Semi-Annual Report

Toyota Motor Corporation 22 December 2004 Materials Contained in this Report: 1. Executive summary of the Japanese-language Semi-Annual Securities Report, as filed with the Director of the Kanto Local Finance Bureau on December 22, 2004. 2. The registrant's unaudited Semi-Annual Consolidated Financial Statements for the six months ended September 30, 2004, prepared in accordance with accounting principles generally accepted in the United States, which materially conform to the consolidated financial statements filed with the Japanese-language Semi-Annual Securities Report referred to above. Japanese-language Semi-Annual Securities Report for the six-month ended September 30, 2004, as filed with the Director of the Kanto Local Finance Bureau on December 22, 2004, which includes the following: I. Corporate information A. Corporate overview 1. Major business indices during three semi-annual periods and two fiscal years 2. Overview of business 3. Associated companies 4. Employee information B. Business 1. Business results 2. Production, orders and sales 3. Management issues 4. Material contracts, etc. 5. Research and development C. Capital assets 1. Changes in important capital assets 2. Plans for addition or disposition of capital assets D. Company information 1. Share information, etc. a. Total number of shares, etc. b. Stock acquisition rights c. Number of shares outstanding, changes in capital stock, etc. 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, etc. 2. Semi-annual unconsolidated financial statements and notes, etc. F. Reference materials II. Information on guarantors (none) TOYOTA MOTOR CORPORATION Consolidated Financial Statements For the six-month periods ended September 30, 2003 and 2004 TOYOTA MOTOR CORPORATION Unaudited Consolidated Balance Sheets March 31, 2004 and September 30, 2004 ASSETS U.S. dollars in millions Yen in millions (Note 4) March 31, September 30, September 30, 2004 2004 2004 Current assets: Cash and cash equivalents 1,729,776 1,528,243 13,762 Time deposits 68,473 68,375 616 Marketable securities (Note 5) 448,457 679,172 6,116 Trade accounts and notes receivable, less allowance 1,531,651 1,401,820 12,623 for doubtful accounts of JPY28,966 million as of March 31, 2004 and JPY23,896 million ($215 million) as of September 30, 2004 Finance receivables, net 2,622,939 2,835,006 25,529 Other receivables 396,788 455,747 4,104 Inventories 1,083,326 1,191,041 10,725 Deferred income taxes 457,161 464,369 4,182 Prepaid expenses and other current assets 509,882 513,936 4,628 Total current assets 8,848,453 9,137,709 82,285 Noncurrent finance receivables, net 3,228,973 3,830,554 34,494 Investments and other assets: Marketable securities and other securities investments 2,241,971 2,424,590 21,833 (Note 5) Affiliated companies 1,370,171 1,430,730 12,884 Employees receivables 35,857 43,698 393 Other 960,156 847,102 7,628 4,608,155 4,746,120 42,738 Property, plant and equipment: Land 1,135,665 1,170,975 10,545 Buildings 2,801,993 2,863,953 25,790 Machinery and equipment 7,693,616 7,866,194 70,835 Vehicles and equipment on 1,493,780 1,664,343 14,987 operating leases (Note 6) Construction in progress 237,195 260,804 2,348 13,362,249 13,826,269 124,505 Less - Accumulated depreciation (8,007,602) (8,230,458) (74,115) 5,354,647 5,595,811 50,390 Total assets 22,040,228 23,310,194 209,907 LIABILITIES AND SHAREHOLDERS' EQUITY U.S. dollars in millions (Note 4) Yen in millions March 31, September 30, September 30, 2004 2004 2004 Current liabilities: Short-term borrowings 2,189,024 2,285,994 20,585 Current portion of long-term debt 1,125,195 1,157,635 10,424 Accounts payable 1,709,344 1,648,873 14,848 Other payables 665,624 697,566 6,282 Accrued expenses 1,133,281 1,208,947 10,886 Income taxes payable 252,555 271,250 2,443 Other current liabilities 522,968 571,422 5,146 Total current liabilities 7,597,991 7,841,687 70,614 Long-term liabilities: Long-term debt 4,247,266 4,807,512 43,291 Accrued pension and severance costs 725,569 714,795 6,437 Deferred income taxes 778,561 822,567 7,407 Other long-term liabilities 65,981 109,225 984 Total long-term liabilities 5,817,377 6,454,099 58,119 Minority interest in consolidated subsidiaries 446,293 472,332 4,253 