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Komatsu (KMT)

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Thursday 11 November, 1999

Komatsu

Interim Results

Komatsu
8 November 1999



                  KOMATSU RECOVERS CONSOLIDATED INTERIM PROFIT
                                 FOR FISCAL 2000

Consolidated  net sales for the first half of fiscal 2000, ended  September  30,
 1999,  totaled  Y515.8  billion (US$4,821 million  at  US$1.00=Y107),  down 
2.6  percent  from  the same period last year. Consolidated net income  reached 
Y9.2 billion  (US$86 million), turning positive from a net loss of    Y1.1
billion  a year before.

                      Millions of yen and US dollar, except per share amounts

                                         2000        1999        2000

Net sales                             Y515,843     Y529,808     $4,821
      Domestic                         250,027      234,268      2,337
      Overseas                         265,816      295,540      2,484
Net income (loss)                        9,226       (1,147)        86
Earnings (loss) per share --- Basic     Y 9.52       Y(1.18)     c8.90

Results by operation are as follows:                              

Construction and Mining Equipment

Sales  of  construction  and mining equipment totaled Y360.8  billion (US$3,373
million),  down 5.0 percent from the corresponding period a year  earlier,  with
sales in Japan accounting for Y123.9 billion (US$1,159 million), up 8.7 percent.

During  the  period under review, Komatsu quickly moved to expand a  series  of
hydraulic excavators with small rear-swing radius as the mainstay models for the
Japanese  market. In particular, sales of the new models of this series  made a
sizeable  gain,  further strengthening Komatsu's position  in  the  market.  By
tapping  new  markets for environment-conscious equipment for  waste  recycling,
Komatsu  also  increased  sales of mobile soil improvers  and tub  grinder.  In
addition,  the Company improved sales of large equipment, mainly to  the  quarry
industry.

In  Japan,  Koniatsu  has  been  advancing  a  production-restructuring  program
involving  the closure of three plants by August 2000, in order to increase  its
cost competitiveness and  improve profitability through optimization of
production efficiency. During the 6-month period under review, production of
motor graders at Kashiwazaki Plant in  Niigata  and  production of wheel loaders
at Kawagoe Plant in  Saitama  were transferred  to  Mooka  Plant in Tochigi,
where large wheel  loaders are being produced.  At the same time, production of
small and medium-sized wheel  loaders was also transferred from Kawagoe Plant to
Awazu Plant in Ishikawa. Production of  the  transferred products has already
begun without delay on the new  lines. Coupled  with  increased efficiency in
both production and sales, these  actions have  positioned  the Company to
expect improved earnings in  the  all-important
Japanese market.

Outside  Japan,  sales  remained generally robust.  However,  reflecting  the
adverse effect of the substantially appreciated yen against the U.S. dollar  and
the  euro,  yen-converted overseas sales for the interim period  diminished 10.8
percent to Y236.9 billion (US$2,214 million).

As  the  globalization of operation, which Komatsu has  vigorously  pursued,
has  taken  root, the Company continued to expand sales in the  key  markets  of
Europe  and the United States, enhancing its market position, especially in  the
U.S.  Komatsu also stepped up sales in China, where the Company launched  local
production  in  1995. In the utility equipment business for  small  construction
equipment  which features high maneuverability and versatility, the Company  has
launched  full-scale  export sales of backhoe loaders  made  by FKI Fai Komatsu
Industries  S.p.A to the North American market. By reinforcing its  commitment,
KoMatsu has expanded sales in the utility equipment market, where new growth is
promising.

In  Southeast  Asia, where demand had been depressed, signs of recovery  have
begun  to  emerge,  centering on the logging and mining  sectors,  although  the
degree  of  recovery varies by country. Since the economic crisis of  1997, the
Company  has  sustained production at its plants in Indonesia  and  Thailand as
export  bases for finished products and components via its global sales network.
 As a result, Komatsu is well prepared to respond quickly to any further
recovery of demand in the region.

