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. This information is provided by RNS The company news service from the London Stock Exchange

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