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Questions and Answers at the Conference on Results for FY2007 Interim Period, Ended September 30, 2007. (Click the questions for the corresponding answers.)

Q1: Please explain the reasons for smaller sales during the second quarter (July - September) compared to the first quarter (April - June).

Q2: I see that interim sales in North America declined by 11% from the previous interim period a year ago. How much of this decline was affected by inventory reduction?

Q3: Your balance sheets show not much growth in receivables. Please explain this. I understand that the amount of past due receivables is growing in the United States. How is Komatsu in the regard?

Q4:Please tell us about the profitability of the construction and mining equipment business by region.

Q5:How much are you anticipating for increased prices for materials in the second half period?

Q6:What are your projections of demand by region for the rest of the year and next year?

Q7:Please tell us about your projections of future demand for construction and utility equipment (compact construction equipment) in North America.

Q8:When North American demand is declining, is it difficult for you to increase the prices there?

Q9:Please tell us about future risks.

Q10:Can you think of any risks in emerging markets such as Greater Asia?

Q11:I understand that your competitors are also expanding the functions of their remote machine management systems, like your KOMTRAX. What do you think about that?

Q12:Can you apply the capacitor which is used in the electric hybrid forklift truck to construction equipment?

back to top Q1
Please explain the reasons for smaller sales during the second quarter (July - September) compared to the first quarter (April - June).

A1
There are two major factors. First, it was the Japanese yen's appreciation against both the US dollar and Euro. Against the US dollar, the Japanese yen was 122 in the first quarter and 117 in the second quarter. Against the Euro, the Japanese yen appreciated from 164 in the first quarter to 162 in the second quarter. As a result, the appreciation of about 8 billion yen against both currencies combined translated into the difference between the first and second quarters. Second, it was a seasonal factor of sales in China. Normally in China, our sales expand in February and March after Chinese New Year. However, sales remained strong into April this year, which pushed up our sales in the first quarter.

back to top Q2
I see that interim sales in North America declined by 11% from the previous interim period a year ago. How much of this decline was affected by inventory reduction?

A2
While North American demand declined by 15%, our sales decreased by 11%, reflecting an increase in market share, price realization and the Japanese yen's depreciation compared with the previous interim period a year ago. Although we reduced distributors' inventories slightly, they continued to maintain an appropriate level of turnover periods. Therefore, we believe there was a minimal effect on declined sales, if any.

back to top Q3
Your balance sheets show not much growth in receivables. Please explain this. I understand that the amount of past due receivables is growing in the United States. How is Komatsu in the regard?

A3
There are two reasons why receivables have not increased. First, we securitized receivables worth about 15 billion yen in the United States during six months, ended September 30, 2007, engaging in the off-balance sheet financing. Second, the proportion of sales in Japan, where the collection period is relatively long, has become smaller in total sales. With respect to the growth of past due receivables, we haven't noticed any signs of it as of today.

back to top Q4
Please tell us about the profitability of the construction and mining equipment business by region.

A4
Operating profit ratio of the entire construction and mining equipment business is about 16%, of which we generate about 7% in Japan and about 18% outside of Japan. Except for China, where we maintain a profitability which is slightly higher than the average of 18%, overseas we have about the same profitability. With respect to mining equipment, of which profitability was low in the past, their current profitability has come close to the average of 16% for construction and mining equipment combined. Profitability of utility equipment (compact construction equipment) has remained below average.

back to top Q5
How much are you anticipating for increased prices for materials in the second half period?

A5
Compared to the first half period a year ago, a loss of 7.7 billion yen for total items purchased, including steel materials, negatively affected our earnings. While it appears that price hikes of steel materials have been on hold, we believe it is possible to see price increases of purchased items including steel materials. For the current fiscal year, therefore, we are anticipating effects which are a little more than double that of the 7.7 billion yen registered in the first half period.

back to top Q6
What are your projections of demand by region for the rest of the year and next year?

A6
For the current full year, our projections are as follows: up 6% to 7% in Japan, up 48% to 50% in China, up 25% to 30% in other regions (total of Asia, Oceania, CIS, Middle East, Africa and Latin America), up about 15% in Europe, and down 18% to 20% in North America. We are taking a little extra cautious stance on North American demand. As for projections for the next fiscal year, it's hard to predict but we are anticipating that global demand will increase by about 7%. It could grow by about 10%, if certain conditions are met.

back to top Q7
Please tell us about your projections of future demand for construction and utility equipment (compact construction equipment) in North America.

A7
Compared to the previous interim period a year ago, North American demand has declined to 15%, the rate which we had anticipated at the beginning of our fiscal year. However, while we predicted that North American demand would decline centering on the residential and non-residential construction sector which accounts for half of total demand, demand also decreased in the mining and public works sectors. We are expecting that demand in the residential construction sector will continue to decline in the second half period, but it will recover in the mining and public works sectors. In view of the fact that demand had begun declining by 10% already in the fourth quarter (January - March, 2006) of our last fiscal year, it is possible that the rate of decline will halt around 15%, about the same rate of the first half period. However, we are taking a severe look at demand by assuming the market conditions might further deteriorate.

back to top Q8
When North American demand is declining, is it difficult for you to increase the prices there?

A8
It is difficult to do so in North America, but we are going to realize prices in Southeast Asia and other regions with strong demand for our equipment.

back to top Q9
Please tell us about future risks.

A9
Risks are foreign exchange fluctuations and shipping. While the Japanese yen has hovered around 114 per U.S. dollar, it is possible for the Japanese currency to appreciate to about 110 yen. As exports from Japan to North America have declined, exports of automobiles and other products to Europe have been growing. As a result, it has become very difficult to arrange shipments to Europe and some other regions of the world. Additionally, it is also possible that the subprime mortgage problem in the United States may give an impact on real economy and/or spread to European and other economies of the world. Under such an environment, we are taking quite a conservative stance on the projections for the second half period, and therefore it is possible for us to outperform the projected business results for the year, if the risks I have mentioned do not surface.

back to top Q10
Can you think of any risks in emerging markets such as Greater Asia?

A10
Provided that China remains steady, we believe demand for our equipment will remain strong for some years to come, which will be driven by the following cycle for demand expansion: Chinese economic growth expands demand for resources, which pushes the prices of resources to high levels; Greater Asia and other emerging economies which are rich in resources obtain foreign revenues and promote infrastructure developments.

back to top Q11
I understand that your competitors are also expanding the functions of their remote machine management systems, like your KOMTRAX. What do you think about that?

A11
In order for us to analyze the market conditions from KOMTRAX data, it has taken us at least three years to build a sufficient database or four to five years in big-scale markets like North America and Europe. We led the industry by mounting our KOMTRAX to our machines as a standard feature. We have also evolved the functions of KOMTRAX, adding fuel consumption data transmission for our latest hydraulic excavator models, which should help customers improve work efficiency. Furthermore, we have also improved the ways of processing data gained from KOMTRAX. In China, for example, customers can check the daily conditions of their machines on their cellular phones. We have established global support capabilities at the computer center of the Oyama Plant in Japan. We believe we are also ahead of our competitors in the area of investing in facilities.

back to top Q12
Can you apply the capacitor which is used in the electric hybrid forklift truck to construction equipment?

A12
Yes, we can. Because we originally developed this hybrid technology for construction equipment.

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