Semi-Annual Report
Toyota Motor Corporation
22 December 2005
Japanese-language Semi-Annual Securities Report for the six-month ended
September 30,2005, as filed with the Director of the Kanto Local Finance Bureau
of the Ministry of Finance of Japan on December 22, 2005, and which includes the
following:
I. Corporate information
A. Corporate overview
1. History of changes in major business indices of the past three
semi-annual periods and two fiscal years
2. Overview of business
3. Associated companies
4. Employee information
B. Business
1. Discussion of business results
2. Production, orders and sales
3. Management issues
4. Material contracts
5. Research and development
C. Capital assets
1. Changes in important capital assets
2. Plans for new construction projects and disposition of facilities
D. Company information
1. Share information
a. Total number of shares
b. Stock acquisition rights
c. Number of shares outstanding, changes in capital stock
d. Major shareholders
e. Voting rights
2. Changes in share price
3. Directors and corporate auditors
E. Financial information
1. Semi-annual consolidated financial statements and notes
2. Semi-annual unconsolidated financial statements and notes
F. Reference materials
II. Information on Guarantors
Auditors Report
Interim period for the fiscal year ending March 2005 Consolidated
Interim period for the fiscal year ending March 2006 Consolidated
Interim period for the fiscal year ending March 2005
Interim period for the fiscal year ending March 2006
Certificate by the Representative Director
TOYOTA MOTOR
CORPORATION
Consolidated Financial Statements
For the six-month periods
ended September 30, 2004 and 2005
ASSETS
U.S. dollars
in millions
Yen in millions (Note 4)
March 31, September 30, September 30,
2005 2005 2005
Current assets
Cash and cash equivalents 1,483,753 1,695,897 14,983
Time deposits 63,609 59,988 530
Marketable securities (Note 5) 543,124 517,784 4,574
Trade accounts and notes receivable, less allowance 1,616,341 1,414,966 12,501
for doubtful accounts of 18,656 million as of March
31, 2005 and JPY19,063 million ($168 million) as of
September 30, 2005
Finance receivables, net 3,010,135 3,157,323 27,894
Other receivables 438,676 459,202 4,057
Inventories 1,306,709 1,443,333 12,751
Deferred income taxes 475,764 498,101 4,401
Prepaid expenses and other current assets 501,994 539,584 4,767
Total current assets 9,440,105 9,786,178 86,458
Noncurrent finance receivables, net 3,976,941 4,547,430 40,175
Investments and other assets
Marketable securities and other securities investments 2,704,142 2,951,968 26,080
(Note 5)
Affiliated companies 1,570,185 1,663,859 14,699
Employees receivables 49,538 73,518 650
Other 798,506 797,201 7,043
Total investments and other assets 5,122,371 5,486,546 48,472
Property, plant and equipment
Land 1,182,768 1,204,454 10,641
Buildings 2,935,274 3,051,281 26,957
Machinery and equipment 7,897,509 8,052,513 71,142
Vehicles and equipment on operating leases (Note 6) 1,828,697 2,240,308 19,792
Construction in progress 214,781 339,242 2,997
14,059,029 14,887,798 131,529
Less - Accumulated depreciation (8,263,435) (8,450,360) (74,656)
Property, plant and equipment, net 5,795,594 6,437,438 56,873
Total assets
24,335,011 26,257,592 231,978
LIABILITIES AND SHAREHOLDERS ' EQUITY
U.S. dollars
in millions
(Note 4)
Yen in millions
March 31, September 30, September 30,
2005 2005 2005
Current liabilities
Short-term borrowings 2,381,827 2,769,166 24,465
Current portion of long-term debt 1,150,920 1,484,076 13,111
Accounts payable 1,856,799 1,823,606 16,111
Other payables 693,041 705,410 6,232
Accrued expenses 1,289,373 1,409,570 12,453
Income taxes payable 292,835 260,320 2,300
Other current liabilities 562,411 622,458 5,499
Total current liabilities 8,227,206 9,074,606 80,171
Long-term liabilities
Long-term debt 5,014,925 5,307,694 46,892
Accrued pension and severance costs 646,989 644,518 5,694
Deferred income taxes 811,670 910,586 8,045
Other long-term liabilities 84,342 100,635 889
Total long-term liabilities 6,557,926 6,963,433 61,520
Minority interest in consolidated subsidiaries 504,929 526,788 4,654
Shareholders ' equity
Common stock, no par value, 397,050 397,050 3,508
authorized: 9,740,185,400 shares at March 31, 2005
and at September 30, 2005;
issued: 3,609,997,492 shares at March 31, 2005
and at September 30, 2005
Additional paid-in capital 495,707 495,580 4,378
Retained earnings 9,332,176 9,771,972 86,332
Accumulated other comprehensive income (loss) (80,660) 187,280 1,655
Treasury stock, at cost (1,099,323) (1,159,117) (10,240)
341,918,553 shares at March 31, 2005 and
357,297,548 shares at September 30, 2005
Total shareholders ' equity 9,044,950 9,692,765 85,633
Commitments and contingencies (Note 9)
Total liabilities and shareholders ' equity 24,335,011 26,257,592 231,978
U.S. dollars
in millions
Yen in millions (Note 4)
For the six-month
For the six-month periods ended period ended
September 30, September 30,
2004 2005 2005
Net revenues
Sales of products 8,651,257 9,500,166 83,931
Financing operations 374,408 452,994 4,002
9,025,665 9,953,160 87,933
Costs and expenses
Cost of products sold 6,961,521 7,710,268 68,117
Cost of financing operations (Note 7) 177,728 270,944 2,394
Selling, general and administrative 1,020,167 1,162,457 10,270
8,159,416 9,143,669 80,781
Operating income 866,249 809,491 7,152
Other income (expense)
Interest and dividend income 33,128 46,955 415
Interest expense (7,944) (11,048) (98)
Foreign exchange gain, net (Note 7) 6,196 5,584 49
Other income, net 15,586 5,015 44
46,966 46,506 410
Income before income taxes, minority interest
and equity in earnings of affiliated companies 913,215 855,997 7,562
Provision for income taxes 361,338 325,116 2,872
Income before minority interest and equity in 551,877 530,881 4,690
earnings of affiliated companies
Minority interest in consolidated subsidiaries (26,652) (31,003) (274)
Equity in earnings of affiliated companies 58,813 70,642 624
Net income 584,038 570,520 5,040
Yen U.S. dollars
(Note 4)
Net income per common share (Note 11)
-Basic
176.32 175.13 1.55
-Diluted
176.28 175.10 1.55
Interim cash dividends per common share
25.00 35.00 0.31
Yen in
millions
Common Additional Retained Accumulated Treasury Total
stock paid-in earnings other stock, shareholders
capital comprehensive at cost equity
income
(loss)
Balances at 397,050 495,179 8,326,215 (204,592) (835,285) 8,178,567
March 31, 2004
Issuance during (748) (748)
the period
Comprehensive
income:
Net income 584,038 584,038
Other
comprehensive
income (loss)
Foreign currency 119,499 119,499
translation
adjustments
Unrealized (55,051) (55,051)
losses on
securities,
net of
reclassification
adjustments
Minimum pension 5,767 5,767
liability
adjustments
Total 654,253
comprehensive
income
Dividends paid (83,250) (83,250)
Purchase and (206,746) (206,746)
reissuance of
common stock
Balances at 397,050 494,431 8,827,003 (134,377) (1,042,031) 8,542,076
September 30,
2004
Balances at 397,050 495,707 9,332,176 (80,660) (1,099,323) 9,044,950
March 31, 2005
Issuance during (127) (127)
the period
Comprehensive
income:
Net income 570,520 570,520
Other
comprehensive
income (loss)
Foreign currency 138,270 138,270
translation
adjustments
Unrealized gains 129,991 129,991
on securities,
net of
reclassification
adjustments
Minimum pension (321) (321)
liability
adjustments
Total 838,460
comprehensive
income
Dividends paid (130,724) (130,724)
Purchase and (59,794) (59,794)
reissuance of
common stock
Balances at 397,050 495,580 9,771,972 187,280 (1,159,117) 9,692,765
September 30,
2005
U.S.
