
==============================================================================================================
50
Thousands of
                                                                                   Millions of yen                U.S. dollars
                                                                      ----------------------------------------    ------------
                                                                          2000         1999            1998            2000
------------------------------------------------------------------------------------------------------------------------------
Net sales.....................................................        (Yen)271,831  (Yen)259,870  (Yen)420,989    $  2,639,136
==============================================================================================================================
Net income (loss).............................................        (Yen)  8,259  (Yen)(15,873) (Yen)  6,486    $     80,184
==============================================================================================================================
The summarized financial information as of and for the year ended March 31,
1998 included the accounts of Komatsu Zenoah Co., Komatsu Mining Germany GmbH,
formerly Demag Komatsu GmbH, and three other companies, which were newly
consolidated in fiscal 1999. The aggregated net sales of those companies for the
year ended March 31, 1998 amounted to (Yen)124,324 million and the aggregated
net income of those companies amounted to (Yen)2,739 million.

     The aggregate net sales and net losses of those consolidated companies for
the year ended March 31, 1999 would have amounted to (Yen)79,385 million and
(Yen)717 million, respectively, if those companies were consolidated
subsidiaries at the beginning of fiscal 1999.

     The impact on net loss per share would not have been material if those
companies were consolidated at the beginning of fiscal 1999.

7. Property, Plant and Equipment
================================================================================

The major classes of property, plant and equipment at March 31, 2000 and 1999,
are as follows:
Thousands of
                                                                             Millions of yen         U.S. dollars
                                                                      ----------------------------   ------------
                                                                          2000           1999             2000
-----------------------------------------------------------------------------------------------------------------
Land..............................................................    (Yen)  58,856   (Yen)  59,745   $   571,417
Buildings.........................................................          270,961         272,279     2,630,689
Machinery and equipment...........................................          533,075         527,026     5,175,486
Construction in progress..........................................           56,252          91,687       546,136
-----------------------------------------------------------------------------------------------------------------
Total.............................................................          919,144         950,737     8,923,728
Less: accumulated depreciation....................................         (521,610)       (510,031)   (5,064,175)
-----------------------------------------------------------------------------------------------------------------
Net property, plant and equipment.................................    (Yen) 397,534   (Yen) 440,706   $ 3,859,553
=================================================================================================================
8. Pledged Assets

At March 31, 2000, assets pledged as collateral for short-term debt and
long-term debt are as follows:
Thousands of
                                                                       Millions of yen        U.S. dollars
--------------------------------------------------------------------------------------        ------------
Time deposits........................................................      (Yen)   707           $   6,864
Trade notes and accounts receivable..................................              671               6,514
Property, plant and equipment-Less accumulated depreciation..........           45,809             444,748
----------------------------------------------------------------------------------------------------------
Total................................................................      (Yen)47,187           $ 458,126
==========================================================================================================
The above pledged assets were classified by type of liabilities to which
they relate as follows:
Thousands of
                                                                       Millions of yen        U.S. dollars
--------------------------------------------------------------------------------------        ------------
Liabilities appearing in the consolidated balance sheets as:
     Short-term debt.................................................      (Yen) 1,428           $  13,864
     Long-term debt..................................................           45,759             444,262
----------------------------------------------------------------------------------------------------------
Total................................................................      (Yen)47,187           $ 458,126
==========================================================================================================
51
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, 2000 and 1999, were 2.4% and 3.9%, respectively. The Company and certain
consolidated subsidiaries have unused committed lines of credit amounting to
(Yen)49,282 million ($478,466 thousand) with certain financial institutions at
the end of fiscal 2000.

     Long-term debt at March 31, 2000 and 1999, consisted of the following:
Thousands of
                                                                                   Millions of yen             U.S. dollars
                                                                            -------------------------------  ----------------
                                                                                 2000            1999               2000
-----------------------------------------------------------------------------------------------------------------------------
Long-term debt with collateral (Note 8):
   Banks, insurance companies and other financial institutions,
     maturing serially through 2000-2029, weighted-average rate 4.3%
        Government-owned banks and government agencies.....................   (Yen) 14,608    (Yen) 23,658        $  141,825
        Other..............................................................          6,459           8,136            62,709
Long-term debt without collateral:
   Banks, insurance companies and other financial institutions,
     maturing serially through 2000-2022, weighted-average rate 3.3%.......        104,818         127,494         1,017,650
   Euro Medium-Term Notes with various interest rates maturing serially
     through 2000-2009.....................................................         90,959          82,984           883,097
   9.6% Bonds due 1999 (payable in U.S. dollars)...........................             --           3,942                --
   6.9% Senior Notes due 2003 (payable in U.S. dollars)....................         11,981          13,537           116,320
   1.8% Convertible Unsecured Bonds due 2004...............................         27,447          25,741           266,476
   7.0% Senior Notes due 2005 (payable in U.S. dollars)....................          7,270           8,215            70,583
   1.9% Unsecured Bonds due 2006...........................................         35,000          35,000           339,806
   Other...................................................................          1,053           1,148            10,224
----------------------------------------------------------------------------------------------------------------------------
Total......................................................................        299,595         329,855         2,908,690
Less: current maturities...................................................        (54,306)        (37,605)         (527,243)
----------------------------------------------------------------------------------------------------------------------------
Long-term debt.............................................................   (Yen)245,289    (Yen)292,250        $2,381,447
============================================================================================================================
The conversion price per share of the 1.8% convertible unsecured bonds at
March 31, 2000, was (Yen)971.2, which is subject to adjustments under certain
conditions. These bonds are redeemable anytime before maturity at the option of
the Company, at the initial redemption price of 104% of the principal.

     In 1996, the Company, Komatsu Finance America Inc., and Komatsu Finance
(Netherlands) B.V. (the "Issuers") registered the US$1.0 billion Euro Medium-
Term Note Program on the London Stock Exchange. On April 1, 1999, the registered
amounts of Euro Medium-Term Notes Program were increased to US$1.2 billion. On
March 31, 2000, Komatsu Australia 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)29,800 million ($289,320
thousand) and US$0 million during fiscal 2000, and (Yen)50,900 million and US$39
million during fiscal 1999 of Euro Medium-Term Notes with various interest rates
and maturity dates. Komatsu Finance (Netherlands) B.V. issued (Yen)8,139 million
($79,019 thousand) during fiscal 2000 of Euro Medium-Term Notes with various
interest rates and maturity dates. To offset market risk exposure arising from
changes in foreign exchange rates and interest rates on debts under the Program,
cross-currency interest rate swap and interest rate swap contracts are utilized.
The cross-currency interest rate swap contracts effectively convert yen-
denominated debts and related interest into U.S. dollar 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%, and LIBOR minus 0.10% to LIBOR flat for the
years ended March 31, 2000 and 1999, respectively, depending upon the contract.
The floating interest rates for fiscal 2000 and 1999 ranged from 4.87% to 6.69%
and 5.10% to 6.00%, 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.