Sales  of mining equipment could not match up to the level of a year earlier,
as  prices of commodities, such as copper and coal, remained sluggish until  the
start  of  the  current fiscal year under review. Such depressed prices  notably
discouraged the willingness of customers to invest in equipment. However, it  is
expected that a full-fledged recovery of demand will surface in 2000. To further
strengthen  its  business  base, Komatsu is pressing  ahead  with  development,
production and product support activities by integrating the operations of Group
companies.  The Company has also launched new products, such as the  super-large
'WA1200' wheel loader and the large and remodeled 'D475' bulldozer.

Electronics

Total  sales of electronics business amounted to Y41.8 billion (US$391 million),
down  9.8 percent. In keeping with recovery of the semiconductor market,  demand
for silicon wafers has turned to improve, putting a halt to the decline of their
prices. For the silicon wafer business, Komatsu is promoting differentiation of
its  products and technologies by combining the Groupwide strength. At  Komatsu
Electronic  Metals  Co., Ltd., efforts are being made to consolidate  production
exclusively  in  Japan  and  fast-growing Taiwan,  thoroughly reduce cost and
lead-time, and improve business performance at a rate outpacing the recovery in
total  demand. At the Taiwan plant, which celebrated completion of  construction
in  March this year, the company received approvals of customers for its silicon
wafers  and  commenced  shipment as scheduled during the  interim  period  under
review.  Fortunately,  the plant had no damage from the powerful  earthquake in
Taiwan in September.

Komatsu's  polycrystalline  silicon business  registered  sluggish  sales  as
affected  by  inventory adjustment of the silicon wafer manufacturing  industry.
However, the Company is certain that the market for polycrystalline silicon will
begin  to improve in 2000 and continue to do so in the following years. In this
light, it is working to expand sales of unique products based on its proprietary
silane  gas  technology  as  well  as silane gas  itself  in  order  to  improve
profitability.

In the Excimer laser business, Komatsu started  sales of the new high-powered 
2kHz  'G20K'  model, and has already earned high regard of the customers.  In
addition to Japan where sales have gotten on track,  the  Company also  expanded
 overseas sales of the 'G20K' model by initiating  marketing  in
North  America, Europe, Taiwan and Korea. Elsewhere, sales remained buoyant  for
peripheral LAN equipment as well as thermoelectric modules and other products of
Komatsu Electronics, Inc.

Applied Komatsu Technology, Inc., a supplier of fabrication systems used  to
produce  flat  panel displays, has markedly improved sales and earnings  on  the
back  of  expanded  demand for flat panel displays in  Taiwan  and  other  Asian
countries.  Large-scale restructuring implemented last year also contributed  to
the improvement.

While  the  market  should  continue  to  grow  on  a  long-term  basis,  the
percentage  of  their  sales in Japan has become smaller.  The  market  is  also
fiercely  changeable, with the cycle of fluctuations getting shorter year  after
year.  Under  such  market  conditions, there are limitations  in  making fast,
accurate management decisions as a joint venture. Thus, Komatsu determined that
management transfer of the business to Applied Materials Inc. would be the  best
choice  and  sold  all  of its 50% stake in the joint venture  to  the  American
partner as of the end of October, 1999.



Civil Engineering and Construction
 
Sales of the business increased 12.7 percent, to Y32.0 billion (US$299 million).

Demand  from  public works was steady, and housing starts were  fairly  firm
during  the  period.  However,  private-sector investments  remained  sluggish,
making   the  management  environment  more  difficult.  Komatsu  worked   to
reinforce  sales  capabilities, enhance earnings,  and  improve  its  financial
position  during the period under review. However, earnings declined  from  the
corresponding period last year.

Industrial Machinery

Sales  of industrial machinery decreased 33.3 percent, to Y15.7 billion (US$147
million), reflecting continued sluggishness of Japanese demand.

In  this  business  segment, Komatsu  Industries   Corporation,   which
manufactures  and  sells  sheet metal forming machines,  implemented  extensive
organizational  reforms  in  July this year. Under the  new  organization,  the
company   was   divided   into  four  business  units  with   clearly   defined
responsibilities.  In  addition, now with lean  management  and  administration
organizations  capable  of  accelerating the  speed  of  decision  making,  the
company has undertaken a variety of measures to improve profitability.