dollars
in
millions
(Note 4)
Common Additional Retained Accumulated Treasury Total
stock paid-in earnings other stock, shareholders
capital comprehensive at equity
income (loss) cost
Balances at 3,508 4,379 82,447 (713) (9,712) 79,909
March 31, 2005
Issuance during (1) (1)
the period
Comprehensive
income:
Net income 5,040 5,040
Other
comprehensive
income (loss)
Foreign currency 1,222 1,222
translation
adjustments
Unrealized gains 1,149 1,149
on securities,
net of
reclassification
adjustments
Minimum pension (3) (3)
liability
adjustm-ents
Total 7,407
comprehensive
income
Dividends paid (1,155) (1,155)
Purchase and (528) (528)
reissuance of
common stock
Balances at 3,508 4,378 86,332 1,655 (10,240) 85,633
September 30,
2005
Yen in millions U.S. dollars
in millions
(Note 4)
For the six-month For the
periods ended six-month
September 30, period ended
September
30,
2004 2005 2005
Cash flows from operating
activities (Note 12)
Net income 584,038 570,520 5,040
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation 485,311 547,036 4,833
Provision for doubtful accounts 31,966 28,923 256
and credit losses
Pension and severance costs, 3,085 13,514 119
less payments
Losses on disposal of fixed 18,914 26,993 238
assets
Unrealized losses on 1,997 4,460 39
available-for-sale securities,
net
Deferred income taxes 49,858 (15,862) (140)
Minority interest in 26,652 31,003 274
consolidated subsidiaries
Equity in earnings of affiliated (58,813) (70,642) (624)
companies
Changes in operating assets and 224,965 203,513 1,798
liabilities, and other
Net cash provided by operating 1,367,973 1,339,458 11,833
activities
Cash flows from investing
activities (Note 12)
Additions to finance (4,358,871) (3,148,381) (27,815)
receivables
Collection of and proceeds from 3,837,570 2,638,589 23,311
sales of finance receivables
Additions to fixed assets (538,886) (716,530) (6,331)
excluding equipment leased to
others
Additions to equipment leased to (361,708) (624,732) (5,519)
others
Proceeds from sales of fixed 29,152 39,122 346
assets excluding equipment
leased to others
Proceeds from sales of equipment 152,433 195,222 1,725
leased to others
Purchases of marketable (747,373) (401,268) (3,545)
securities and security
investments
Proceeds from sales of and 226,907 430,054 3,799
maturity of marketable
securities and security
investments
Payments for additional (683) (129) (1)
investments in affiliated
companies,
net of cash acquired
Changes in investments and other 1,168 (62,730) (554)
assets, and other
Net cash used in investing (1,760,291) (1,650,783) (14,584)
activities
Cash flows from financing
activities
Purchases of common stock (206,917) (59,734) (528)
Proceeds from issuance of 921,299 875,706 7,737
long-term debt
Payments of long-term debt (538,467) (508,550) (4,493)
Increase in short-term 58,904 313,266 2,768
borrowings
Dividends paid (83,250) (130,724) (1,155)
Net cash provided by financing 151,569 489,964 4,329
activities
Effect of exchange rate changes 39,216 33,505 296
on cash and cash equivalents
Net increase (decrease) in cash (201,533) 212,144 1,874
and cash equivalents
Cash and cash equivalents at 1,729,776 1,483,753 13,109
beginning of period
Cash and cash equivalents at end 1,528,243 1,695,897 14,983
of period
1. Basis of preparation:
The accompanying semi-annual condensed consolidated financial statements of
Toyota Motor Corporation (the 'parent company ') as of September 30, 2005, and
for the six-month periods ended September 30, 2004 and 2005, respectively, have
been prepared in accordance with accounting principles generally accepted in the
United States of America and on substantially the same basis as its annual
consolidated financial statements. The semi-annual condensed consolidated
financial statements should be read in conjunction with the Annual Report on
Form 20-F for the year ended March 31, 2005. The semi-annual condensed
consolidated financial statements reflect all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the results
for those periods and the financial condition at those dates. The consolidated
results for six-month periods are not necessarily indicative of results to be
expected for the full year.
2. Nature of operations:
The parent company and its subsidiaries (collectively 'Toyota ') are primarily
engaged in the design, manufacture, and sale of sedans, minivans, compact cars,
sport-utility vehicles, trucks and related parts and accessories throughout the
world. In addition, Toyota provides retail and wholesale financing, retail
leasing and certain other financial services primarily to its dealers and their
customers related to vehicles manufactured by Toyota.
3. Summary of significant accounting policies:
The parent company and its subsidiaries in Japan maintain their records and
prepare their semi-annual condensed financial statements in accordance with
accounting principles generally accepted in Japan, and its foreign subsidiaries
in conformity with those of their countries of domicile. Certain adjustments
and reclassifications have been incorporated in the accompanying semi-annual
condensed consolidated financial statements to conform with accounting
principles generally accepted in the United States of America.
Significant accounting policies after reflecting adjustments for the above are
as follows:
Basis of consolidation and accounting for investments in affiliated companies -
The semi-annual condensed consolidated financial statements include the accounts
of the parent company and those of its majority-owned subsidiary companies. All
significant intercompany transactions and accounts have been eliminated.
Investments in affiliated companies in which Toyota exercises significant
influence, but which it does not control, are stated at cost plus equity in
undistributed earnings. Consolidated net income includes Toyota 's equity in
current earnings of such companies, after elimination of unrealized intercompany
profits. Investments in non-public companies in which Toyota does not exercise
significant influence (generally less than a 20% ownership interest) are stated
at cost. The accounts of variable interest entities as defined by the Financial
Accounting Standard Board ( 'FASB ') Interpretation No. 46(R) Consolidation of
Variable Interest Entities (revised December 2003) - an interpretation
of ARB No. 51 ( 'FIN 46(R) ') are included in the semi-annual condensed
consolidated financial statements, if applicable.
Estimates -
The preparation of Toyota 's semi-annual condensed consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the amounts reported in the semi-annual condensed consolidated
financial statements and the accompanying notes. Actual results could differ
from those estimates. The more significant estimates include: product
warranties, allowance for doubtful accounts and credit losses, residual values
for leased assets, impairment of long-lived assets, postretirement benefits
costs and obligations, fair value of derivative financial instruments and
other-than-temporary losses on marketable securities.
Translation of foreign currencies -
All asset and liability accounts of foreign subsidiaries and affiliates are
translated into Japanese yen at the appropriate period-end current exchange
rates and all income and expense accounts of those subsidiaries are translated
at the average exchange rates for each period. The foreign currency translation
adjustments are included as a component of accumulated other comprehensive
income.
Foreign currency receivables and payables are translated at appropriate
period-end current exchange rates and the resulting transaction gains or losses
are recorded in operations currently.
Revenue recognition -
Revenues from sales of vehicles and parts are generally recognized upon delivery
which is considered to have occurred when the dealer has taken title to the
product and the risk and reward of ownership have been substantively
transferred, except as described below.
Toyota 's sales incentive programs principally consist of cash payments to
dealers calculated based on vehicle volume or a model sold by a dealer during a
certain period of time. Toyota accrues these incentives as revenue reductions
upon the sale of a vehicle corresponding to the program by the amount determined
in the related incentive program.
Revenue from the sale of vehicles under which Toyota conditionally guarantees
the minimum resale value is recognized on a pro rata basis from the date of sale
to the first exercise date of the guarantee in a manner similar to lease
accounting. The underlying vehicles of these transactions are recorded as
assets and are depreciated in accordance with Toyota 's depreciation policy.
Revenue from retail financing contracts and finance leases is recognized using
the effective yield method. Revenue from operating leases is recognized on a
straight-line basis over the lease term.
Toyota on occasion sells finance receivables in transactions subject to limited
recourse provisions. These sales are to trusts and Toyota retains the servicing
rights and is paid a servicing fee. Gains or losses from the sales of the
finance receivables are recognized in the period in which such sales occur.
Other costs -
Advertising and sales promotion costs are expensed as incurred. Advertising
costs were JPY175,343 million and JPY187,787 million ($1,659 million) for the
six-month periods ended September 30, 2004 and 2005, respectively.