52
Annual maturities of long-term debt subsequent to March 31, 2000, are as
follows:
Thousands of
Year ending March 31           Millions of yen    U.S. dollars
----------------------------------------------   --------------
2001..........................  (Yen)  54,306      $   527,243
2002..........................         40,147          389,777
2003..........................         42,074          408,485
2004..........................         70,426          683,748
2005..........................         11,918          115,709
2006 and thereafter...........         80,724          783,728
--------------------------------------------------------------
Total.........................  (Yen) 299,595      $ 2,908,690
==============================================================
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, 2000,
1999 and 1998, included the following components:
Thousands of
                                                                     Millions of yen                  U.S. dollars
                                                     ---------------------------------------------    ------------
                                                        2000               1999            1998            2000
------------------------------------------------------------------------------------------------------------------
Service cost--Benefits earned during the year....... (Yen) 5,122       (Yen) 4,828      (Yen) 4,909      $ 49,728
Interest cost on projected benefit obligation.......       3,907             4,428            4,448        37,932
Expected return on plan assets......................      (1,294)           (1,147)          (1,404)      (12,563)
Net amortization and deferral.......................       2,834             1,726            1,648        27,515
-----------------------------------------------------------------------------------------------------------------
Net periodic cost................................... (Yen)10,569       (Yen) 9,835      (Yen) 9,601      $102,612
=================================================================================================================
The reconciliations of beginning and ending balances of the benefit
obligations and the fair value of the plan assets of the Company's plan are as
follows:
Thousands of
                                                                                   Millions of yen             U.S. dollars
                                                                            -------------------------------  ----------------
                                                                                 2000            1999               2000
-----------------------------------------------------------------------------------------------------------------------------
Change in benefit obligation:
   Benefit obligation, beginning of year.................................   (Yen)126,051     (Yen)126,538        $1,223,797
   Service cost..........................................................          5,122            4,828            49,728
   Interest cost.........................................................          3,907            4,428            37,932
   Actuarial loss........................................................          3,460            7,208            33,592
   Benefits paid.........................................................        (15,111)         (16,951)         (146,709)
---------------------------------------------------------------------------------------------------------------------------
   Benefit obligation, end of year.......................................   (Yen)123,429     (Yen)126,051        $1,198,340
===========================================================================================================================

Change in plan assets:
   Fair value of plan assets, beginning of year..........................   (Yen) 60,312     (Yen) 54,365        $  585,552
   Actual return on plan assets..........................................          4,045              499            39,272
   Employer contribution.................................................         13,192           10,692           128,078
   Benefits paid.........................................................         (5,114)          (5,244)          (49,650)
---------------------------------------------------------------------------------------------------------------------------
   Fair value of plan assets, end of year................................   (Yen) 72,435     (Yen) 60,312        $  703,252
===========================================================================================================================
53
Thousands of
                                                                                          Millions of yen           U.S. dollars
                                                                                   ------------------------------   ------------
                                                                                         2000           1999              2000
--------------------------------------------------------------------------------------------------------------------------------
Funded status..................................................................    (Yen)(50,994)     (Yen)(65,739)    $ (495,087)
Unrecognized net loss..........................................................          21,251            32,032        206,320
Unrecognized net obligation at transition being recognized over 15 years.......           3,133             3,915         30,417
Unrecognized prior service cost being recognized over 15 years.................           4,718             5,264         45,806
--------------------------------------------------------------------------------------------------------------------------------
Net amount recognized..........................................................    (Yen)(21,892)     (Yen)(24,528)    $ (212,544)
================================================================================================================================
Net amounts recognized in the consolidated balance sheets consist of:
  Liability for postretirement benefits........................................    (Yen)(36,031)     (Yen)(50,550)    $ (349,816)
  Intangible assets included in other assets...................................           7,851             9,179         76,223
  Amount included in accumulated other comprehensive
   income (loss), gross of tax.................................................           6,288            16,843         61,049
--------------------------------------------------------------------------------------------------------------------------------
Net amount recognized..........................................................    (Yen)(21,892)     (Yen)(24,528)    $ (212,544)
================================================================================================================================
Assumptions used in determining costs of the Company's plan and the funded
status information shown above are as follows:
2000      1999         1998
---------------------------------------------------------------------
Weighted-average discount rate.........   3.1%      3.1%         3.5%
Rate of increase in future
  compensation levels..................   2.1%      2.4%         2.4%
Expected long-term rate of
  return on plan assets................   2.3%      2.1%         2.6%
---------------------------------------------------------------------
As a result of the changes in the discount rate in fiscal 1999, the benefit
obligation as of March 31, 1999, was approximately (Yen)3,749 million more than
it would have been using the previous 3.5% discount rate. The effect of those
changes had no material impact on the net periodic costs.

  Certain foreign subsidiaries have various funded pension plans, of which the
plan assets and the projected benefit obligations were calculated under the
provisions of SFAS No. 87. The aggregated fair value of plan assets as of March
31, 2000 and 1999, was approximately (Yen)8,297 million ($80,553 thousand) and
(Yen)8,195 million, respectively, and the aggregated benefit obligations as of
March 31, 2000 and 1999, were approximately (Yen)7,865 million ($76,359
thousand) and (Yen)9,063 million, respectively. Discount rates of 6.5% to 7.5%
and expected long-term rates of return on plan assets of 7.5% to 9.0% were used
as assumptions in determining the actuarial value of benefit obligations for the
years ended March 31, 2000, 1999 and 1998.

  Certain domestic subsidiaries also have unfunded severance payment plans
and/or pension plans similar to those of the Company for their employees with
estimated accumulated benefit obligations of approximately (Yen)11,000 million
($106,796 thousand) as of March 31, 2000, which were approximately equal to the
aggregated fair value of plan assets and accruals. The amounts of net periodic
costs of certain foreign and domestic subsidiaries for the years ended March 31,
2000, 1999 and 1998, were (Yen)2,945 million ($28,592 thousand), (Yen)2,901
million and (Yen)3,110 million, respectively.

  Directors of the Company and domestic subsidiaries are primarily covered by
unfunded retirement allowances plans.

  Under the unfunded plans described in the preceding paragraphs, the amounts
required if all employees and directors had voluntarily terminated their
employment at each balance-sheet date are fully accrued. The payments to
directors are subject to shareholders' approval.

  During fiscal 1999, the Company and certain consolidated subsidiaries offered
retirement incentive programs to employees. Expenses of (Yen)215 million ($2,087
thousand) and (Yen)6,476 million under this program were charged to income in
fiscal 2000 and 1999, respectively, and paid or accrued severance payments for
the employees who had accepted their entitlement to such programs up to March
31, 1999. Accrual for those employees as of March 31, 1999 was included in
liability for postretirement benefits in the accompanying consolidated balance
sheets, which amounted to (Yen)2,765 million.

  Total expenses of all severance-payment and pension plan premiums charged to
income for the years ended March 31, 2000, 1999 and 1998, were (Yen)14,140
million ($137,282 thousand), (Yen)17,015 million and (Yen)13,297 million,
respectively. Total expenses of all severance payments for the years ended March
31, 2000 and 1999 included the additional severance payment under the retirement
incentive programs paid up to March 31, 2000.

  Certain foreign subsidiaries have postretirement benefit plans other than
pensions, which are primarily not funded. The accumulated postretirement benefit
obligation at March 31, 2000 and 1999, was (Yen)3,714 million ($36,058 thousand)
and (Yen)4,869 million, respectively, and the accrued postretirement benefit
obligation at March 31, 2000 and 1999, was (Yen)2,955 million ($28,689 thousand)
and (Yen)3,229 million, respectively. The amounts of net periodic postretirement
benefits other than pensions for the years ended March 31, 2000, 1999 and 1998,
were not material.

54
11. Shareholders' Equity
================================================================================

(1) Common Stock and Capital Surplus

Under the Commercial Code of Japan ("the Code"), certain issuance of common
shares, including conversions of debt issued and exercises of warrants, are
required to be credited to the common stock account for at least the greater of
par value or 50% of the proceeds.

  The Code permits, upon approval of the Board of Directors, transfer of amounts
from capital surplus to the common stock. Pursuant to resolutions of the Board
of Directors, the Company from time to time has made free share distributions
(Note 1). Such free share distributions have been accounted for by a transfer
from capital surplus to common stock of the aggregate par value of shares issued
or no change in common stock and capital surplus. Publicly owned corporations in
the United States issuing shares in similar transactions would be required to
account for them as stock dividends as of the shareholders' record date by
reducing retained earnings and increasing appropriate capital accounts by an
amount equal to the fair value of the shares issued.