Others

From  a  viewpoint of strengthening consolidated management, Komatsu increased
its equity in Komatsu Zenoah Co., converting the status of Komatsu Zenoah  to
a  consolidated  subsidiary.  As a result, sales  in  this  businesses  segment
increased  26.5  percent, to Y65.3 billion (US$611 million). In  the  meantime,
sales of Komatsu Zenoah remained robust.

Outlook for the Rest of Fiscal 2000

To further reinforce globally consolidated management of  Komatsu, we  will
continue   to   meet  the  changes  in  our  business  environment  accurately.
Similarly,  we  are  going to implement a multitude of measures  to  solve  the
three  most  urgent management tasks described at the top of this  message  and
other  tasks  for sound management and improved profitability. For fiscal  2000
ending  March 31, 2000, we expect to secure net sales of Y1,060.0  billion  and
net income of Y14.0 billion.

We  are continuing to improve the efficiency of our management in order  to
make  Komatsu  where  each and every employee can be  creative  and  ready  to
challenge  for  our  shared  goal  of global, Groupwide  growth  into  the  21st
century.
                                                        

Consolidated Financial Highlights

For the first six months of fiscal 2000 and 1999 ended September 30, 1999 and
1998, respectively.
                                                  Millions/of yen & US dollars
                                                   except per share amounts

                          2000            1999           Changes('O0-'99)
                 Apr.l-Sept.30,1999Apr. 1-Sept.30,1998  Increase(Decrease)
                     Yen    dollar        yen          yen    dollar     (%)

Net sales           515,843 4,821        529,808     (13,965) (131)    (2.6)
  Domestic          250,027 2,337        234,268      15,759   147      6.7
  Overseas          265,816 2,484        295,540     (29,724) (278)   (10.1)

Income before        12,612   118          2,382      10,230    96    429.5
 income taxes

Net income            9,226    86         (1,147)     10,373    97      ---
 (loss)

Earnings (loss)
 per share
 
Basic                Y 9.52 c8.90        Y(1.18)     Y 10.70   c10.00    --
Diluted              Y 9.40 c8.79        Y (1.18)    Y 10.58    c9.89

Notes:
      1) - Number of consolidated subsidiaries: 97 companies 
         - Number of affiliated companies : 149 companies (including 40         
          companies accounted for by the equity method)
      2) The translation of Japanese yen amounts into US dollar amounts is
         included solely for convenience and has been made for 2000 at the rate
         of Y107 to $1, the approximate rate of exchange at September 30, 1999.

Financial Position (As of September 30, 1999 and 1998)

                                               2000           1999
Total assets (Millions of yen)              1,516,071      1,550,788
Shareholders' equity (Millions of yen)        521,337        503,557
Equity ratio (%)                                 34.4           32.5
Shareholders' equity per share (Yen)           538.06         519.71

Projection for FY2000 (Year ending March 31, 2000)
(from April 1, 1999 to March 31, 2000)
                                                           Millions of yen

                       Net sales   Income before income taxes    Net income
The entire FY2000      1,060,000           19,000                 14,000
                                                       

Consolidated Sales by Operation
For the six months ended September 30, 1999 and 1998.

                   2000                1999                  Changes
                                                       Increase (Decrease)
              Apr.l-Sept.30,1999     Apr.l-Sept.30,1998     (2000-1999)
              Y million    Ratio(%)  Y million   Ratio(%) Y million  (%)
Construction             
& Mining
Domestic      123,967       24.0       114,033     21.5    9,934     8.7
Overseas      236,930       45.9       265,728     50.2  (28,798)  (10.8)
Equipment     360,897       69.9       379,761     71.7  (18,864)   (5.0)
Electronics      
Domestic       28,787        5.6        30,480      5.7   (1,693)   (5.6)
Overseas       13,013        2.5        15,852      3.0   (2,839)  (17.9)
               41,800        8.1        46,332      8.7   (4,532)   (9.8)
Civil      
Engineering
Domestic       32,042        6.2        28,438      5.4    3,604    12.7
Overseas          ---        ---           ---      ---      ---     ---
& Construction 32,042        6.2        28,438      5.4    3,604    12.7
Industrial 
Machinery
Domestic        8,755        1.7        11,268     2 .2   (2,513)  (22.3)
Overseas        7,014        1.4        12,357      2.3   (5,343)  (43.2)
               15,769        3.1        23,625      4.5   (7,856)  (33.3)
Others  
Domestic       56,476       11.0        50,049      9.4    6,427    12.8
Overseas        8,859        1.7         1,603      0.3    7,256   452.7
               65,335       12.7        51,652      9.7   13,683    26.5
Total      
Domestic      250,027       48.5       234,268     44.2   15,759     6.7
Overseas      265,816       51.5       295,540     55.8  (29,724)  (10.1)
              515,843      100.0       529,808    100.0  (13,965)   (2.6)