Toyota generally warrants its products against certain manufacturing and other
defects. Provisions for product warranties are provided for specific periods of
time and/or usage of the product and vary depending upon the nature of the
product, the geographic location of the sale and other factors. Toyota records
a provision for estimated product warranty costs at the time the related sale is
recognized based on estimates that Toyota will incur to repair or replace
product parts that fail while under warranty. The amount of accrued estimated
warranty costs is primarily based on historical experience as to product
failures as well as current information on repair costs. The amount of warranty
costs accrued also contains an estimate of warranty claim recoveries from
suppliers.
Research and development costs are expensed as incurred and were JPY351,419
million and JPY373,168 million ($3,297 million) for the six-month periods ended
September 30, 2004 and 2005, respectively.
Cash and cash equivalents -
Cash and cash equivalents include all highly liquid investments, with original
maturities of three months or less, that are readily convertible to known
amounts of cash and are so near to maturity that they present insignificant risk
of changes in value because of changes in interest rates.
Marketable securities -
Marketable securities consist of debt and equity securities. Debt and equity
securities designated as available-for-sale are carried at fair value with
changes in unrealized gains or losses included as a component of accumulated
other comprehensive income in shareholders ' equity, net of applicable taxes.
Debt securities designated as held-to-maturity investments are carried at
amortized cost. Individual securities classified as either available-for-sale
or held-to-maturity are reduced to net realizable value for other-than-temporary
declines in market value. In determining if a decline in value is
other-than-temporary, Toyota considers the length of time and the extent to
which the fair value has been less than the carrying value, the financial
condition and prospects of the company and Toyota 's ability and intent to
retain its investment in the company for a period of time sufficient to allow
for any anticipated recovery in market value. Realized gains and losses, which
are determined on the average-cost method, are reflected in the statement of
income when realized.
Security investments in non-public companies -
Security investments in non-public companies are carried at cost as fair value
is not readily determinable. If the value of a non-public security investment
is estimated to have declined and such decline is judged to be
other-than-temporary, Toyota recognizes the impairment of the investment and the
carrying value is reduced to its fair value. Determination of impairment is
based on the consideration of such factors as operating results, business plans
and estimated future cash flows. Fair value is determined principally through
the use of the latest financial information.
Finance receivables -
Finance receivables are recorded at the present value of the related future cash
flows including residual values for finance leases.
Allowance for credit losses -
Allowances for credit losses are established to cover probable losses on
receivables resulting from the inability of customers to make required payments.
The allowance for credit losses is based primarily on the frequency of
occurrence and loss severity. Other factors affecting collectibility are also
evaluated in determining the amount to be provided.
Losses are charged to the allowance when it has been determined that payments
will not be received and the collateral cannot be recovered or the related
collateral is repossessed and sold. Any shortfall between proceeds received and
the carrying cost of repossessed collateral is charged to the allowance.
Recoveries are reversed from the allowance for credit losses.
Allowance for residual value losses -
Toyota is exposed to risk of loss on the disposition of off-lease vehicles to
the extent that sales proceeds are not sufficient to cover the carrying value of
the leased asset at lease termination. Toyota maintains an allowance to cover
probable estimated losses related to unguaranteed residual values on its owned
portfolio. The allowance is evaluated considering projected vehicle return
rates and projected loss severity. Factors considered in the determination of
projected return rates and loss severity include historical and market
information on used vehicle sales, trends in lease returns and new car markets,
and general economic conditions. Management evaluates the foregoing factors,
develops several potential loss scenarios, and reviews allowance levels to
determine whether reserves are considered adequate to cover the probable range
of losses.
The allowance for residual value losses is maintained in amounts considered by
Toyota to be appropriate in relation to the estimated losses on its owned
portfolio. Upon disposal of the assets, the allowance for residual losses is
adjusted for the difference between the net book value and the proceeds from
sale.
Inventories -
Inventories are valued at cost, not in excess of market, cost being determined
on the 'average-cost ' basis, except for the cost of finished products carried
by certain subsidiary companies, which is determined on the 'specific
identification ' basis or 'last in, first out ' ( 'LIFO ') basis. Inventories
valued on the LIFO basis totaled JPY233,440 million and JPY236,928 million
($2,093 million) at March 31, 2005 and September 30, 2005, respectively. Had
the 'first in, first out ' basis been used for those companies using the LIFO
basis, inventories would have been JPY31,894 million and JPY34,233 million ($302
million) higher than reported at March 31, 2005 and September 30, 2005,
respectively.
Property, plant and equipment -
Property, plant and equipment are stated at cost. Major renewals and
improvements are capitalized; minor replacements, maintenance and repairs are
charged to current operations. Depreciation of property, plant and equipment is
mainly computed on the declining-balance method for the parent company and
Japanese subsidiaries and on the straight-line method for foreign subsidiary
companies at rates based on the estimated useful lives of the respective assets
according to general class, type of construction and use. The estimated useful
lives range from 3 to 60 years for building and from 2 to 20 years for machinery
and equipment.
Vehicles and equipments on operating leases to third parties are originated by
dealers and acquired by certain consolidated subsidiaries. Such subsidiaries
are also the lessors of certain property that they acquire directly. Vehicles
and equipment on operating leases are depreciated primarily on a straight-line
method over the lease term, generally three years, to the estimated residual
value.
Long-lived assets -
Toyota reviews its long-lived assets, including investments in affiliated
companies, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when the carrying amount of an asset exceeds the estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition. The amount of the impairment loss to be recorded is
calculated by the excess of the carrying value of the assets over its fair
value. Fair value is determined mainly using a discounted cash flow valuation
method.
Goodwill and intangible assets -
Goodwill is not material to Toyota 's semi-annual condensed consolidated balance
sheets.
Intangible assets consist mainly of software. Intangible assets with a definite
life are amortized on a straight-line basis with estimated useful lives mainly
of 5 years. Intangible assets with an indefinite life are tested for impairment
whenever events or circumstances indicate that a carrying amount of an asset
(asset group) may not be recoverable. An impairment loss would be recognized
when the carrying amount of an asset exceeds the estimated undiscounted cash
flows used in determining the fair value of the asset. The amount of the
impairment loss to be recorded is generally determined as the difference between
the fair value of the asset on a discounted cash flow valuation method and the
current book value.
Employee benefit obligations -
Toyota has both defined benefit and defined contribution plans for employees '
retirement benefits. Retirement benefit obligations are measured by actuarial
calculations in accordance with a Statement of Financial Accounting Standard (
'FAS ') No. 87 Employers ' accounting for pensions ( 'FAS 87 '), 'Accrued
pension and severance costs ' are determined by amounts of obligations, plan
assets, unrecognized prior service costs and unrecognized actuarial gains/
losses. A minimum pension liability is recorded for plans where the accumulated
benefit obligation net of plan assets exceeds the accrued pension and severance
costs.
Environmental matters -
Environmental expenditures relating to current operations are expensed or
capitalized as appropriate. Expenditures relating to existing conditions caused
by past operations, which do not contribute to current or future revenues, are
expensed. Liabilities for remediation costs are recorded when they are probable
and reasonably estimable, generally no later than the completion of feasibility
studies or Toyota 's commitment to a plan of action. The cost of each
environmental liability is estimated by using current technology available and
various engineering, financial and legal specialists within Toyota based on
current law. Such liabilities do not reflect any offset for possible recoveries
from insurance companies and are not discounted. There were no material changes
in these liabilities for all periods presented.
Income taxes -
The provision for income taxes is computed based on the pretax income included
in the semi-annual condensed consolidated statement of income. The asset and
liability approach is used to recognize deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Valuation
allowances are recorded to reduce deferred tax assets when it is more likely
than not that a tax benefit will not be realized.
Derivative financial instruments -
Toyota employs derivative financial instruments, including forward foreign
exchange contracts, foreign currency options, interest rate swaps, interest rate
currency swaps and interest rate options to manage its exposure to fluctuations
in interest rates and foreign currency exchange rates. Toyota does not use
derivatives for speculation or trading purposes. Changes in the fair value of
derivatives are recorded each period in current earnings or through other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and the type of hedge transaction. The ineffective portion
of all hedges is recognized currently in operations.
Net income per common share -
Basic net income per common share is calculated by dividing net income by the
weighted-average number of shares outstanding during the reported period. The
calculation of diluted net income per common share is similar to the calculation
of basic net income per common share, except that the weighted-average number of
shares outstanding includes the additional dilution from the assumed exercise of
dilutive stock options.