  If such United States practice had been applied to the cumulative free
distributions made by the Company, capital surplus at March 31, 2000, would have
been increased by (Yen)103,189 million ($1,001,835 thousand) with a
corresponding decrease in unappropriated retained earnings. If all convertible
bonds were converted at March 31, 2000, 28,260,914 shares of the Company's
common stock would be issuable. At March 31, 2000 and 1999, affiliated companies
owned 4,368,021 and 7,179,857 shares of the Company's common stock,
respectively.

(2) Retirement of the Company's Outstanding Shares

The Commercial Code of Japan permits a company to retire a portion of its
outstanding shares upon approval of the shareholders at the annual general
shareholders' meeting or of the Board of Directors if stipulated in the Articles
of Corporation. On November 10, 1997, the Board of Directors passed a resolution
approving the purchase and the retirement of the outstanding shares of the
Company up to a maximum aggregate acquisition cost of (Yen)10,000 million and up
to a maximum of 15,000,000 shares.

  By March 31, 1999, the Company purchased 15,000,000 shares based on the
resolution of the Board of Directors on November 10, 1997, and had retired
shares totaling (Yen)9,203 million in 1998 and (Yen)570 million in 1999.

  On May 2, 2000, the Board of Directors passed a resolution approving the
purchase and retirement of outstanding shares of the Company up to a maximum
aggregate acquisition cost of (Yen)7,000 million ($67,961 thousand) and up to a
maximum of 10,000,000 shares before the close of the next general shareholders'
meeting in 2001 as permitted by the Company's Articles of Corporation.

  By May 17, 2000, the Company purchased and retired 10,000,000 shares having a
market value of (Yen)6,340 million
($61,553 thousand) based on the resolution of the Board of Directors on May 2,
2000.

(3) Appropriated for Legal Reserve

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

(4) Unappropriated Retained Earnings and Dividends

The amount of retained earnings available for dividends under the Code is based
on the amount recorded in the Company's general books of account maintained in
accordance with generally accepted Japanese accounting practices. The
adjustments included in the accompanying financial statements but not recorded
in the general books of account, as explained under "Basis of Financial
Statements" in Note 1, have no effect on the determination of retained earnings
available for dividends under the Code. In addition to the Code provision
requiring an appropriation for legal reserve as discussed above, the Code
imposes certain limitations on the amount of retained earnings available for
dividends. Retained earnings of (Yen)271,680 million ($2,637,670 thousand),
shown by the Company's general books of account as of March 31, 2000, is not
restricted by the limitations under the Code.

  The Code permits transfers, upon approval of shareholders, of a portion of
unappropriated retained earnings available for dividends to capital stock
account without issuance of any shares. Dividends are approved by the
shareholders at the meeting held subsequent to the statutory fiscal period to
which the dividends are applicable. A semiannual interim dividend payment may be
made by resolution of the Board of Directors. Such dividends are payable to
shareholders of record at the end of each such fiscal or interim six-month
period.

  On June 28, 2000, the shareholders authorized payment of a cash dividend
totaling (Yen)2,900 million ($28,155 thousand) to shareholders of record on
March 31, 2000. In accordance with the Code, the declaration of this dividend
has not been reflected in the consolidated financial statements as of March 31,
2000. Dividends are reported in the Consolidated Statements of Shareholders'
Equity when paid.

                                                                              55
(5) Stock Option Plan

On June 26, 1998, the shareholders authorized the acquisition of 1,000,000
shares of the Company's common stock for the total consideration not exceeding
(Yen)1,000 million during the period up to the close of the following annual
general shareholders' meeting in fiscal 1999.

  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 ($11,650 thousand) 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 26,
1998, and June 29, 1999, the Company acquired 1,000,000 shares and 1,200,000
shares of its common stock from the market for the plan during the years ended
March 31, 1999 and 2000, respectively. The options vest 100% on each of the
grant dates and were and will be exercisable from July 1, 1999 and 2000,
respectively.

  SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair value
based method of accounting for a stock option. This statement gives entities a
choice of recognizing related compensation expense by adopting the new fair
value method or to continue to measure compensation using the intrinsic value
approach under APB Opinion No. 25 ("Accounting for Stock Issued to Employees"),
the former standard. The Company chose to use the measurement prescribed by APB
Opinion No. 25 and no additional compensation cost was incurred in fiscal 2000
and 1999. Had compensation cost for the Company's stock option plans been
determined consistent with SFAS No. 123, the Company's net income (loss) and net
income (loss) per share for the years ended March 31, 2000 and 1999 would have
been as follows:
Thousands of
                                                                               Millions of yen                U.S. dollars
                                                                       -----------------------------          ------------
                                                                             2000            1999                  2000
--------------------------------------------------------------------------------------------------------------------------
Net income (loss)................................................       (Yen)13,451  (Yen)(12,648)              $ 130,592

                                                                                      Yen                       U.S. cents
                                                                       -----------------------------            ----------
                                                                              2000         1999                    2000
-------------------------------------------------------------------    -----------------------------            ----------
Net income (loss) per share
  Basic............................................................        (Yen)13.60   (Yen)(13.05)               13.2c
  Diluted..........................................................             13.51        (13.05)               13.1
The following table summarizes information about stock option activity for
fiscal 2000 and 1999:
Weighted average                Weighted
                                            Number of            exercise price                  average           Exercise price
                                                          --------------------------------                       ------------------
                                             shares           Yen          U.S. dollars       remaining Life       Low       High
-----------------------------------------------------------------------------------------------------------------------------------
Outstanding at March 31, 1998...........           --             --
Granted.................................    1,000,000       (Yen)700
Exercised...............................           --             --
Cancelled or Expired....................           --             --
----------------------------------------   ----------------------------------------------------------------------------------------
Outstanding at March 31, 1999...........    1,000,000       (Yen)700
Granted.................................    1,200,000       (Yen)820                7.96
Exercised...............................           --             --                 --
Cancelled or Expired....................      (20,000)      (Yen)820                7.96
----------------------------------------   ----------------------------------------------------------------------------------------
Outstanding at March 31, 2000...........    2,180,000       (Yen)765                7.43      4.79 years         (Yen)700  (Yen)820

[Exercisable at March 31, 1999].........           --             --
[Exercisable at March 31, 2000].........    1,000,000       (Yen)700                6.80
-----------------------------------------------------------------------------------------------------------------------------------
The fair value of these stock options was estimated using the Black-Scholes
option pricing model under the following assumptions:
2000               1999
--------------------------------------------------------------------
Grant-date fair value............  (Yen)207 (2.01)        (Yen)270
Expected life....................      6 years             6 years
Risk-free rate...................       1.23%              1.35%
Expected volatility..............      29.00%             44.00%
Expected dividend yield..........       0.63%              1.14%
--------------------------------------------------------------------
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 ($9,709 thousand), with the same conditions as the aggregated
acquisition of 2,200,000 shares made prior to March 31, 2000.