                                         


              Consolidated Statements of Income
      (For the six months ended September 30, 1999 and 1998)


               

                                            Millions of yen
                              2000        1999        Changes(%)                
                                                Increase(Decrease)
                                (A)     (B)           (A)-(B)
Revenues
Net sales                 Y 515,843  Y 529,808     Y( 13,965)   (2.6)
Interest and other income    32,287     14,601        17,686
Total                       548,130    544,409         3,721     0.7
Costs and expenses
Cost of sales               397,270    398,154          (884)
Selling, general and 
administrative              116,737    118,509        (1,772)
Interest and others          21,511     25,364        (3,853)
Total                     Y 535,518  Y 542,027  Y     (6,509)   (1.2)
Income before income 
taxes, minority              12,612      2,382        10,230   429.5
interests and equity in 
earnings
Income taxes                  1,394      1,586          (192)
Minority interests in (income) 
losses of                    (1,924)       699        (2,623)
consolidated subsidiaries
 - net
Equity in losses of 
affiliated companies            (68)    (2,642)        2,574
 - net
Net income (loss)           Y 9,226   Y (1,147)       10,373     ---

Note: Komatsu Ltd. has adopted SFAS 130, 'Reporting Comprehensive Income,' from
the fiscal year beginning April 1, 1998. In this standard, comprehensive income
is defined as the changes in stockholders' equity except capital transactions.
Komatsu's comprehensive income consists of net income, change in foreign
currency translation adjustments, change in net unrealized holding gains on
securities available for sale, and change in pension liability adjustments.
Aggregated net comprehensive income (loss) for the six months ended September
30, 1999 and 1998 were 29,336 million yen (US$ 274 million) and (15,499) million
yen, respectively.
                             

Consolidated Balance Sheets
(As of September 30, 1999 and 1998)



                                                       Millions of yen
                                   2000       1999      Changes
                                                      Increase(Decrease)
Assets                             (A)          (B)        (A)-(B)
Current assets:
Cash, cash equivalents and 
time deposits                    Y 63,920     Y 85,682    Y 21,762)
Marketable securities              59,949       46,968      12,981
Trade notes and accounts 
receivable,                       378,828      407,591     (28,763)
less allowance for doubtful 
receivables
Inventories                       241,751      254,437     (12,686)
Other current assets               93,781      111,443     (17,662)
Total current assets              838,229      906,121     (67,892)
Investments                       134,982      112,427      22,555
Property, plant, and equipment -  442,192      449,127      (6,935)
- Less accumulated depreciation
Other assets                      100,668       83,113      17,555

Total                         Y 1,516,071  Y 1,550,788    Y(34,717)

Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt (including 
Current                           280,944      399,098    (118,154)
Maturities of long-term debt)
Trade notes and accounts payable  178,068      193,666     (15,598)
Income taxes payable                6,180        9,065      (2,885)
Other current liabilities         124,342      113,367      10,975
Total current liabilities         589,534      715,196    (125,662)
Long-term liabilities             369,697      306,127      63,570
Minority interests                 35,503       25,908       9,595

Shareholders' equity:
Common stock                       68,370       68,370           0
Capital surplus                   117,269      116,981         288
Retained earnings                 324,645      333,425      (8,780)
Accumulated other                  12,674      (14,523)     27,197
Comprehensive income(*)
Treasury stock                     (1,621)         696)        925)
Total shareholders' equity        521,337      503,557      17,780