Stock-based compensation -
Toyota measures compensation expense for its stock-based compensation plan using
the intrinsic value method. Toyota accounts for the stock-based compensation
plans under the recognition and measurement principles of the Accounting
Principles Board ( 'APB ') Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based compensation cost is
reflected in net income, as all options granted under those plans had an
exercise price higher than the market value of the underlying common stock on
the date of grant.
Other comprehensive income -
Other comprehensive income refers to revenues, expenses, gains and losses that,
under accounting principles generally accepted in the United States of America
are included in comprehensive income, but are excluded from net income as these
amounts are recorded directly as an adjustment to shareholders ' equity.
Toyota's other comprehensive income is primarily comprised of unrealized
gains/losses on marketable securities designated as available-for-sale, foreign
currency translation adjustments, gains/losses on certain derivative instruments
and adjustments attributed to additional minimum pension liabilities associated
with Toyota 's defined benefit pension plans.
Accounting changes -
In December 2004, FASB issued FAS No. 153, Exchange of Nonmonetary Assets
- an amendment of APB Opinion No. 29 ( 'FAS 153 '). The guidance in APB
Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the
principle that exchanges of nonmonetary assets should be measured based on the
fair value of the assets exchanged. The guidance in APB Opinion No.29, however,
included certain exceptions to that principle. FAS 153 amends Opinion 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. Toyota has applied FAS 153 from the
fiscal periods beginning after June 15, 2005. The application of FAS 153 did
not have material impact on Toyota 's consolidated financial statements.
Recent pronouncements to be adopted in future periods -
In November 2004, FASB issued FAS No. 151, Inventory Costs - an
amendment of ARB No. 43, Chapter 4 ( 'FAS 151 '). FAS 151 amends the guidance
in ARB No. 43, Chapter 4, 'Inventory Pricing,' to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that
'. . . under some circumstances, items such as idle facility expense, excessive
spoilage, double freight, and rehandling costs may be so abnormal as to require
treatment as current period charges. . . .' FAS 151 requires that those items
be recognized as current-period charges regardless of whether they meet the
criterion of 'so abnormal.' In addition, this Statement requires that
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. FAS 151 shall be effective
for inventory costs incurred during fiscal years beginning after June 15, 2005.
Management believes that this statement does not have material impact on Toyota
's consolidated financial statements.
In December 2004, FASB issued FAS No. 123(R), Share - Based Payment
(revised 2004) ( 'FAS 123(R) '). FAS 123(R) is a revision of FASB Statement No.
123, Accounting for Stock-Based Compensation, supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and its related implementation
guidance. FAS 123(R) requires a public entity to measure the cost of employee
services received in exchange for an award of equity instruments based on the
grant-date fair value of the award. That cost will be recognized over the
period during which an employee is required to provide service in exchange for
the award. FAS 123(R) also requires a public entity to initially measure the
cost of employee services received in exchange for an award of liability
instruments based on its current fair value; the fair value of that award will
be remeasured subsequently at each reporting date through the settlement date.
Changes in fair value will be recognized as compensation cost over that period.
Although Toyota is required to implement the standard as of the beginning of the
first interim or annual period that begins after June 15, 2005 under Statement
No.123(R), the Securities and Exchanges and Commission has amended the
compliance date and Toyota is required to adopt the Standard for the year ending
March 31, 2007. Management does not expect this statement to have material
impact on Toyota 's consolidated financial statements.
In March 2005, FASB issued the FASB Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations - an interpretation of FASB
Statement No. 143 ( 'FIN 47 '). This Interpretation clarifies that the term
conditional asset retirement obligation as used in FASB Statement No. 143,
Accounting for Asset Retirement Obligations, refers to a legal obligation to
perform an asset retirement activity in which the timing and (or) method of
settlement are conditional on a future event that may or may not be within the
control of the entity. FIN 47 requires a company to recognize a liability for
the fair value of a conditional asset retirement obligation if the fair value of
the liability can be reasonably estimated. The fair value of a liability for
the conditional asset retirement obligation should be recognized when incurred.
FIN 47 is effective no later than the end of fiscal years ending after December
15, 2005. Management does not expect this Statement to have material impact on
Toyota 's consolidated financial statements.
In May 2005, FASB issued FAS No. 154, Accounting Changes and Error Corrections
- a replacement of APB No. 20 and FAS No. 3 ( 'FAS 154 '). FAS 154
replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial Statements, and changes the
requirements for the accounting for and reporting of a change in accounting
principle. FAS 154 applies to all voluntary changes in accounting principle.
It also applies to changes required by an accounting pronouncement when the
pronouncement does not include specific transition provisions. APB Opinion 20
previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. FAS 154 requires
retrospective application to prior periods' financial statements of changes in
accounting principle. FAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
The impact of applying FAS 154 will depend on the change, if any, that Toyota
may identify and record in the future periods.
In June 2005, FASB issued FASB Staff Position No. FAS 143-1, Accounting for
Electronic Equipment Waste Obligations ( 'FSP FAS 143-1 '), to address the
accounting for historical waste obligations associated with Directive 2002/96/EC
on Waste Electrical and Electronic Equipment adopted by the European Union. The
guidance in FSP FAS 143-1 shall be applied the later of the first reporting
period ending after June 8, 2005 or the date of the adoption of the law by the
applicable EU-member country. Management is evaluating the impact of FSP FAS
143-1 on Toyota 's consolidated financial statements.
Reclassifications -
Certain prior year amounts have been reclassified to conform to the presentation
for the six-month period ended September 30, 2005.
4. U.S. dollar amounts:
U.S. dollar amounts presented in the semi-annual condensed consolidated
financial statements and related notes are included solely for the convenience
of the reader. These translations should not be construed as representations
that the yen amounts actually represent, or have been or could be converted
into, U.S. dollars. For this purpose, the rate of JPY113.19 = U.S. $1, the
approximate current exchange rate at September 30, 2005, was used for the
translation of the accompanying semi-annual condensed consolidated financial
amounts of Toyota as of and for the six-month period ended September 30, 2005.
5. Marketable securities and other securities investments:
Marketable securities and other securities investments include debt and equity
securities for which the aggregate cost, gross unrealized gains and losses and
fair value are as follows:
Yen in millions
March 31, 2005
Gross Gross
unrealized unrealized
gains losses Fair
value
Cost
Available-for-sale
Debt securities 2,205,420 14,113 6,928 2,212,605
Equity securities 451,903 453,494 593 904,804
Total 2,657,323 467,607 7,521 3,117,409
Securities not practicable
to determine fair value
Debt securities
19,917
Equity securities 109,940
Total
129,857
Yen in millions
September 30, 2005
Gross Gross
unrealized unrealized
gains losses Fair
value
Cost
Available-for-sale
Debt securities 2,171,426 5,956 10,578 2,166,804
Equity securities 472,284 694,214 592 1,165,906
Total 2,643,710 700,170 11,170 3,332,710
Securities not practicable
to determine fair value
Debt securities
18,222
Equity securities 118,820
Total
137,042
U.S. dollars in millions
September 30, 2005
Gross Gross
unrealized unrealized
gains losses Fair
value
Cost
Available-for-sale
Debt securities 19,184 53 94 19,143
Equity securities 4,172 6,133 5 10,300
Total 23,356 6,186 99 29,443
Securities not practicable
to determine fair value
Debt securities 161
Equity securities 1,050
Total 1,211
Unrealized losses continuously over a 12 month period or more in the aggregate
were not material both at March 31, 2005 and September 30, 2005.
In the ordinary course of business, Toyota maintains long-term investment
securities, included in 'Marketable securities and other securities investments
' and issued by a number of non-public companies which are recorded at cost, as
their fair values were not readily determinable. Management employs a
systematic methodology to assess the recoverability of such investments by
reviewing the financial viability of the underlying companies and the prevailing
market conditions in which these companies operate to determine if Toyota 's
investment in each individual company is impaired and whether the impairment is
other-than-temporary. Toyota performs this impairment test semi-annually for
significant investments recorded at cost. If the impairment is determined to be
other-than-temporary, the cost of the investment is written-down by the impaired
amount and the losses are recognized currently in operations.