56
12. Other Comprehensive Income (Loss)
--------------------------------------------------------------------------------

Accumulated other comprehensive income (loss) at March 31, 2000, 1999 and 1998,
is as follows:
Thousands of
                                                                               Millions of Yen                         U.S. dollars
                                                            ------------------------------------------------------    -------------
                                                                    2000               1999               1998              2000
-----------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustments:
  Balance, beginning of year...............................    (Yen)(24,159)       (Yen)(15,706)      (Yen)(17,147)     $  (234,553)
  Aggregate adjustment for the year resulting from
   translation of foreign currency financial statements....         (15,565)             (8,453)             1,441         (151,117)
-----------------------------------------------------------------------------------------------------------------------------------
  Balance, end of year.....................................    (Yen)(39,724)       (Yen)(24,159)      (Yen)(15,706)     $  (385,670)
===================================================================================================================================
Net unrealized holding gains on securities available for sale:
  Balance, beginning of year...............................    (Yen) 25,650        (Yen) 20,803       (Yen) 40,964      $   249,029
  Net increase (decrease)..................................          (2,183)              4,847            (20,161)         (21,194)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year.......................................    (Yen) 23,467        (Yen) 25,650       (Yen) 20,803      $   227,835
===================================================================================================================================
Pension liability adjustments:
  Balance, beginning of year...............................    (Yen) (8,927)       (Yen) (5,268)      (Yen) (4,090)     $   (86,670)
  Adjustment for the year..................................           5,594              (3,659)            (1,178)          54,311
-----------------------------------------------------------------------------------------------------------------------------------
  Balance, end of year.....................................    (Yen) (3,333)       (Yen) (8,927)      (Yen) (5,268)     $   (32,359)
===================================================================================================================================

Total accumulated comprehensive income (loss)
  Balance, beginning of year...............................    (Yen) (7,436)       (Yen)   (171)      (Yen) 19,727      $   (72,194)
  Adjustment for the year..................................         (12,154)             (7,265)           (19,898)        (118,000)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year.......................................    (Yen)(19,590)       (Yen) (7,436)      (Yen)   (171)     $  (190,194)
===================================================================================================================================
Tax effects allocated to each component of other comprehensive income (loss)
and adjustments are as follows:
Millions of Yen
                                                                         -------------------------------------------------
                                                                                          Tax (expense)     Net of tax
                                                                          Pretax amount    or benefit         amount
--------------------------------------------------------------------------------------------------------------------------
2000:
Foreign currency translation adjustments................................   (Yen)(15,565)      (Yen)    --     (Yen)(15,565)
Net unrealized holding gains on securities available for sale:
  Unrealized holding gains or (losses) arising during the year..........          2,585            (1,079)           1,506
  Less: reclassification adjustment for (gains) or losses
   included in net income (loss)........................................         (6,848)            3,159           (3,689)
--------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)...........................................         (4,263)            2,080           (2,183)
Pension liability adjustments...........................................         10,555            (4,961)           5,594
--------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss).......................................   (Yen) (9,273)      (Yen)(2,881)    (Yen)(12,154)
==========================================================================================================================
1999:
Foreign currency translation adjustments................................   (Yen) (8,453)      (Yen)    --     (Yen) (8,453)
Net unrealized holding gains on securities available for sale:
  Unrealized holding gains or (losses) arising during the year..........         (3,932)            1,723           (2,209)
  Less: reclassification adjustment for (gains) or losses
   included in net income (loss)........................................          9,182            (2,126)           7,056
--------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)...........................................          5,250              (403)           4,847
Pension liability adjustments...........................................         (6,904)            3,245           (3,659)
--------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss).......................................   (Yen)(10,107)      (Yen) 2,842     (Yen) (7,265)
==========================================================================================================================
1998:
Foreign currency translation adjustments................................   (Yen)  1,441       (Yen)    --     (Yen)  1,441
Net unrealized holding gains on securities available for sale:
  Unrealized holding gains or (losses) arising during the year..........        (34,589)           17,559          (17,030)
  Less: reclassification adjustment for (gains) or losses
   included in net income (loss)........................................         (5,908)            2,777           (3,131)
--------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)...........................................        (40,497)           20,336          (20,161)
Pension liability adjustments...........................................         (1,593)              415           (1,178)
--------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss).......................................   (Yen)(40,649)      (Yen)20,751     (Yen)(19,898)
==========================================================================================================================
57
Thousands of U.S. dollars
                                                                           --------------------------------------------------
                                                                                              Tax (expense)     Net of tax
                                                                             Pretax amount     or benefit         amount
-----------------------------------------------------------------------------------------------------------------------------
2000:
Foreign currency translation adjustments.................................    $  (151,117)       $        --       $  (151,117)
Net unrealized holding gains on securities available for sale:
  Unrealized holding gains or (losses) arising during the year...........         25,097            (10,476)           14,621
  Less: reclassification adjustment for (gains) or losses
   included in net income (loss).........................................        (66,485)            30,670           (35,815)
-----------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)............................................        (41,388)            20,194           (21,194)
Pension liability adjustments............................................        102,476            (48,165)           54,311
-----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss)........................................    $   (90,029)       $   (27,971)      $  (118,000)
=============================================================================================================================
13. Income Taxes
================================================================================

Income (loss) before income taxes, minority interests and equity in earnings for
the years ended March 31, 2000, 1999 and 1998, is as follows:
Thousands of
                                                                             Millions of Yen             U.S. dollars
                                                                 -----------------------------------   ----------------
                                                                    2000         1999        1998             2000
-----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes:
  Domestic.....................................................  (Yen)13,431   (Yen)(20,598)  (Yen)26,929     $ 130,398
  Foreign......................................................        5,964         10,994        13,323        57,903
-----------------------------------------------------------------------------------------------------------------------
                                                                 (Yen)19,395   (Yen) (9,604)  (Yen)40,252     $ 188,301
=======================================================================================================================
Income taxes:
  Current-
    Domestic...................................................  (Yen)11,542   (Yen)(11,108   (Yen)15,144     $ 112,058
    Foreign....................................................        6,616          7,975         6,292        64,233
-----------------------------------------------------------------------------------------------------------------------
                                                                      18,158         19,083        21,436       176,291
-----------------------------------------------------------------------------------------------------------------------
  Deferred-
    Domestic...................................................       (9,403)       (15,105)          227       (91,291)
    Foreign....................................................        1,195         (1,917)         (822)       11,602
-----------------------------------------------------------------------------------------------------------------------
                                                                      (8,208)       (17,022)         (595)      (79,689)
-----------------------------------------------------------------------------------------------------------------------
Total..........................................................  (Yen) 9,950   (Yen)  2,061   (Yen)20,841     $  96,602
=======================================================================================================================
Total income taxes recognized for the years ended March 31, 2000, 1999 and
1998 were applicable to the following:
Thousands of
                                                                                Millions of Yen                U.S. dollars
                                                                         --------------------------------     ---------------
                                                                                20000        1999        1998         2000
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes, minority interests and equity in
 earnings...............................................................  (Yen) 9,950  (Yen)(2,061  (Yen) 20,841   $   96,602
Other comprehensive income (loss):
  Net unrealized holding gains (losses) on securities available for sale       (2,080)         403       (20,336)     (20,194)
  Pension liability adjustments.........................................        4,961       (3,245)         (415)      48,165
-----------------------------------------------------------------------------------------------------------------------------
Total income taxes......................................................  (Yen)12,831  (Yen)  (781) (Yen)     90   $  124,573
=============================================================================================================================
Temporary differences and tax loss carryforwards which gave rise to deferred
tax assets and liabilities at March 31, 2000 and 1999, are as follows:
Thousands of
                                                                                Millions of Yen                U.S. dollars
                                                                         --------------------------------     ---------------
                                                                                    2000            1999            2000
-----------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
  Unrealized intercompany profit.......................................        (Yen) 29,734   (Yen) 18,622       $  288,680
  Allowances provided, not yet recognized for tax......................               6,923          5,829           67,214
  Accrued expenses.....................................................               5,099         15,881           49,505
  Inventories..........................................................               7,823          6,004           75,951
  Net operating loss carryforwards.....................................              30,608         16,603          297,165
  Research and development expenses....................................              10,712          6,004          104,000
  Other................................................................               6,133          8,078           59,543
  Less valuation allowance.............................................             (20,551)       (20,412)        (199,524)
-----------------------------------------------------------------------------------------------------------------------------
                                                                               (Yen) 76,481     (Yen) 56,609       $  742,534
=============================================================================================================================
58
Thousands of
                                                                   Millions of Yen           U.S. dollars
                                                              -------------------------     --------------
                                                               2000              1999           2000
----------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
   Unrealized holding gains on securities available for
    sale..................................................... (Yen)23,088      (Yen)23,641   $224,155
   Deferral of profit from installment sales.................       5,664            6,154     54,990
   Deferred gains on sales of property for tax purposes......      26,828            9,899    260,466
   Other.....................................................       2,543            3,531     24,690
----------------------------------------------------------------------------------------------------------
                                                              (Yen)58,123      (Yen)43,225   $564,301
==========================================================================================================
The net change in the total valuation allowance for the years ended March
31, 2000 and 1999, was an increase of (Yen)139 million ($1,350 thousand) and
(Yen)1,995 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, 2000,
47.0% for the year ended March 31, 1999, and 51.0% for the year ended March 31,
1998. However, due to a change in Japanese income tax regulations, effective
April 1, 1999, the normal statutory tax rate was reduced to approximately 41.7%
and such a rate was used in calculating the deferred taxes for the years ended
March 31, 2000 and 1999.