Total                         Y 1,516,071  Y 1,550,788    Y(34,717)




                                     2000      1999         Changes
                                                           Increase
                                                          (Decrease)
(*) Accumulated other 
comprehensive income:
Foreign currency translation 
adjustments                       (22,037)   (10,265)       (11,772)
Net unrealized holding gains 
on securities                      40,161        267         39,894
available for sale
Pension liability adjustments      (5,450)    (4,525)          (925)
                                                       

                        Business Information

1. Information by Business Unit
(1) Sales and Operating Profit (Loss)
                                                             Millions of Yen

                             2000                           1999
                     Apr.1-Sept.30.1999              Apr.1-Sept.30.1998
                    Sales  Operating   Margin        Sales  Operating  Margin
                           Profit                             Profit
                           (Loss)         %                   (Loss)      %
Construction &
Mining Equipment  363,657   13,929      3.8          380,348  19,420     5.1
Mining Equipment
Electronics        41,829  (10,279)   (24.6)          46,373  (3,611)   (7.8)
Civil Engineering& 34,789     (328)    (0.9)          35,305     485     1.4
Construction
Industrial 
Machinery          16,889   (1,247)    (7.4)          24,099  (1,059)   (4.4)
Others             95,490    1,273      1.3           80,320    (268)   (0.3)
Total             552,654    3,348      0.6          566,445  14,967     2.6
Corporate &       (36,811)  (1,512)     ---          (36,637  (1,822)    ---
Eliminations
Total             515,843    1,836      0.4          529,808  13,145     2.5

                                
Note: Sales amount of each business segment includes inter-segment transactions.

(2) Assets, Depreciation and Amortization, and Capital Expenditures

                                                             Millions of yen
                           2000                      1999
             As of    Apr.l-Sept.30,1999       As of     Apr.l-Sept.30,1999
             Sept.30                           Sept.30
             Assets   Depreciation Capital     Assets  Depreciation Capital
                      and          Expenditures        and      Expenditures
                      Amortization                     Amortization
Construction &
Mining        822,699   14,181       19,545     899,698   12,639       19,341
Equipment
Electronics   257,150   11,561        4,297     275,939    7,242       46,121
Civil 
Engineering &
Construction  73,141       988          652      86,524    1,215          436
Industrial 
Machinery     40,023       481          654      47,340      513          459
Others       213,694     3,584        4,153     224,019    2,744        2,413
Total      1,406,707    30,795       29,301   1,533,520   24,353       68,770
Corporate &
Eliminations 109,364       ---      ---          17,268      ---           --
Total      1,516,071    30,795       29,301   1,550,788   24,353       68,770

2. Information by Region
(1) Sales and Qperating Profit (Loss)
                                                            Millions of yen

                         2000                             1999
                  Apr.l-Sept.30,1999               Apr.l-Sept.30,1998
              Sales   Operating   Margin        Sales   Operating      Margin
                      Profit(Loss)     %                  Profit(Loss)      %
  Japan       354,306    (7,143)   (2.0)        356,532      5,616        1.6
  Americas    138,982     5,325     3.8         165,255     10,767        6.5
  Europe       63,951     3,305     5.2          61,122      4,018        6.6
  Others       41,640       927     2.2          34,439        598        1.7
     Total    598,879     2,414     0.4         617,348     20,999        3.4
Corporate &   (83,036)     (578)    ---         (87,540)    (7,854)        --
Eliminations
     Total    515,843     1,836     0.4         529,808     13,145        2.5

Note: Sales amount of each region segment includes inter-segment transactions.

(2) Assets
                                                           Millions of yen

                     2000                         1999
               As of Sept.30, 1999         As of Sept. 30, 1998
                Assets   Ratio(%)     Assets     Ratio(%)
  Japan         969,248     63.9      972,430     62.7
  Americas      375,593     24.8      414,483     26.7
  Europe         89,595      5.9      102,664      6.6
  Others         85,428      5.7       70,809      4.6
     Total    1,519,864    100.3    1,560,386    100.6
Corporate &      (3,793)    (0.3)      (9,598)    (0.6)
Eliminations
     Total   1,516,071    100.0   1,550,788    100.0

(3) Export Sales
                                             Millions of yen

                      2000                   1999
               Apr.l-Sept.30,1999      Apr.l-Sept.30,1998
Export sales         35,540                  49,322

Export sales represents the sales of the company and its domestic consolidated
subsidiaries to unaffiliated customers in foreign countries.