6. Vehicles and equipment on operating leases:
Vehicles and equipment on operating leases consist of the following:
U.S. dollars in
millions
Yen in millions
March 31, September 30, September 30,
2005 2005
2005
Vehicles 1,736,238 2,141,381 18,918
Equipment 92,459 98,927 874
1,828,697 2,240,308 19,792
Less - Accumulated depreciation (424,609) (503,302) (4,446)
Vehicles and equipment on
operating leases, net 1,404,088 1,737,006 15,346
Rental income from vehicles and equipment on operating leases were JPY140,711
million and JPY157,551 million ($1,392 million) for the six-month periods ended
September 30, 2004 and 2005, respectively. Future minimum rentals from vehicles
and equipment on operating leases are due in installments as follows:
12-month periods ending U.S. dollars
September 30: in millions
Yen in millions
2006 363,758 3,214
2007 274,389 2,424
2008 163,999 1,449
2009 62,062 548
2010 15,257 135
Thereafter 9,058 80
Total minimum future rentals 888,523 7,850
The future minimum rentals as shown above should not be considered indicative of
future cash collections.
7. Derivative financial instruments:
Toyota employs derivative financial instruments, including foreign exchange
forward contracts, foreign currency options, interest rate swaps, interest rate
currency swaps and interest rate options to manage its exposure to fluctuations
in interest rates and foreign currency exchange rates. Toyota does not use
derivatives for speculation or trading.
Fair value hedges -
Toyota enters into interest rate swaps, and interest rate currency swaps mainly
to convert its fixed-rate debt to variable-rate debt. Toyota uses interest rate
swaps in managing its exposure to interest rate fluctuations. Interest rate
swaps are executed as either an integral part of specific debt transactions or
on a portfolio basis. Toyota uses interest rate currency swaps to entirely
hedge exposure to currency exchange rate fluctuations on principal and interest
payments for borrowings denominated in foreign currencies. Notes and loans
payable issued in foreign currencies are hedged by concurrently executing
interest rate currency swaps, which involve the exchange of foreign currency
principal and interest obligations for each functional currency obligations at
agreed-upon currency exchange and interest rates.
For the six-month periods ended September 30, 2004 and 2005, the ineffective
portions of Toyota 's fair value hedge relationships, which are included in cost
of financing operations, were not material. For fair value hedging
relationships, the components of each derivative 's gain or loss are included in
the assessment of hedge effectiveness.
Undesignated derivative financial instruments -
Toyota uses foreign exchange forward contracts, foreign currency options,
interest rate swaps, interest rate currency swaps, and interest rate options, to
manage its exposure to foreign currency exchange fluctuations and interest rate
fluctuations from an economic perspective, and which Toyota is unable or has
elected not to apply hedge accounting. Unrealized gains or losses on these
derivative instruments are reported in the cost of financing operations and
foreign exchange gain, net in the accompanying consolidated statements of income
together with realized gains/losses on those derivative instruments.
8. Lease commitments:
Toyota leases certain assets under capital lease and operating lease
arrangements.
An analysis of leased assets under capital leases is as follows:
U.S. dollars
in millions
Yen in millions
Class of property March 31, September 30, September 30,
2005 2005 2005
Building 11,762 11,530 102
Machinery and equipment 162,938 137,753 1,217
Less - Accumulated depreciation (128,578) (109,528) (968)
46,122 39,755 351
Amortization expenses under capital leases for the six-month periods ended
September 30, 2004 and 2005 were JPY6,674 million and JPY5,668 million ($50
million), respectively.
Future minimum lease payments under capital leases together with the present
value of the net minimum lease payments as of September 30, 2005 are as follows:
12-month periods ending September 30 Yen in millions U.S. dollars
in millions
2006 18,006 159
2007 17,385 154
2008 6,564 58
2009 6,028 53
2010 19,129 169
Thereafter 389 3
Total minimum lease payments 67,501 596
Less - Amount representing interest (6,517) (57)
Present value of net minimum lease payments 60,984 539
Less - Current obligations (16,245) (144)
Long-term capital lease obligations 44,739 395
Rental expenses under operating leases for the six-month periods ended September
30, 2004 and 2005 were JPY40,241 million and JPY44,572 million ($394 million),
respectively.
The minimum rental payments required under operating leases relating primarily
to land, buildings and equipment having initial or remaining non-cancelable
lease terms in excess of one year at September 30, 2005 are as follows:
12-month periods ending September 30 Yen in U.S. dollars
millions in millions
2006 9,357 83
2007 6,869 61
2008 5,380 47
2009 4,423 39
2010 3,417 30
Thereafter 15,029 133
Total minimum future rentals 44,475 393
9. Other commitments and contingencies, concentrations and factors
that may affect future operations:
Commitments outstanding at September 30, 2005 for the purchase of property,
plant and equipment and other assets amount to JPY130,744 million ($1,155
million).
Toyota enters into contracts with Toyota dealers to guarantee customers '
payments of their installment payables that arise from installment contracts
between customers and Toyota dealers, as and when requested by Toyota dealers.
Guarantee periods are set to match maturity of installment payments, and at
September 30, 2005, range from one month to 35 years; however, they are
generally shorter than the useful lives of products sold. Toyota is required to
execute its guarantees primarily when customers are unable to make required
payments. The maximum potential amount of future payments as of September 30,
2005 is JPY1,161,781 million ($10,264 million). Liabilities for guarantees
totaling JPY3,794 million ($34 million) have been provided as of September 30,
2005. Under these guarantee contracts, Toyota is entitled to recover any amount
paid by Toyota from the customers whose obligations Toyota has guaranteed.
In February 2003, Toyota, General Motors Corporation, Ford, DaimlerChrysler,
Honda, Nissan, BMW and their U.S. and Canadian sales and marketing subsidiaries,
the National Automobile Dealers Association and the Canadian Automobile Dealers
Association were named as defendants in purported nationwide class actions on
behalf of all purchasers of new motor vehicles in the United States since
January 1, 2001. 26 similar actions were filed in federal district courts in
California, Illinois, New York, Massachusetts, Florida, New Jersey and
Pennsylvania. Additionally, 56 parallel class actions were filed in state
courts in California, Minnesota, New Mexico, New York, Tennessee, Wisconsin,
Arizona, Florida, Iowa, New Jersey and Nebraska on behalf of the same purchasers
in these states. As of September 30, 2005, actions filed in federal district
courts were consolidated in Maine and actions filed in the state courts of
California and New Jersey were also consolidated, respectively. The nearly
identical complaints allege that the defendants violated the Sherman Antitrust
Act by conspiring among themselves and with their dealers to prevent the sale to
United States citizens of vehicles produced for the Canadian market. The
complaints allege that new vehicle prices in Canada are 10% to 30% lower than
those in the United States and that preventing the sale of these vehicles to
United States citizens resulted in United States consumers paying excessive
prices for the same type of vehicles. The complaints seek permanent injunctions
against the alleged antitrust violations and treble damages in an unspecified
amount. In March 2004, the federal district court of Maine (i) dismissed claims
against certain Canadian sales and marketing subsidiaries, including Toyota
Canada, Inc., for lack of personal jurisdiction but denied or deferred to
dismiss claims against certain other Canadian companies, and (ii) dismissed the
claim for damages based on the Sherman Antitrust Act but did not bar the
plaintiffs from seeking injunctive relief against the alleged antitrust
violations. The plaintiffs have submitted an amended compliant adding a claim
for damages based on state antitrust laws and the case is still pending. Toyota
believes that its actions have been lawful and intends to vigorously defend
these cases.
Toyota has various legal actions, governmental proceedings and other claims
pending against it, including product liability claims in the United States.
Although the claimants in some of these actions seek potentially substantial
damages, Toyota cannot currently determine its potential liability or the
damages, if any, with respect to these claims. However, based upon information
currently available to Toyota, Toyota believes that its losses from these
matters, if any, would not have a material adverse effect on Toyota 's financial
position, operating results or cash flows.