     The overall effective tax rates reflected in the consolidated statements of
income (income taxes as a percentage of income (loss) before income taxes,
minority interests and equity in earnings) for the years ended March 31, 2000,
1999 and 1998, were 51.3%, 21.5% and 51.8%, respectively.

     The differences between the normal tax rates and the effective tax rates
for the years ended March 31, 2000, 1999 and 1998, are summarized as follows:
2000     1999     1998
------------------------------------------------------------------------------------------------------------
Normal tax rate................................................................... 41.7%   (47.0)%   51.0%
Increase (decrease) in tax rates resulting from:
   Operating losses of subsidiaries...............................................  6.1     70.5     12.1
   Expenses not deductible for tax purposes....................................... 11.1     11.6      3.5
   Gain on sale of minority interest..............................................   --       --     (5.4)
   Realization of tax benefits on operating losses of subsidiaries................ (0.4)    (1.0)    (8.6)
   Income of foreign subsidiaries taxed at lower than Japanese normal rate........ (5.9)   (17.5)    (2.8)
   Effect of tax rate change......................................................   --      3.8      0.9
   Other, net..................................................................... (1.3)     1.1      1.1
------------------------------------------------------------------------------------------------------------
Effective tax rate................................................................ 51.3%    21.5%    51.8%
============================================================================================================
Foreign subsidiaries are subject to income taxes of the countries in which
they operate.

     At March 31, 2000 and 1999, no deferred tax liabilities were recognized for
undistributed earnings of foreign subsidiaries and affiliated companies
aggregating (Yen)40,063 million ($388,961 thousand) and (Yen)27,219 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, 2000, certain subsidiaries had operating loss carryforwards
aggregating approximately (Yen)77,116 million ($748,699 thousand), which may be
used as a deduction in determining taxable income in future periods. The
operating loss carryforwards of (Yen)63,798 million ($619,398 thousand) expire
through December 31, 2019, while the remainder have 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)13,468 million ($130,757 thousand), (Yen)10,680
million and (Yen)12,059 million, respectively, for the years ended March 31,
2000, 1999 and 1998. Certain lease contracts for equipment that would be
classified as capital lease in conformity with SFAS No. 13 "Accounting for
Leases," were not capitalized because of immateriality.

     At March 31, 2000, the future minimum lease payments under these operating
leases are as follows:

                                    Thousands of
Year ending       Millions of Yen   U.S. dollars
--------------------------------------------------
2001............... (Yen) 5,300      $ 51,456
2002...............       4,381        42,534
2003...............       3,626        35,204
2004...............       3,491        33,893
2005...............       2,758        26,777
Thereafter.........       4,030        39,126
--------------------------------------------------
Total.............. (Yen)23,586      $228,990
==================================================

                                                                              59
15. Research and Development and Advertising Expenses
================================================================================

Research and development expenses charged to costs and expenses for the years
ended March 31, 2000, 1999 and 1998, amounted to (Yen)42,460 million ($412,233
thousand), (Yen)45,712 million and (Yen)44,058 million, respectively.

     Advertising expenses charged to costs and expenses as incurred for the
years ended March 31, 2000, 1999 and 1998, amounted to (Yen)4,327 million
($42,010 thousand), (Yen)5,579 million and (Yen)4,691 million, respectively.

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

A reconciliation of the numerators and denominators of the basic and diluted net
income (loss) per share computations is as follows:
Thousands of
                                                            Millions of yen                       U.S. dollars
                                                  -------------------------------------------    -------------
                                                    2000           1999            1998              2000
--------------------------------------------------------------------------------------------------------------
Net income (loss)................................ (Yen)13,395    (Yen)(12,378)    (Yen)19,241      $ 130,049
Effect of dilutive securities:
  1.8% Japanese yen convertible bonds, due 2004..         300              --             237          2,912
--------------------------------------------------------------------------------------------------------------
Diluted net income (loss)........................ (Yen)13,695    (Yen)(12,378)    (Yen)19,478      $ 132,961
==============================================================================================================
Number of shares
                                                               ---------------------------------------------
                                                                   2000              1999            1998
------------------------------------------------------------------------------------------------------------
Average common shares outstanding, less treasury stocks.....  967,057,543       968,941,887      981,508,534
Dilutive effect of:
  1.8% Japanese yen convertible bonds, due 2004.............   28,260,914                --       26,504,325
------------------------------------------------------------------------------------------------------------
Diluted common shares outstanding...........................  995,318,457       968,941,887    1,008,012,859
============================================================================================================
Yen                               U.S. cents
                                                    ------------------------------------------   -----------
                                                     2000                1999        1998             2000
------------------------------------------------------------------------------------------------------------
Net income (loss) per share:
   Basic............................................(Yen)13.85     (Yen)(12.77)    (Yen)19.60     13.4(cent)
   Diluted..........................................     13.76          (12.77)         19.32     13.4
------------------------------------------------------------------------------------------------------------
1.8% Japanese yen convertible bonds, due 2004, was excluded from the net
loss per share calculation for fiscal 1999 because the effect would have been
antidilutive.

17. Commitments and Contingent Liabilities
================================================================================

At March 31, 2000, the companies were contingently liable for discounted and
transferred receivables on a recourse basis with the financial institutions of
(Yen)7,424 million ($72,078 thousand) and also as guarantors of indebtedness of
others, including letter of awareness and keep-well agreement aggregating
(Yen)23,665 million ($229,757 thousand), including (Yen)4,007 million ($38,903
thousand) relating to affiliated companies.

     Commitments for capital expenditures outstanding at March 31, 2000,
aggregated approximately (Yen)599 million ($ 5,816 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.

60
18. Derivative Financial Instruments
================================================================================

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

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

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

The companies have entered into interest rate swap and cap agreements, partly
concurrent with currency swap agreements for the purpose of managing their
interest rate and foreign currency exposure for certain short-term and
long-term debts and investment securities in an aggregate notional amount of
(Yen)210,615 million ($2,044,806 thousand) and (Yen)224,453 million at March 31,
2000 and 1999, respectively.

Financial Instruments Not Qualifying as Hedge

The Company has entered into interest rate swap contracts as a means of managing
the Company and its group companies' interest rate exposures for short-term and
long-term debts in a notional amount of (Yen)40,000 million ($388,350 thousand)
at March 31, 2000. These contracts do not qualify as a hedge and are accounted
for accordingly as more fully explained in Note 1 (12).

(2) Foreign Exchange Contracts

Notional principal amounts of foreign exchange contracts outstanding at March
31, 2000 and 1999, are set forth below.
Thousands of
                                   Millions of Yen            U.S. dollars
                               ------------------------     ----------------
                                  2000          1999               2000
----------------------------------------------------------------------------
Forwards and swaps:
    To sell foreign
       currencies............  (Yen)28,755   (Yen)50,663        $ 279,175
    To purchase foreign
       currencies............       19,196        10,579          186,369
----------------------------------------------------------------------------
The companies enter into forward exchange contracts and swaps to hedge
existing assets and liabilities and certain sale commitments denominated in
foreign currencies (principally U.S. dollar and euro). The terms of these
foreign exchange contracts rarely extend beyond three months except for those
related to long-term debts denominated in foreign currencies which have the same
terms as the underlying debts.