Interim Financial Highlights of Parent Company
For the first six months of fiscal 2000 and 1999 ended September 30, 1999 and 
1998 respectively.

Financial Results

                                         Millions of yen & US dollars
                                                    except per share amounts

                   2000             1999             Changes('99-'98)
         Apr.l-Sept.30,1999   Apr.l-Sept.30,1998     Increase(Decrease)
             Yen     dollar        yen               yen      dollar    % 
Net sales    210,558  1,968        225,953           (15,395)  (144)  (6.8)
  Domestic   128,013  1,196        122,339          5,674       53   4.6
  Overseas    82,544    771        103,614        (21,069)   (197) (20.3)
Operating      3,910     37          7,694         (3,783)    (35) (49.2)
 Income
Ordinary       1,071     10          7,234         (6,163)    (58) (85.2)
 Income
Net income     7,184     67        (8,438)         15,622     146    ---
 (loss)
Earnings(loss)Y 7.41  c6.93       Y (8.71)        Y 16.12  c15.07    ---
 Per share

Note:
 1) The translation of Japanese yen amounts into United States dollar amounts
   is included solely for convenience and has been made for 2000 and 1999 at
   the rate of Y107 to $1, the approximate rate of exchange at September 30,
   1999.

2) The numbers of average common shares outstanding were as follows; 

* September 30, 1999      --- 968,921,701
* September 30, 1998      --- 968,961,963
* March 31, 1999          --- 968,941,887


Dividends

                                            2000            1999
Cash dividends per share (Yen)
 Interim                                    3.00            4.00
 Year-end                                   ---             3.00


Financial Position (at September 30, 1999 and 1998)

                                           2000             1999
Total assets (Millions of yen)           746,044           706,418
Shareholders' equity (Millions of yen)   465,639           435,598
Equity ratio (%)                            62.4              61.7
Shareholders' equity per share (Yen)      480.57            449.57
                                                       

Projection for FY2000 March ending March 31, 2000)
(from April 1, 1999 to March 31, 2000)
                                                     Millions of yen

                   Net sales    Ordinary Income   Net income
The entire FY2000   440,000          11,000         14,000


Sales by Operation
For the six months ended September 30, 1999 and 1998.

                            2000                   1999        Changes
                  Apr.l-Sept.30,1999  Apr.l-Sept.30,1998    Increase(Decrease)
                        Y million  Ratio(%) Y million Ratio(%) Y million    %
Construction  Domestic     94,674     45.0     90,125   39.9       4,548  5.0
Equipment     Overseas     71,809     34.1     87,208   38.6    (15,399)(17.7)
                          166,483     79.1    177,333   78.5    (10,850) (6.1)
Industrial    Domestic      4,040      1.9      5,708    2.5     (1,668)(29.2)

Machinery     Overseas      3,738      1.8     10,345    4.6     (6,606)(63.9)
                            7,779      3.7     16,053    7.1     (8,274)(51.5)
Others     Domestic        29,299     13.9     26,505   11.7      2,793  10.5
           Overseas         6,996      3.3      6,060    2.7        935  15.4
                           36,295     17.2     32,566   14.4      3,729  11.5
Total      Domestic       128,013     60.8    122,339   54.1      5,674   4.6
           Overseas        82,544     39.2    103,614   45.9    (21,069)(20.3)
                          210,558    100.0    225,953  100.0    (15,395) (6.8)

                          MANAGEMENT POLICY  


1. Basic Management Policy and Medium to Long-Range Management Strategy  Komatsu
is committed to its management policy of Quality and Reliability.  This policy 
not  only applies to deliver safe and innovative products  and  services
developed  from  the  viewpoint of our customers, but also extends  to  constant
improvement  of  the  Quality and Reliability of all employees  of  the  Komatsu
Group.  In  other words, the Company is pursuing the Quality and Reliability  of
all its companies, their business and management around the world.     