In September 2000, the European Union approved a directive that requires member
states to promulgate regulations implementing the following by April 21, 2002:
(i) manufacturers shall bear all or a significant part of the cost for taking
back end-of-life vehicles put on the market after July 1, 2002 and dismantling
and recycling those vehicles. Beginning January 1, 2007, manufacturers will
also be financially responsible for vehicles put on the market before July 1,
2002; (ii) manufacturers may not use certain hazardous materials in vehicles to
be sold after July 2003; (iii) vehicles type-approved and put on the market from
three years after the amendment of the directive on type-approval shall be
re-usable and/or recyclable to a minimum of 85% by weight per vehicle and shall
be re-usable and/or recoverable to a minimum of 95% by weight per vehicle; and
(iv) end-of-life vehicles must meet actual re-use of 80% and re-use as material
or energy of 85%, respectively, of vehicle weight by 2006, rising respectively
to 85% and 95% by 2015. Currently, there are numerous uncertainties surrounding
the form and implementation of the applicable regulations in different European
Union member states, particularly regarding manufacturer responsibilities and
resultant expenses that may be incurred. All of the member states, other than
Ireland and the 10 new member states, have adopted legislation to implement the
directive. In addition, Sweden, Denmark and Belgium have existing legislation
that partially implements the directive. The 10 new member states which joined
the European Union in May 2004 are also in the process of adopting legislation
to implement the directive. In addition, under this directive member states
must take measures to ensure that car manufacturers, distributors and other
auto-related businesses establish adequate used vehicle disposal routes and to
ensure that hazardous materials and recyclable parts are removed from vehicles
prior to scrapping. This directive impacts Toyota 's vehicles sold in the
European Union and Toyota expects to introduce vehicles that are in compliance
with such measures taken by the member states pursuant to the directive. Based
on the legislation that has been enacted to date, Toyota has provided for its
estimated liability related to covered vehicles in existence as of September 30,
2005. Depending on the legislation that is yet to be enacted by certain member
states and subject to other circumstances, Toyota may be required to provide
additional accruals for the expected costs to comply with these regulations.
Although Toyota does not expect its compliance with the directive to result in
significant cash expenditures, Toyota is continuing to assess the impact of this
future legislation on its results of operations, cash flows and financial
position.
Toyota has a concentration of material purchases from a supplier which is an
affiliated company. These purchases approximate 10% of material costs.
The parent company has a concentration of labor supply in employees working
under collective bargaining agreements and a substantial portion of these
employees is working under the agreement that will expire on December 31, 2005.
10. Segment data:
The operating segments reported below are the segments of Toyota for which
separate financial information is available and for which operating income/loss
amounts are evaluated regularly by executive management in deciding how to
allocate resources and in assessing performance.
The major portions of Toyota 's operations on a worldwide basis are derived from
the Automotive and Financial Services business segments. The Automotive segment
designs, manufactures and distributes sedans, minivans, compact cars,
sport-utility vehicles, trucks and related parts and accessories. The Financial
Services segment consists primarily of financing operations, and vehicle and
equipment leasing operations to assist in the merchandising of Toyota 's
products as well as other products. The All Other segment includes the design,
manufacturing and sales of housing, telecommunications and other business.
The following tables present certain information regarding Toyota 's industry
segments and operations by geographic areas and overseas revenues by
destination as of March 31, 2005 and September 30, 2005 and for the six-month
period ended September 30, 2004 and 2005. Toyota reports Asia information as of
and for the six-months period ended September 30, 2005, as an independent
geographic segment on operations by geographic areas and overseas revenues by
destination. In this connection, Toyota also provides Asia information as of
March 31, 2005 and for the six-months period ended September 30, 2004.
Segment operating results and assets -
As of March 31, 2005 and for the six-month period ended September 30, 2004:
Yen in millions
Automotive Financial All Other Inter-segment Total
Services Elimination/
Unallocated
Amount
Revenues - - - - -
External customers 8,332,161 374,408 319,096 - 9,025,665
Inter-segment 7,477 9,958 147,795 (165,230) -
Total revenues 8,339,638 384,366 466,891 (165,230) 9,025,665
Operating expenses 7,582,799 281,699 454,143 (159,225) 8,159,416
Operating income 756,839 102,667 12,748 (6,005) 866,249
Segment assets* 11,141,197 9,487,248 1,025,517 2,681,049 24,335,011
Investment in equity 1,271,044 215,642 - 75,746 1,562,432
method investees*
Depreciation 378,416 96,252 10,643 - 485,311
Expenditures for 543,568 295,427 21,357 40,242 900,594
segment assets
* Representing figures as of March 31, 2005
As of and for the six-month period ended September 30, 2005:
Yen in millions
Automotive Financial All Other Inter-segment Total
Services Elimination/
Unallocated
Amount
Revenues - - - - -
External customers 9,138,162 452,994 362,004 - 9,953,160
Inter-segment 6,323 9,023 173,960 (189,306) -
Total revenues 9,144,485 462,017 535,964 (189,306) 9,953,160
Operating expenses 8,423,112 378,444 526,134 (184,021) 9,143,669
Operating income 721,373 83,573 9,830 (5,285) 809,491
Segment assets 11,089,795 10,641,245 1,125,990 3,400,562 26,257,592
Investment in equity 1,341,972 249,061 - 64,941 1,655,974
method investees
Depreciation 396,984 137,153 12,899 - 547,036
Expenditures for 747,597 552,965 17,960 22,740 1,341,262
segment assets
U.S. dollars in millions
Automotive Financial All Other Inter-segment Total
Services Elimination/
Unallocated
Amount
Revenues - - - - -
External customers 80,733 4,002 3,198 - 87,933
Inter-segment 56 80 1,537 (1,673) -
Total revenues 80,789 4,082 4,735 (1,673) 87,933
Operating expenses 74,416 3,343 4,648 (1,626) 80,781
Operating income 6,373 739 87 (47) 7,152
Segment assets 97,975 94,012 9,948 30,043 231,978
Investment in equity 11,856 2,200 - 574 14,630
method investees
Depreciation 3,507 1,212 114 - 4,833
Expenditures for 6,605 4,885 159 201 11,850
segment assets
Revenues to external customers and operating income of the Financial Services
segment for the six-month period ended September 30, 2004, include the impact of
adjustments made by a sales financing subsidiary in the United States of America
for the correction of errors relating to prior periods mainly in connection with
capitalizing of certain disbursements, including disbursements made in prior
years, directly related to origination of loans in accordance with Statement of
Financial Accounting Standards No. 91.
Geographic Information -
As of March 31, 2005 and for the six-month period ended September 30, 2004:
Yen in millions
Japan North Europe Asia Others Inter-segment Total
America Elimination/
Unallocated
Amount
Revenues - - - - - - -
External
customers 3,540,760 3,102,246 1,129,304 725,329 528,026 - 9,025,665
Inter-segment 2,239,791 87,520 71,993 24,475 54,476 (2,478,255) -
Total revenues 5,780,551 3,189,766 1,201,297 749,804 582,502 (2,478,255) 9,025,665
Operating 5,289,985 2,944,990 1,135,027 706,307 555,105 (2,471,998) 8,159,416
expenses
Operating
income 490,566 244,776 66,270 43,497 27,397 (6,257) 866,249
Segment assets* 10,740,796 7,738,898 2,242,566 945,635 998,172 1,668,944 24,335,011
Long-lived 3,110,123 1,708,147 544,597 247,507 185,220 - 5,795,594
assets*
* Representing figures as of March 31, 2005
As of and for the six-month period ended September 30, 2005:
Yen in millions
Japan North Europe Asia Others Inter-segment Total
America Elimination/
Unallocated
Amount
Revenues - - - - - - -
External
customers 3,575,909 3,545,517 1,241,163 891,755 698,816 - 9,953,160
Inter-segment 2,457,008 81,835 59,691 105,234 61,242 (2,765,010) -
Total revenues 6,032,917 3,627,352 1,300,854 996,989 760,058 (2,765,010) 9,953,160
Operating 5,646,964 3,358,811 1,260,781 921,567 723,863 (2,768,317) 9,143,669
expenses
Operating
income 385,953 268,541 40,073 75,422 36,195 3,307 809,491
Segment assets 11,141,157 8,311,313 2,207,943 1,037,792 1,173,355 2,386,032 26,257,592
Long-lived 3,282,697 2,080,968 595,416 279,186 199,171 - 6,437,438
assets
U.S. dollars in millions
Japan North Europe Asia Others Inter-segment Total
America Elimination/
Unallocated
Amount
Revenues - - - - - - -
External
customers 31,592 31,324 10,965 7,878 6,174 - 87,933
Inter-segment 21,707 723 527 930 541 (24,428) -
Total revenues 53,299 32,047 11,492 8,808 6,715 (24,428) 87,933
Operating 49,889 29,674 11,138 8,142 6,395 (24,457) 80,781
expenses
Operating
income 3,410 2,373 354 666 320 29 7,152
Segment assets 98,429 73,428 19,506 9,169 10,366 21,080 231,978
Long-lived 29,002 18,385 5,260 2,466 1,760 - 56,873
assets
Revenues are attributed to geographies based on the country location of the
parent company or the subsidiary that transacted the sale with the external
customer.