     Net foreign currency transaction losses of (Yen)4,323 million ($41,971
thousand), losses of (Yen)2,596 million, and gains of (Yen)529 million for the
years ended March 31, 2000, 1999 and 1998, respectively, were included in the
determination of net income (loss).

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) Marketable Securities and Investment Securities

The fair values of marketable securities and 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.

                                                                              61
The carrying amounts and the estimated fair values of the financial instruments,
including financial instruments not qualifying as hedge, as of March 31, 2000
and 1999, are summarized as follows:
Thousands of
                                                    Millions of Yen                                               U.S. dollars
                                             ---------------------------------------------------------
                                                          2000                         1999                         2000
----------------------------------------------------------------------------------------------------------------------------------
                                                 Carrying     Estimated       Carrying      Estimated       Carrying    Estimated
                                                   amount     fair value        amount       fair value       amount    fair value
----------------------------------------------------------------------------------------------------------------------------------
Marketable securities....................... (Yen) 40,219   (Yen) 40,219   (Yen)54,434     (Yen) 54,434    $  390,476   $  390,476
Investment securities.......................       75,935         75,935        88,447           88,447       737,233      737,233
Long-term debt, including current portion...      299,595        299,622       329,855          339,636     2,908,690    2,908,951
Derivatives:
  Foreign exchange contracts
      Assets................................          190            466           234              604         1,845        4,525
      Liabilities...........................           94            333           453              735           913        3,232
  Interest rate swap and cap agreements
      Assets................................           45         15,333           186            4,559           437      148,864
      Liabilities...........................           --            629            --            1,199            --        6,107
----------------------------------------------------------------------------------------------------------------------------------
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, 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 Company operates on a worldwide basis principally with five operating
segments: 1) Construction and mining equipment, 2) Electronics, 3) Civil
engineering and construction, 4) Industrial machinery, and 5) Others.

     The following tables present certain information regarding the companies'
operating segments and geographic information at March 31, 2000, 1999 and 1998,
and for the years then ended:
Operating segments:                                                                                 Thousands of
                                                                  Millions of Yen                   U.S. dollars
                                                -------------------------------------------------   ------------
                                                        2000             1999            1998           2000
----------------------------------------------------------------------------------------------------------------
Net sales:
   Construction and mining equipment--
      Customers................................ (Yen)  713,529    (Yen)  731,077   (Yen)  721,875   $ 6,927,466
      Intersegment.............................          3,271             1,693              320        31,757
----------------------------------------------------------------------------------------------------------------
          Total................................        716,800           732,770          722,195     6,959,223
   Electronics--
      Customers................................         90,335            86,608          104,265       877,039
      Intersegment.............................             80               102              154           777
----------------------------------------------------------------------------------------------------------------
          Total................................         90,415            86,710          104,419       877,816
   Civil engineering and construction--
      Customers................................         78,653            77,020           94,889       763,621
      Intersegment.............................          6,599            13,695            9,554        64,068
----------------------------------------------------------------------------------------------------------------
          Total................................         85,252            90,715          104,443       827,689
   Industrial machinery--
      Customers................................         30,856            42,676           51,231       299,573
      Intersegment.............................          2,929             1,499            1,891        28,437
----------------------------------------------------------------------------------------------------------------
          Total................................         33,785            44,175           53,122       328,010
   Others--
      Customers................................        142,281           124,216          131,817     1,381,369
      Intersegment.............................         89,465            60,815           55,465       868,592
----------------------------------------------------------------------------------------------------------------
          Total................................        231,746           185,031          187,282     2,249,961
   Elimination.................................       (102,344)          (77,804)         (67,384)     (993,631)
----------------------------------------------------------------------------------------------------------------
   Consolidated................................ (Yen)1,055,654    (Yen)1,061,597   (Yen)1,104,077   $10,249,068
================================================================================================================
62
Thousands of
                                                                           Millions of yen                   U.S. dollars
                                                        -------------------------------------------------   -------------
                                                               2000              1999            1998            2000
-------------------------------------------------------------------------------------------------------------------------
Operating income (loss):
   Construction and mining equipment..................  (Yen)   28,445    (Yen)   30,963   (Yen)   36,976   $   276,165
   Electronics........................................          (9,839)          (18,074)           4,043       (95,524)
   Civil engineering and construction.................             801            (2,984)             338         7,777
   Industrial machinery...............................          (1,719)           (1,961)              88       (16,689)
   Others.............................................           3,788             1,133            4,907        36,776
-------------------------------------------------------------------------------------------------------------------------
      Total...........................................          21,476             9,077           46,352       208,505
   Corporate expenses and elimination.................          (4,158)           (4,796)          (3,254)      (40,369)
-------------------------------------------------------------------------------------------------------------------------
   Consolidated operating income......................          17,318             4,281           43,098       168,136
   Interest and other income..........................          55,857            25,655           24,319       542,301
   Interest expense...................................          24,392            21,219           17,138       236,816
   Other expenses.....................................          29,388            18,321           10,027       285,320
-------------------------------------------------------------------------------------------------------------------------
   Consolidated income (loss) before income taxes.....  (Yen)   19,395    (Yen)   (9,604)  (Yen)   40,252   $   188,301
=========================================================================================================================
Identifiable assets:
   Construction and mining equipment..................  (Yen)  711,475    (Yen)  837,637   (Yen)  801,875   $ 6,907,524
   Electronics........................................         231,317           263,951          235,456     2,245,796
   Civil engineering and construction.................          78,508            82,506           98,629       762,214
   Industrial machinery...............................          30,614            41,463           50,761       297,223
   Others.............................................         254,251           218,495          255,199     2,468,457
   Corporate assets and elimination...................          69,115            80,548          119,742       671,019
-------------------------------------------------------------------------------------------------------------------------
   Consolidated.......................................  (Yen)1,375,280    (Yen)1,524,600   (Yen)1,561,662   $13,352,233
=========================================================================================================================
Depreciation and amortization:
   Construction and mining equipment..................  (Yen)   29,425   (Yen)   26,511    (Yen)   23,401   $   285,680
   Electronics........................................          20,860           16,328            16,891       202,524
   Civil engineering and construction.................           2,141            2,547             2,540        20,786
   Industrial machinery...............................           1,058            1,119               943        10,272
   Others.............................................           8,016            5,645             4,854        77,825
-------------------------------------------------------------------------------------------------------------------------
   Consolidated.......................................  (Yen)   61,500   (Yen)   52,150    (Yen)   48,629   $   597,087
=========================================================================================================================
Capital expenditures:
   Construction and mining equipment..................  (Yen)   34,856   (Yen)   45,531    (Yen)   32,845   $   338,408
   Electronics........................................          13,089           61,854            79,557       127,078
   Civil engineering and construction.................           1,543            1,656             4,157        14,980
   Industrial machinery...............................             707              862               994         6,864
   Others.............................................           7,533            4,971             5,473        73,136
-------------------------------------------------------------------------------------------------------------------------
   Consolidated.......................................  (Yen)   57,728   (Yen)  114,874    (Yen)  123,026   $   560,466
=========================================================================================================================
Transfer between segments are made at arm's-length prices. Operating income
(loss) is sales less costs and operating expenses. Identifiable assets are those
assets used in the operations of each segment. Unallocated corporate assets
consist primarily of cash and cash equivalents and marketable securities
maintained for general corporate purposes.