 In  pursuit of growth into the 21 century, the Company started its  4-year
'G'2000 Mid-Range Management Program in April 1997. Under this initiative, it is
seeking  to  secure  medium  to  long-range  Groupwide  growth  through  focused
allocation  of  management resources to the three strategic  business  areas  of
construction and mining equipment, electronics and engineering. Goals have  been
set  to  achieve net sales of Y1,500 billion, operating income of Y150  billion,
ROE of 10% and ROA of 8% by March 31, 2001.       

These  goals, however, have been rendered difficult to achieve as  planned,
because the business environment has changed at speeds beyond expectations  when
they  were  originally premised upon. Hence, the Company has  decided  to  delay
completion  of the program by one to two years. Although achieving  these  goals
will not be an easy affair, the Company will do its utmost to accomplish them by
converging  the  creative  and challenging spirits of each  and  every  employee
around  the world. Komatsu firmly believes that overcoming difficulties becomes
possible only when there is a willingness to challenge higher goals and  swiftly
implement structural reforms. 

2. Challenges for Fiscal 2000  

The  most  urgent  management task is nothing but improvement  of  its  business
performance for this fiscal year by focusing our efforts at the following  three
tasks as the highest management priority.   

1. To  further  improve its corporate governance, centering on the  reorganized 
   management structure,   

2. To recover profitability of its construction equipment business in Japan; 
and   

3. To restructure its electronics business. 

Structural Reorganization of Management

 Effective  June  this  year, Komatsu reorganized its  management  structure 
and separated  management decision-making and supervisory functions  from 
executive functions. While the new Board of Directors, which was reduced to
eight members, is  responsible of the former, newly appointed Executive Officers
 with  clearly defined  responsibilities are in charge of the latter. In tandem
with this  move and  with  the  same  objectives, two consolidated  companies 
engaging  in  the company's strategic businesses, namely Komatsu Electronics
Metals Co., Ltd.  and Komatsu  Zenoah Co., also reorganized their management
structures, enabling  the company  to undertake quick management decision-making
for the entire  Komatsu. Group.      

To  come  ahead  of  the  global mega competition,  the  Company  has  newly
appointed  the  presidents of its major units outside Japan as  Global  Officers
with  responsibilities on a par with Executive Officers, in order  to  encourage
their active involvement in globally consolidated management.  

Construction Equipment Business in Japan: 

Thanks  to  the  positive  effect  of  the government's  comprehensive  economic
measures  which  were  enacted  last  year,  Japanese  demand  for  construction
equipment has at last bottomed out since April 1999 and rebounded to last year's
level.  Against  such a backdrop, the Company is striving  to  expand  sales  by
aggressively  launching new products, such as hydraulic  excavators  with  small
rear-swing radius and the mobile crusher/recycler series, to enhance its  market
position. The Company is also focusing its efforts on promising business  fields
and products. At the same time, it is working to increase efficiency in terms of
both  production  and sales so that it can secure stable profit  even  when  the
market  size  in  Japan  stays  at  the present level.  Concerning  the  ongoing
restructuring program of Japanese production since the fall of 1998, the Company
has  completed  all plans on schedule for the current fiscal year, significantly
reinforcing its cost competitiveness. Slated for completion by August 2000,  the
restructuring program calls for the closure of three plants in Japan.  

Electronics Business:  

Komatsu  has  to improve profitability of its electronics business  as  soon  as
possible  through  structural reform. In the silicon wafer  business,  the  core
operation,  demand  is  on  the rise, keeping apace with  the  recovery  of  the
semiconductor  market.  The  Company  is pursuing  decisive  differentiation  of
products and technologies by putting together the entire strength of the Komatsu
Group.  Komatsu.  Electronic  Metals Co.,  Ltd.  is  striving  to  improve  and
strengthen its earning power through management reorganization, consolidation of
production in Japan and Taiwan, and reduction of lead-time and costs.  Now  that
the  cyclical peak of capital investment is over for the company, its cash flows
will improve significantly.     