There are no any individually material countries with respect to revenues,
operating expenses, operating income, segment assets and long-lived assets
included in Others.
Unallocated amounts included in segment assets represent assets held for
corporate purposes, which mainly consist of cash and cash equivalents and
marketable securities. Such corporate assets were JPY3,308,055 million and
JPY4,055,523 million ($35,829 million) as of March 31, 2005 and September 30,
2005, respectively.
Transfers between industry or geographic segments are made at amounts which
Toyota 's management believes approximate arm's-length transactions. In
measuring the reportable segments ' income or losses, operating income consists
of revenues less operating expenses.
Overseas Revenues by destination -
The following information shows revenues that are attributed to countries based
on location of customers, excluding customers in Japan. In addition to the
disclosure requirements under FAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, Toyota discloses this information in order
to provide financial statement users with valuable information.
Yen in millions U.S. dollars in
millions
For the six-month period ended For the six-month
September 30, period ended
September 30,
2004 2005 2005
North America
3,194,425 3,624,137 32,018
Europe 1,139,092 1,257,310 11,108
Asia 793,241 926,376 8,184
Others 1,072,461 1,335,742 11,801
Certain financial statement data on non-financial services
and financial services business -
The financial data below presents separately Toyota 's non-financial services
and financial services businesses.
Balance sheets -
Yen in millions U.S. dollars
in millions
March 31, September 30, September 30,
2005 2005 2005
Non-Financial Services Businesses
Current assets
Cash and cash equivalents 1,324,126 1,512,054 13,359
Time deposits 8,006 19,115 169
Marketable securities 541,785 516,847 4,566
Trade accounts and notes receivable, 1,640,155 1,438,329 12,707
less allowance for doubtful accounts
Inventories 1,306,709 1,443,333 12,751
Prepaid expenses and other current assets 1,580,371 1,664,331 14,704
Total current assets 6,401,152 6,594,009 58,256
Investments and other assets 4,804,843 5,097,316 45,033
Property, plant and equipment 4,579,052 4,877,330 43,090
15,785,047 16,568,655 146,379
Total Non-Financial Services Businesses assets
Financial Services Businesses
Current assets
Cash and cash equivalents 159,627 183,843 1,624
Time deposits 55,603 40,873 361
Marketable securities 1,339 937 8
Finance receivables, net 3,010,135 3,157,323 27,894
Prepaid expenses and other current assets 609,946 607,703 5,369
Total current assets 3,836,650 3,990,679 35,256
Noncurrent finance receivables, net 3,976,941 4,547,430 40,175
Investments and other assets 457,115 543,028 4,798
Property, plant and equipment 1,216,542 1,560,108 13,783
9,487,248 10,641,245 94,012
Total Financial Services Businesses assets
Eliminations (937,284) (952,308) (8,413)
Total assets 24,335,011 26,257,592 231,978
Yen in millions U.S. dollars
in millions
March 31, September 30, September 30,
2005 2005 2005
Non-Financial Services Business
Current liabilities
Short-term borrowings 713,474 755,204 6,672
Current portion of long-term debt 60,092 56,890 502
Accounts payable 1,847,036 1,814,732 16,033
Accrued expenses 1,200,122 1,302,438 11,507
Income taxes payable 263,291 237,302 2,096
Other current liabilities 1,055,336 1,107,187 9,782
Total current liabilities 5,139,351 5,273,753 46,592
Long-term liabilities
Long-term debt 747,911 738,723 6,526
Accrued pension and severance costs 645,308 642,297 5,675
Other long-term liabilities 564,185 672,090 5,938
Total long-term liabilities 1,957,404 2,053,110 18,139
Total Non-Financial Services Business liabilities 7,096,755 7,326,863 64,731
Financial Services Business
Current liabilities
Short-term borrowings 2,269,197 2,646,087 23,377
Current portion of long-term debt 1,092,328 1,486,186 13,130
Accounts payable 15,542 19,292 170
Accrued expenses 93,042 110,817 979
Income taxes payable 29,544 23,018 203
Other current liabilities 289,850 309,072 2,731
Total current liabilities 3,789,503 4,594,472 40,590
Long-term liabilities
Long-term debt 4,503,247 4,728,210 41,772
Accrued pension and severance costs 1,681 2,221 20
Other long-term liabilities 331,827 339,131 2,996
Total long-term liabilities 4,836,755 5,069,562 44,788
Total Financial Services Business liabilities 8,626,258 9,664,034 85,378
Elimination of liabilities (937,881) (952,858) (8,418)
Total liabilities 14,785,132 16,038,039 141,691
Minority interest in consolidated subsidiaries 504,929 526,788 4,654
Shareholders ' equity 9,044,950 9,692,765 85,633
Total liabilities and shareholders ' equity 24,335,011 26,257,592 231,978
Statements of income -
U.S. dollars
Yen in millions in millions
For the
six-month
For the six-month periods ended
period ended
September 30, September 30,
2004 2005 2005
Non-Financial Services Businesses
Net revenues 8,655,852 9,504,502 83,969
Costs and expenses
Cost of revenues 6,958,489 7,710,281 68,118
Selling, general and administrative 925,295 1,060,448 9,369
Total costs and expenses 7,883,784 8,770,729 77,487
Operating income 772,068 733,773 6,482
Other income, net 40,854 43,119 381
Income before income taxes, minority interest 812,922 776,892 6,863
and equity in earnings of affiliated companies
Provision for income taxes 319,354 290,583 2,567
Income before minority interest and equity in 493,568 486,309 4,296
earnings of affiliated companies
Minority interest in consolidated subsidiaries (26,413) (30,043) (265)
Equity in earnings of affiliated companies 50,762 57,274 506
Net income- Non- Financial Services Businesses 517,917 513,540 4,537
Financial Services Businesses
Net revenues 384,366 462,017 4,082
Costs and expenses
Cost of revenues 182,535 272,732 2,409
Selling, general and administrative 99,164 105,712 934
Total costs and expenses 281,699 378,444 3,343
Operating income 102,667 83,573 739
Other expenses, net (2,395) (4,451) (40)
Income before income taxes, minority interest 100,272 79,122 699
and equity in earnings of affiliated companies
Provision for income taxes 41,976 34,539 305
Income before minority interest and equity in 58,296 44,583 394
earnings of affiliated companies
Minority interest in consolidated subsidiaries (239) (960) (9)
Equity in earnings of affiliated companies 8,051 13,368 118
Net income- Financial Services Businesses 66,108 56,991 503
Elimination of net income (loss) 13 (11) (0)
Net income 584,038 570,520 5,040
Statement of cash flows -
Yen in millions U.S. dollars
in millions
For the
six-month
For the six-month periods period ended
September 30,
ended September 30,
2004 2005 2005
Non-Financial Services Businesses
Cash flows from operating activities
Net income 517,917 513,540 4,537
Adjustments to
reconcile net income to
net cash provided by
operating activities
Depreciation 389,059 409,883 3,621
Pension and severance 2,857 12,982 115
costs, less payments
Losses on disposal of 18,540 26,774 237
fixed assets
Unrealized losses on 1,997 4,460 39
available-for-sale
securities, net
Deferred income taxes 19,492 (35,348) (312)
Minority interest in 26,413 30,043 265
Consolidated
subsidiaries
Equity in earnings of (50,762) (57,274) (506)
affiliated companies
Changes in operating 22,187 124,373 1,099
assets and liabilities,
and other
Net cash provided by operating activities 947,700 1,029,433 9,095
Cash flows from investing activities
Additions to fixed assets (531,073) (713,143) (6,301)
excluding equipment leased
to others
Additions to (74,094) (75,154) (664)
equipment leased to others
Proceeds from sales of fixed assets excluding 26,037 35,193 311
equipment leased to others
Proceeds from sales of equipment leased to others 38,576 42,397 375
Purchases of marketable securities and security (686,319) (297,235) (2,626)
investments
Proceeds from sales of and maturity of 166,815 358,417 3,166
marketable securities and security investments
Payments for additional investments in (683) (129) (1)
affiliated companies, net of cash acquired
Changes in investments and other assets, and other 42,691 (55,041) (486)
Net cash used in investing activities (1,018,050) (704,695) (6,226)
Cash flows from financing activities
Purchases of common stock (206,917) (59,734) (528)
Proceeds from issuance of long-term debt 13,463 20,766 183
Payments of long-term debt (28,653) (34,976) (309)
Increase in short-term borrowings 45,804 40,055 354
Dividends paid (83,250) (130,724) (1,155)
Other (7,000) - -
Net cash used in financing activities (266,553) (164,613) (1,455)
Effect of exchange rate changes on cash and cash 32,063 27,803 246
equivalents
Net increase(decrease) in cash and cash equivalents (304,840) 187,928 1,660
Cash and cash equivalents at beginning of period 1,618,876 1,324,126 11,699
Cash and cash equivalents at end of period 1,314,036 1,512,054 13,359
Yen in millions U.S.