                                                                              63
Geographic information:

Net sales recognized by sales destination for the years ended March 31, 2000,
1999 and 1998 areas follows:
Thousands of
                                                                Millions of yen                   U.S. dollars
                                              -------------------------------------------------   ------------
                                                     2000             1999             1998           2000
--------------------------------------------------------------------------------------------------------------
Japan........................................ (Yen)  553,822    (Yen)  523,946   (Yen)  605,901   $ 5,376,913
Americas.....................................        242,609           272,091          230,824     2,355,427
Europe.......................................        123,633           119,270          113,427     1,200,320
Asia (excluding Japan) and Oceania...........         99,558            96,853          109,572       966,583
Middle East and Africa.......................         36,032            49,437           44,353       349,825
--------------------------------------------------------------------------------------------------------------
Consolidated net sales....................... (Yen)1,055,654    (Yen)1,061,597   (Yen)1,104,077   $10,249,068
==============================================================================================================
Net sales recognized by geographic origin and long-lived assets at March 31,
2000, 1999 and 1998, and for the years then ended are as follows:
Thousands of
                                              Millions of yen                  U.S. dollars
                           -------------------------------------------------   ------------
                                  2000             1999             1998           2000
-------------------------------------------------------------------------------------------
Net sales:
   Japan.................  (Yen)  615,580    (Yen)  601,583   (Yen)  740,313   $ 5,976,505
   U.S.A.................         245,002           281,337          242,275     2,378,660
   Europe................         114,742           114,247           91,335     1,114,000
   Other.................          80,330            64,430           30,154       779,903
-------------------------------------------------------------------------------------------
     Total...............  (Yen)1,055,654    (Yen)1,061,597   (Yen)1,104,077    10,249,068
===========================================================================================
Long-lived assets:
   Japan.................  (Yen)  277,693    (Yen)  310,412   (Yen)  296,590   $ 2,696,049
   U.S.A.................         134,991           159,899          137,360     1,310,592
   Europe................           9,032            17,997           15,101        87,689
   Other.................          26,087            25,962           14,047       253,272
-------------------------------------------------------------------------------------------
     Total...............  (Yen)  447,803    (Yen)  514,270   (Yen)  463,098   $ 4,347,602
===========================================================================================
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, 2000, 1999 and 1998.

The following information shows net sales and operating income (loss) recognized
by geographic origin for the years ended March 31, 2000, 1999 and 1998. 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:
Thousands of
                                           Millions of yen                U.S. dollars
                       -------------------------------------------------  ------------
                              2000             1999             1998           2000
--------------------------------------------------------------------------------------
Net sales:
  Japan-
     Customers........ (Yen)  615,580    (Yen)  601,583   (Yen)  740,313   $ 5,976,505
     Intersegment.....        143,569           152,148          124,740     1,393,874
--------------------------------------------------------------------------------------
         Total........        759,149           753,731          865,053     7,370,379
  Americas-
     Customers........        245,367           287,006          251,745     2,382,204
     Intersegment.....          8,624            12,778            7,403        83,728
--------------------------------------------------------------------------------------
         Total........        253,991           299,784          259,148     2,465,932
  Europe-
     Customers........        114,742           114,247           91,335     1,114,000
     Intersegment.....         14,665             7,267            5,223       142,379
--------------------------------------------------------------------------------------
         Total........        129,407           121,514           96,558     1,256,379
  Other-
     Customers........         79,965            58,761           20,684       776,359
     Intersegment.....          4,750             4,174            2,269        46,117
--------------------------------------------------------------------------------------
         Total........         84,715            62,935           22,953       822,476
     Elimination......       (171,608)         (176,367)        (139,635)   (1,666,098)
--------------------------------------------------------------------------------------
     Consolidated..... (Yen)1,055,654    (Yen)1,061,597   (Yen)1,104,077   $10,249,068
======================================================================================
64
Thousands of
                                                      Millions of yen                       U.S. dollars
                                        -------------------------------------------------   ------------
                                               2000              1999            1998           2000
-----------------------------------------------------------------------------------------   ------------
Operating income (loss):
    Japan.............................. (Yen)      955    (Yen)  (10,052)  (Yen)   27,650   $     9,272
    Americas...........................         12,354             7,594           14,064       119,942
    Europe.............................          4,284             9,253            4,390        41,592
    Other..............................          2,202               534              126        21,379
    Corporate and elimination..........         (2,477)           (3,048)          (3,132)      (24,049)
-------------------------------------------------------------------------------------------------------
    Consolidated....................... (Yen)   17,318    (Yen)    4,281   (Yen)   43,098   $   168,136
=======================================================================================================
Identifiable assets:
    Japan.............................. (Yen)  961,674    (Yen)1,008,678   (Yen)1,012,279   $ 9,336,641
    Americas...........................        289,258           341,414          319,577     2,808,330
    Europe.............................         73,558            93,482           93,467       714,155
    Other..............................         83,760            89,151           35,655       813,204
    Corporate assets and elimination...        (32,970)           (8,125)         100,684      (320,097)
-------------------------------------------------------------------------------------------------------
    Consolidated....................... (Yen)1,375,280    (Yen)1,524,600   (Yen)1,561,662    13,352,233
=======================================================================================================
Export sales........................... (Yen)   65,733    (Yen)   80,081   (Yen)  137,936   $   638,184
=======================================================================================================
Transfer between segments are made at arm's-length prices. Operating income
(loss) is sales less costs and operating expenses. Identifiable assets are those
assets used in the operations of each segment. Unallocated corporate assets
consist primarily of cash and cash equivalents and marketable securities
maintained for general corporate purposes.

21. Subsequent Events
================================================================================

In April 2000, the Company sold 65.0% of the outstanding shares of Komatsu Soft
Ltd., a 91.8% owned subsidiary, to Toyo Information Systems Co., Ltd., a third
party, and the recognized gain on the sale of a subsidiary will be reflected in
the consolidated statements of income for the year ending March 31, 2001.

On May 19, 2000, the Company and Komatsu Forklift Co., Ltd., an affiliated
company, entered into a mutual agreement with Linde AG of Germany that outlines
Komatsu Forklift Co., Ltd., and Linde AG's intent to establish global
collaboration for the manufacture and sales of forklift trucks and related
products. Under the agreement, Komatsu Forklift Co., Ltd., acquired 10% of Fiat
OM Carrelli Elevatori S.p.A. (a Linde AG subsidiary) shares, while Linde AG
acquired 10% of Komatsu Forklift Co., Ltd., shares made through third-party
allotment of new shares.

As a result of such an allotment and acquisition of shares from the open market,
the Company's ownership interest in Komatsu Forklift Co., Ltd., increased from
the previous 39.2% to 50.8% in June 2000.

                                                                              65
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, 2000 and
1999, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended March 31, 2000,
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, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States of America (see Note 1).

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

/s/ Arthur Andersen

Tokyo, Japan
June 29, 2000

66
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 3.3% to
    5.3% annually.

