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Questions and Answers at the Conference on Results for Nine months ended December 31, 2008
(Click the questions for the corresponding answers.)

Q1: When I compare your latest projections for business results for the current fiscal year and third-quarter results (October - December) under review, I can see a considerable drop in fourth-quarter sales (January - March) in the construction, mining and utility equipment business from the previous fourth quarter a year ago. Please explain the reason(s).

Q2: It is expected that the market environment is becoming more challenging. What are your measures?

Q3: Can you tell us about the current backlog orders for mining equipment?

Q4:What is your projection for the mining equipment business?

Q5:I understand that you are facilitating the initiative to own inventories at distributors in countries other than Japan and China. Can you tell us your stance on distributors' inventories?

Q6:With respect to the industrial machinery business, what kind of measures are you going to implement as the automobile and other manufacturers are cutting down their capital investment?

Q7:How much of your fixed costs do you think you will be able to reduce in the future?

Q8: Under such a challenging environment, what do you most want to safeguard as president and CEO?

back to top Q1
When I compare your latest projections for business results for the current fiscal year and third-quarter results (October - December) under review, I can see a considerable drop in fourth-quarter sales (January - March) in the construction, mining and utility equipment business from the previous fourth quarter a year ago. Please explain the reason(s).

A1
We are anticipating that unit-based demand for seven major products will drop by about 40% from the previous fourth quarter a year ago. Meanwhile, we are projecting that our wholesale sales to distributors will drop by 50 to 60% on a unit basis in the fourth quarter. The difference between the two reflects an adjustment to reduce distributors' inventories. Today, we are using a new inventory database system in which we can check our inventories at all distributors and plants around the world. As of December 31, 2008, we had about 24,000 units, including utility equipment. Currently we are working to reduce 7,000 units by the end of March 2009 and an additional 3,000 units by the end of June. As a result, we plan to keep our inventories at an appropriate level of about 14,000 units.

back to top Q2
It is expected that the market environment is becoming more challenging. What are your measures?

A2
Roughly speaking, we have four tasks. First is inventory reduction which we have explained earlier. Our second task calls for expansion of sales by launching new models. We are promoting commercial production and expansion of our model range of hybrid hydraulic excavators as well as the development of second and third-generation hybrid electric forklift trucks. Third is further reinforcement of the parts and service business. To fully capitalize on demand for parts, which is more stable than that for new equipment, we are expanding our production capacity and strengthening our distributors' capabilities. The fourth task involves promotion of business structure reforms and reduction of fixed costs. First in Japan, we are going to integrate the Japanese Marketing Division and distributors, consolidate rental companies into one entity, focus on the use of new production lines and take other initiatives. In North America and Europe, we are working to reduce fixed costs in proportion with the volume of production and sales.

back to top Q3
Can you tell us about the current backlog orders for mining equipment?

A3
Backlog orders for dump trucks, which we produce in Japan, are down by about 20% from the end of September last year. However, backlogs for super-large dump trucks that we produce at the Peoria Manufacturing Operation of Komatsu America and super-large hydraulic excavators, at Komatsu Mining Germany, have remained on the level of seven to ten months. We are paying closer attention to future cancellations. In Russia where cancellations first took place, we believe that the condition will become stable in January or February, but cancellations in the United States, Canada and Australia might continue into March.

back to top Q4
What is your projection for the mining equipment business?

A4
While we expect to generate sales of over 400 billion yen for the current fiscal year, next fiscal year sales will decline as cancellations might continue. Although commodity prices have been declining, mining activities are continuing and thus the current volume of production is larger when compared to 2003 and 2004 levels. In addition, unlike construction equipment, mining equipment generates renewal demand after about seven years of use. In these regards, we don't expect that either demand or our sales will drop sharply.

back to top Q5
I understand that you are facilitating the initiative to own inventories at distributors in countries other than Japan and China. Can you tell us your stance on distributors' inventories?

A5
At present, our distributors don't have inventories in Japan, China, Thailand and some other Southeast Asian countries. Of course, they do have some machines for display and other purposes but they are accounted for as Komatsu's assets. Therefore, our wholesale sales equal to real retail demand and thereby we are better positioned to slow down our production in tune with demand even when it drops sharply. In this way, we prevent our distributors from having surplus inventories. Meanwhile, our distributors own their inventories in Europe and the Middle East. Against the backdrop of the nose-diving drop in European demand, our local distributors are left with very large inventories today. Therefore, we are buying back some inventories which have been recognized as unneeded by them in the discussions. In the United States, distributors in which we have equity have already achieved zero inventories. We are going to promote this zero distributor inventory initiative around the world.

back to top Q6
With respect to the industrial machinery business, what kind of measures are you going to implement as the automobile and other manufacturers are cutting down their capital investment?

A6
The market environment for industrial machinery is worse than that for construction equipment. According to an industrial statistics report, Japan's industrial machinery industry as a whole faced a drop of 70 to 80% in orders received in November and December in 2008 from the corresponding months in 2007. A similar situation applies to our industrial machinery business. As we still have backlog orders for large presses, we should be able to keep sales on the current level into the first half period of next fiscal year. However, when we consider the possibility of some delays of delivery in the second half period and later, we anticipate a decline in sales of this business segment for next fiscal year. Meanwhile, orders received by our industrial machinery business for small and medium-sized presses already dropped by 40 to 50% in November and December in 2008 from the corresponding months in 2007. With respect to Komatsu NTC, we are anticipating a sharp decline in sales of machine tools for next fiscal year. As we are expecting that the market environment will further worsen into the future, we are going to implement measures, such as reduction of fixed costs and reassessment of production lines, like the construction, mining and utility equipment business.

back to top Q7
How much of your fixed costs do you think you will be able to reduce in the future?

A7
Since fiscal 2002, we haven't increased fixed costs much, while expanding sales of construction equipment by about 20% each year. Specifically, while deprecation of expenses and facilities related production and development has increased, we have worked to minimize SG&A expenses. As a result, sales have doubled from six years ago; fixed costs have grown only by about 20%. As we have worked very hard to reduce fixed costs to the present, it is not easy to cut down more. However, we are planning to cut about 20 billion yen from the 330 to 340 billion yen projected for the current fiscal year.

back to top Q8
Under such a challenging environment, what do you most want to safeguard as president and CEO?

A8
Different people have different opinions, emphasizing the importance of employment, profits, shareholders and so on. I personally believe that a balance is very important because we believe that our corporate value is the total sum of trust given to us by all our stakeholders and society. Therefore, we are obliged to shareholders, suppliers, employees and local communities, for example. As I am convinced that I need to manage the Komatsu Group soundly by keeping the best possible balance of all these entities in tune with the times, I cannot place priorities.

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