dollars
in millions
For the six-month periods For the
ended September 30, six-month
period ended
September
30,
2004 2005 2005
Financial Services
Businesses
Cash flows from
operating
activities
Net income 66,108 56,991 503
Adjustments to
reconcile net
income to net cash
provided by
operating
activities
Depreciation 96,252 137,153 1,212
Deferred income 30,358 19,493 172
taxes
Minority interest 239 960 9
in consolidated
subsidiaries
Equity in earnings (8,051) (13,368) (118)
of affiliated
companies
Changes in 163,504 52,051 460
operating assets
and liabilities,
and other
Net cash provided 348,410 253,280 2,238
by operating
activities
Cash flows from
investing
activities
Additions to (4,358,871) (5,393,541) (47,651)
finance
receivables
Collection of and 3,837,570 4,945,309 43,690
proceeds from sales
of finance
receivables
Additions to fixed (7,813) (3,387) (30)
assets excluding
equipment leased to
others
Additions to (287,614) (549,578) (4,855)
equipment leased to
others
Proceeds from sales 3,115 3,929 35
of fixed assets
excluding equipment
leased to others
Proceeds from sales 113,857 152,825 1,350
of equipment leased
to others
Purchases of (61,054) (104,033) (919)
marketable
securities and
security
investments
Proceeds from sales 60,092 71,637 633
of and maturity of
marketable
securities and
security
investments
Changes in (20,247) (21,860) (193)
investments and
other assets, and
other
Net cash used in (720,965) (898,699) (7,940)
investing
activities
Cash flows from
financing
activities
Proceeds from 928,861 884,941 7,819
issuance of
long-term debt
Payments of (543,592) (523,151) (4,622)
long-term debt
Increase in 76,440 302,143 2,669
short-term
borrowings
Other 7,000 - -
Net cash provided 468,709 663,933 5,866
by financing
activities
Effect of exchange 7,153 5,702 50
rate changes on
cash and cash
equivalents
Net increase in 103,307 24,216 214
cash and cash
equivalents
Cash and cash 110,900 159,627 1,410
equivalents at
beginning of
period
Cash and cash 214,207 183,843 1,624
equivalents at end
of period
Consolidated
Effect of 39,216 33,505 296
exchange rate
changes on
cash and cash
equivalents
Net increase (201,533) 212,144 1,874
(decrease) in
cash and cash
equivalents
Cash and cash 1,729,776 1,483,753 13,109
equivalents at
beginning of
period
Cash and cash 1,528,243 1,695,897 14,983
equivalents at
end of period
11. Per share amounts
Reconciliations of the differences between basic and diluted net income per
share for the six-month periods ended September 30, 2004 and 2005 are as
follows:
Yen in Thousands Yen U.S.
millions of shares dollars
Net Weighted- Net Net
income average income income
shares per share per share
For the six-month period
ended September 30, 2004
Basic net income per 584,038 3,312,441 176.32
common share
Effect of diluted
securities
Assumed exercise of 760
dilutive stock options
Diluted net income per 584,038 3,313,201 176.28
common share
For the six-month period
ended September 30, 2005
Basic net income per 570,520 3,257,622 175.13 1.55
common share
Effect of diluted
securities
Assumed exercise of (1) 604
dilutive stock options
Diluted net income per 570,519 3,258,226 175.10 1.55
common share
Certain stock options were not included in the computation of diluted net income
per common share for the six-month periods ended September 30, 2004 and 2005
because the options ' exercise prices were greater than the average market price
per common share during the periods.
The following table shows Toyota 's net assets per share as of March 31, 2005
and September 30, 2005. Net assets per share amounts are calculated as dividing
net assets ' amount at the end of each period by the number of shares issued and
outstanding, excluding treasury stock at the end of corresponding period. In
addition to the disclosure requirements under FAS No. 128, Earnings per Share,
Toyota discloses this information in order to provide financial statement users
with valuable information.
Yen in Thousands Yen U.S.
millions of shares dollars
Shares Net Net
issued
and Assets Assets
outstanding
Net at the end of per share per share
assets the period
As of March 31, 2005
Net assets per common 9,044,950 3,268,078 2,767.67
share
As of September 30, 2005
Net aassets per common 9,692,765 3,252,699 2,979.91 26.33
share
12. Classification of wholesale finance receivables in the semi-annual
condensed consolidated statements of cash flows
From the consolidated financial statements for the year ended March 31, 2005,
Toyota changed its classification of cash flows attributed to a certain portion
of finance receivables in the consolidated statements of cash flows. The change
in classification was based on concerns raised by the staff of the Division of
Corporation Finance of the Securities and Exchange Commission.
Historically, Toyota had reported the origination and collection activities of
its wholesale financing transactions as investing activities in the consolidated
statements of cash flows. Consequently, when Toyota 's products were sold to its
dealers through the use of Toyota 's wholesale financing program, investing cash
outflows were reported on the basis that the Financial Services operations
originated the wholesale finance receivables, while operating cash inflows were
reported on the basis that the Automotive sales operations collected the trade
receivables despite the fact that no cash received from a consolidated
perspective related to the trade receivables as it was an intercompany
transaction. The change in classification in the statements of cash flows
reflects the fact that no cash was received by Toyota upon a sale to dealers and
as a result, eliminates the effects of the intercompany transactions and
reflects cash receipts from the sale of inventory as operating activities. In
addition, the cash flows from finance receivables relating to the sale of Toyota
product inventories, other than the above-described wholesale receivables, were
also reclassified from investing activities to operating activities. Such cash
flows include cash flows from sales-type lease receivables attributed to
sales-type lease transactions involving inventories of Toyota products.
The table below is a reconciliation of Toyota 's current presentation of cash
flows compared to the presentation of cash flows reported in semi-annual
consolidated financial statements for the six month period ended September 30,
2004.
Yen in millions
Six month period ended September 30, 2004
Net cash provided by operating activities 1,367,973
- As previously reported
Amount reclassified from investing activities 33,161
Net cash provided by operating activities 1,401,134
- After reclassification
Net cash used in investing activities (1,760,291)
- As previously reported
Amount reclassified from operating activities (33,161)
Net cash used in investing activities (1,793,452)
- After reclassification
13. Subsequent event
Toyota received common shares of the Mitsubishi UFJ Financial Group, Inc.
because of the merger between Mitsubishi Tokyo Financial Group, Inc., and UFJ
Holdings, Inc. on October 1, 2005 in exchange for common shares of UFJ Holdings
Inc., which Toyota had held. As a result of this transaction, in accordance
with accounting principles generally accepted in the United States of America,
Toyota will record a gain of approximately JPY140.0 billion ($ 1.2 billion) in
income before income taxes, minority interest and equity in earnings of
affiliated companies in the fiscal year ending March 31, 2006 as a difference
between acquisition costs of prior-merger shares and the fair market value of
post-merger shares.
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