    At March 31, 2000 and 1999 trade notes and accounts receivable were
    comprised of the following:
Thousands of
                                                                Millions of Yen                   U.S. dollars
                                                       ----------------------------------      -----------------
                                                            2000                1999                  2000
                                                       --------------      --------------      -----------------
Notes:
     Affiliated companies                                (Yen)  1,184        (Yen)  1,805             $   11,495
     Other                                                    137,205             173,292              1,332,088
                                                         ------------        ------------        ---------------
         Total                                                138,389             175,097              1,343,583
                                                         ------------        ------------        ---------------

    Accounts:
     Affiliated companies                                      42,866              45,732                416,175
     Other                                                    204,256             170,001              1,983,068
                                                         ------------        ------------        ---------------
         Total                                                247,122             215,733              2,399,243
                                                         ------------        ------------        ---------------

    Unearned interest                                          (4,851)             (4,138)               (47,098)
    Allowance for doubtful receivables                        (12,208)            (12,535)              (118,524)
                                                         ------------        ------------        ---------------
         Total                                           (Yen)368,452        (Yen)374,157             $3,577,204
                                                         ============        ============        ===============
B.  DEFERRED INCOME TAXES AND OTHER CURRENT ASSETS

    At March 31, 2000 and 1999 deferred income taxes and other current assets
    were comprised of the following:
Thousands of
                                                                Millions of Yen                   U.S. dollars
                                                       ----------------------------------      -----------------
                                                            2000                1999                  2000
                                                       --------------      --------------      -----------------
Prepaid expenses                                     (Yen)  2,744       (Yen)  3,807              $ 26,641
    Short-term loans receivable:
     Affiliated companies                                      19,200             21,146               186,408
     Other                                                     26,083             32,813               253,233
                                                         ------------       ------------        --------------
         Total                                                 45,283             53,959               439,641
                                                         ------------       ------------        --------------

    Deferred income taxes                                      29,346             18,503               284,913
    Other                                                      15,974             25,675               155,087
                                                         ------------       ------------        --------------
         Total                                            (Yen)93,347       (Yen)101,944              $906,282
                                                         ============       ============        ==============
A-1
C.   DEFERRED INCOME TAXES AND OTHER CURRENT LIABILITIES

     At March 31, 2000 and 1999 deferred income taxes and other current
     liabilities comprised of the following:
Thousands of
                                                                 Millions of Yen                U.S. dollars
                                                       ---------------------------------     -----------------
                                                            2000               1999                  2000
                                                       --------------     --------------     -----------------
Accrued expenses                                     (Yen)97,577       (Yen)100,300            $  947,349
     Customers' advances and employees' deposits               15,816             17,772               153,553
     Deferred income taxes                                      4,983              8,274                48,379
                                                       --------------     --------------     -----------------
          Total                                          (Yen)118,376       (Yen)126,346            $1,149,281
                                                       ==============     ==============     =================
D.   UNAPPROPRIATED RETAINED EARNINGS

     At March 31, 2000 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)8,891
     million ($86,320 thousand).

E.   INTEREST AND OTHER INCOME

     Interest and other income for the years ended March 31, 2000, 1999 and 1998
     were comprised of the following:
Thousands of
                                                                  Millions of Yen                        U.S. dollars
                                                -------------------------------------------------     -----------------
                                                     2000             1999               1998                2000
                                                -------------     -------------     -------------     -----------------
Interest and other income:
      Interest-
        Installment receivables                    (Yen)6,842        (Yen)7,521        (Yen)7,224              $ 66,427
        Other                                           5,028             6,020             4,215                48,815
      Dividends                                         1,062             1,880             1,590                10,311
      Net gains on sales of marketable
        securities and investments                     16,993                --             8,285               164,981
      Gains on sales of property                       23,777             7,912             1,740               230,845
      Insurance commission                                504               613               269                 4,893
      Miscellaneous                                     1,651             1,709               996                16,029
                                                -------------     -------------     -------------     -----------------
          Total                                   (Yen)55,857       (Yen)25,655       (Yen)24,319              $542,301
                                                =============     =============     =============     =================
A-2
F. OTHER EXPENSE

   Other expense for the year ended March 31, 2000, 1999 and 19998 were
comprised of the following:
Thousands of
                                                              Millions of Yen                       U.S. dollars
                                           -------------------------------------------------     -----------------
                                               2000              1999              1998                  2000
                                           -------------     -------------     -------------     -----------------
Other expense:
 Loss on marketable securities               (Yen)    --       (Yen) 4,679       (Yen)    --         $          --
 Loss on disposal or sale of fixed assets         14,367             6,418             4,524               139,485
 Impairment loss on long-lived assets              4,474                 -                 -                43,437
 Amortization of Goodwill                          1,735             1,726             2,127                16,845
 Exchange gain or loss, net                        4,323             2,596                 -                41,971
 Other                                             4,489             2,902             3,376                43,582
                                           --------------    --------------    --------------    ------------------
          Total                              (Yen)29,388       (Yen)18,321       (Yen)10,027         $     285,320
                                           ==============    ==============    ==============    ==================
A-3
SCHEDULE II

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

                       VALUATION AND QUALIFYING ACCOUNTS
                       ---------------------------------
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
------------------------------------------------   -----------------  --------------  --------------------  -----------------------
Valuation and qualifying accounts deducted
from assets to which they apply:

 Allowance for doubtful receivables
   Year ended March 31, 2000                         (Yen)12,535        (Yen) 1,150               -          (Yen) 1,477     (a)
                                                    =============       ===========    ============          ===========
   Year ended March 31, 1999                         (Yen)11,644        (Yen) 1,571               -          (Yen)   680     (a)
                                                    =============       ===========    ============          ===========
   Year ended March 31, 1998                         (Yen)11,282        (Yen)   460               -          (Yen)    98     (a)
                                                    =============       ===========    ============          ===========
 Valuation allowance of deferred tax assets
   Year ended March 31, 2000                         (Yen)20,412        (Yen)11,322               -          (Yen)11,183     (b)
                                                    =============       ===========    ============          ===========
   Year ended March 31, 1999                         (Yen)18,417        (Yen) 6,466               -          (Yen) 4,471     (b)
                                                    =============       ===========    ============          ===========
   Year ended March 31, 1998                         (Yen)17,900        (Yen) 4,016               -          (Yen) 3,499     (b)
                                                    =============       ===========    ============          ===========
 Liability for post-retirement benefits
   Year ended March 31, 2000                         (Yen)78,551        (Yen) 5,825               -          (Yen)28,970     (d)
                                                    =============       ===========    ============          ============
   Year ended March 31, 1999                         (Yen)80,294        (Yen) 5,378      (Yen)7,642   (c)    (Yen)14,763     (e)
                                                    =============       ===========    ============          ============
   Year ended March 31, 1998                         (Yen)81,140        (Yen) 6,757      (Yen)  325   (c)    (Yen) 7,928     (e)
                                                    =============       ===========    ============          ============
Thousands of
                                                                        U.S. dollars
                                                   -----------------  ------------------
               Column A                               Column E           Column E
-----------------------------------------------    -----------------  ------------------

                                                    Balance at end
                                                      of fiscal         Balance at end
               Description                             period          of fiscal period
----------------------------------------------    ------------------  ------------------
Valuation and qualifying accounts deducted
from assets to which they apply:

 Allowance for doubtful receivables
   Year ended March 31, 2000                         (Yen)12,208          $ 118,524
                                                    =============       ============
   Year ended March 31, 1999                         (Yen)12,535
                                                    =============
   Year ended March 31, 1998                         (Yen)11,644
                                                    =============
 Valuation allowance of deferred tax assets
   Year ended March 31, 2000                         (Yen)20,551          $ 199,524
                                                    =============       ============
   Year ended March 31, 1999                         (Yen)20,412
                                                    =============
   Year ended March 31, 1998                         (Yen)18,417
                                                    =============
 Liability for post-retirement benefits
   Year ended March 31, 2000                         (Yen)55,406          $ 537,922
                                                    =============       ============
   Year ended March 31, 1999                         (Yen)78,551
                                                    =============
   Year ended March 31, 1998                         (Yen)80,294
                                                    =============
(a) Principally uncollectible accounts and notes charged to the
               allowance
           (b) Realization or expiration of net operating loss carryforwards
           (c) Charged to other assets and other comprehensive income (loss)
           (d) Principally reversal due to retirement and termination of
               employees and directors and due to reduction of accumulated
               benefit obligation
           (e) Principally reversal due to retirement and termination of
               employees and directors

                                      A-4
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, 2000 and
1999, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended March 31, 2000,
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, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States of America (see Note 1).

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

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

/s/ Arthur Andersen

Tokyo, Japan
June 29, 2000

                                      B-1