In  other  electronics  businesses,  such  as  polycrystalline  silicon  and
Excimer  lasers, Komatsu has products and technologies, with which  the  Company
can  assert  superiority in their respective markets. The Company will  work  to
further improve earnings and business performance by expanding these markets.  

3. Basic Policy on Shareholder Dividends

 Komatsu  is  replacing  its conventional policy of maintaining  stable 
dividend payment with a new policy that emphasizes return on shareholders'
equity. In its basic  policy  on  shareholder dividends, the Company  will  link
 returns  more directly with business performance, while working to secure
internally generated funds for reinvestment.                

THE STATE OF ACTIONS ON THE COMPUTER Y2K ISSUE

 Defining  the  'Computer  Y2K  Issue'  as a  management  priority  issue  to 
be addressed, Komatsu Ltd. ('Komatsu') is making a company-wide effort, 
centering on  its  Information  Systems  Division, to assure  continued  the 
Quality  and Reliability of its management. In addition, as the leader of the
Komatsu  Group, the  Company  is vigorously supporting its Group companies in
their  efforts  to address the issue.  

1. Progress of Activities  

As  a  whole, along with the introduction of ERP (enterprise resource  planning)
package  software  to  build  a global network, the  Komatsu  Group  is  dealing
properly with the Y2K issue.   

To  be  specific,  the  actions  on  the domestic  core  business  systems  for
production, sales and accounting at Komatsu were completed in March 1998,  while
those  on  the  overseas business core systems, including  other  systems,  were
completed  in  June 1999. Following their completion, a series of  comprehensive
tests to confirm proper functioning of the measures was finished in August 1999,
leading to the detection of no material problems.       

With   regard  to  microcomputers  and  software  installed  in  Komatsu's
manufacturing  facilities and other equipment, investigations and  actions  have
already been undertaken, confirming the absence of any material problems.       

Investigations  into microcomputers and software incorporated  in  Komatsu's
products have also been finished. Although some products were found to show 
such phenomena as failing to indicate accurate dates, customers have been
notified of such  problems  through the sales division while, at the same  time,
 undergoing appropriate counter-actions.  In  addition,  Komatsu  has  posted 
information concerning the Y2K issue on its website for timely disclosure to the
 visitors, while  inquiries  from the customers are being quickly processed  by 
respective departments in charge.  

2. Funding for Actions  

The  total amount of expenditure by the Komatsu Group for actions related to the
Y2K  issue  is estimated to amount to about Y6.0 billion. Of this amount.  about
Y5.5  billion  was  accrued by the end of fiscal 1999, with the  remaining  YO.5
billion  being  earmarked  for the current fiscal year.  Komatsu  expects  these
expenditures will not materially affect its future business performance and cash
flows.  

3. Crisis Management Plans  

In order to prevent any possible disruption of its business activities resulting
from  the Y2K issue, Komatsu is taking every precautionary measure. However,  in
preparation  for  any  conceivable contingency, Komatsu  formed  the  Y2K  Issue
Management Committee in February 1999. Presupposing various cases  of  trouble,
while  also  confirming the state of counter-actions by the Komatsu Group  as  a
whole, the Committee has formulated specific methods to respond to such problems
in its Crisis Management Plans.       

The  Plan covers identification of supposed problems and classification  of
resultant  distractions,  preparation  for  counter-actions,  establishment   of
counter-measure  headquarters  depending on  the  importance  of  the  problems,
emergency readiness of the persons in charge and engineers in office or at home,
and an emergency communication system.       

For  instance,  Komatsu  is planning to properly  increase  inventories  of
parts  and  products at its manufacturing plants, and is scheduled to  implement
confirmation  of  the  proper  function of  its  computer  systems  and  network
operations on January 1 and 2, 2000. In addition, Komatsu has decided  to  move
up  the clearance date for its trade notes payable drawn at the end of September
1999,  from originally scheduled January 4th, 2000 to the end of this  year,  as
part of its activities to reduce risks at its suppliers.  
                                                    

                                                                                                                                                                                                                                              

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