KOMATSU LTD.

In advanced country markets, cyclical demand fluctuations, and in emerging country markets, sharp fluctuations in resource prices and currency values affect net sales. Financial and economic turmoil resulting from tariff policies in various countries adds further impact, potentially leading to decreased orders, increased customer cancellations, and delays in receivables collection. These carry the risk of reducing profitability through decreased net sales and inappropriate inventory levels and production capacity.

Growing global political division and rising military tensions may cause resource price fluctuations, import/export restrictions, supply chain disruptions, and impacts on financial and economic conditions. The Company also gathers and analyzes information on trends in economic security-related regulations, including the Economic Security Promotion Act, but unexpected developments carry the risk of adversely affecting business results. The Company Group continuously monitors political and economic conditions and regulatory trends in each country and works to minimize impacts.

A major portion of overseas net sales is affected by foreign exchange fluctuations, and a strong yen phase has a negative impact on business results. While the Company mitigates short-term impacts through the placement of global production bases and hedging transactions, unexpected fluctuations in exchange rate levels carry the risk of adversely affecting business results. Exchange rate fluctuations also affect relative pricing versus competing products in the same market and the cost of manufacturing materials.

Amid heightened threats such as cyberattacks, unauthorized access, and impersonation, the leakage or loss of customer information, personal information, and confidential business or technical information could result in liability for damages and adverse effects on reputation and credibility. If such an incident occurs at the Company Group or a key supplier, there is a risk that interruption of critical operations could affect production and sales. While the Company has established a management framework and implemented technical measures, there is also a risk that security countermeasure costs will increase as attacks become more sophisticated.

Sharp increases in the prices of materials such as steel and in energy prices raise manufacturing costs, and shortages of parts and materials, bankruptcies of suppliers, import/export restrictions, and disruptions in international transportation make timely procurement and production difficult. While the Company works to minimize impact through diversifying suppliers, mutual supply arrangements across production sites, and holding safety stock, prolonged disruption of the global supply chain or supply tightness carries the risk of adversely affecting business results. The Company plans to address rising material and energy prices through cost reduction and reviewing sales prices.

If the Company is unable to develop products and solutions that meet customer needs by the time required by the market, or fails to gain customer acceptance, it may lose competitiveness in the market. In addition, the Company is investing significant management resources, including R&D expenses, to respond to tightening environmental regulations and climate change response requirements in various countries, and if future regulatory changes require additional expenses or capital investment, this carries the risk of adversely affecting business results. Disruptions to product development, production, sales, and service activities are also anticipated.

If natural disasters such as earthquakes, tsunamis, or floods, infectious disease outbreaks, or accidents such as fires or explosions occur at the Company Group's facilities, the Company could suffer severe damage that cannot be recovered from in a short period of time. Even without direct damage, there is a risk of prolonged disruption to logistics and supply networks, shortages in the supply of electricity and gas, and production disruptions at partner companies. The Company has formulated business continuity plans and conducts drills, and has established a system to set up an emergency response headquarters and minimize damage when a material risk materializes.

A rise in market interest rates carries the risk of increasing interest payments on interest-bearing debt and reducing profit, and the Company works to mitigate this impact by incorporating long-term fixed-rate financing. In addition, fluctuations in financial markets affect the fair value of pension assets and interest rates, carrying the risk of increased pension expenses through an increase in underfunded amounts and obligations under pension plans. While the Company conducts regular evaluations of investment status and portfolio reviews, sudden changes in market conditions may adversely affect business results and financial position.

While the Company pays close attention to complying with transfer pricing taxation systems regarding international transaction prices between group companies, tax authorities may point out that transaction prices are inappropriate. If intergovernmental consultations fail to reach agreement, there is a risk of double taxation or additional taxation, which may adversely affect business results. The Company is required to respond to unexpected tax-related developments.

Due to intensifying competition for talent resulting from factors such as a declining working-age population, if the Company Group is unable to secure and develop the personnel it needs in a planned manner, this could significantly affect the execution of management plans and sustainable growth. The Company positions human capital as an important management resource that creates new value and continues to invest in it, but responding to changes in the internal and external environment remains a challenge. The Company promotes initiatives aimed at the sustainable growth and development of both the company and its employees.