Shareholders' equity: Common stock, no par value, authorized: 397,050 397,050 3,575 9,740,185,400 shares at March 31, 2004 and 9,740,185,400 shares at September 30, 2004; issued: 3,609,997,492 shares at March 31, 2004 and 3,609,997,492 shares at September 30, 2004 Additional paid-in capital 495,179 494,431 4,452 Retained earnings 8,326,215 8,827,003 79,487 Accumulated other comprehensive loss (204,592) (134,377) (1,210) Treasury stock, at cost (835,285) (1,042,031) (9,383) 280,076,395 shares at March 31, 2004 and 328,022,418 shares at September 30, 2004 Total shareholders' equity 8,178,567 8,542,076 76,921 Commitments and contingencies (Note 9) Total liabilities and shareholders' equity 22,040,228 23,310,194 209,907 The accompanying notes are an integral part of these statements. TOYOTA MOTOR CORPORATION Unaudited Consolidated Statements of Income For the six-month periods ended September 30, 2003 and 2004 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, 2003 2004 2004 Net revenues: Sales of products 7,861,781 8,651,257 77,904 Financing operations 362,460 374,408 3,372 8,224,241 9,025,665 81,276 Costs and expenses: Cost of products sold 6,274,364 6,961,521 62,688 Cost of financing operations (Note 7) 191,361 177,728 1,600 Selling, general and administrative 990,747 1,020,167 9,187 7,456,472 8,159,416 73,475 Operating income 767,769 866,249 7,801 Other income (expense): Interest and dividend income 28,779 33,128 298 Interest expense (12,210) (7,944) (71) Foreign exchange gain, net (Note 7) 26,597 6,196 56 Other income, net 1,078 15,586 140 44,244 46,966 423 Income before income taxes, minority interest 913,215 8,224 and equity in earnings of affiliated companies 812,013 Provision for income taxes 309,931 361,338 3,254 Income before minority interest and equity in 502,082 551,877 4,970 earnings of affiliated companies Minority interest in consolidated subsidiaries (18,615) (26,652) (240) Equity in earnings of affiliated companies 40,993 58,813 529 Net income 524,460 584,038 5,259 Yen U.S. dollars (Note 4) Net income per common share (Note 11): Basic 153.36 176.32 1.59 Diluted 153.35 176.28 1.59 Interim cash dividends per common share 20.00 25.00 0.23 The accompanying notes are an integral part of these statements. TOYOTA MOTOR CORPORATION Unaudited Consolidated Statements of Shareholders' Equity For the six-month periods ended September 30, 2003 and 2004 Yen in millions Accumulated Additional other Treasury Common paid-in Retained comprehensive stock, stock capital earnings income (loss) at cost Total Balances at March 31, 2003 397,050 493,790 7,301,795 (604,272) (467,363) 7,121,000 Comprehensive income: Net income 524,460 524,460 Other comprehensive income (loss) Foreign currency translation (112,479) (112,479) adjustments Unrealized gains on securities, net of reclassification adjustments 228,270 228,270 Minimum pension liability 11,928 11,928 adjustments Total comprehensive income 652,179 Dividends paid (69,782) (69,782) Purchase and reissuance of common (130,923) (130,923) stock Balances at September 30, 2003 397,050 493,790 7,756,473 (476,553) (598,286) 7,572,474 Balances at March 31, 2004 397,050 495,179 8,326,215 (204,592) (835,285) 8,178,567 Issuance during the period (748) (748) Comprehensive income: Net income 584,038 584,038 Other comprehensive income (loss) Foreign currency translation 119,499 119,499 adjustments Unrealized losses on securities, (55,051) (55,051) net of reclassification adjustments Minimum pension liability 5,767 5,767 adjustments Total comprehensive income 654,253 Dividends paid (83,250) (83,250) Purchase and reissuance of common (206,746) (206,746) stock Balances at September 30, 2004 397,050 494,431 8,827,003 (134,377) (1,042,031) 8,542,076 U.S. dollars in millions (Note 4) Accumulated Additional other Treasury Common paid-in Retained comprehensive stock, stock capital earnings income (loss) at cost Total Balances at March 31, 2004 3,575 4,459 74,977 (1,842) (7,521) 73,648 Issuance during the period (7) (7) Comprehensive income: Net income 5,259 5,259 Other comprehensive income (loss) Foreign currency translation 1,076 1,076 adjustments Unrealized losses on securities, (496) (496) net of reclassification adjustments Minimum pension liability 52 52 adjustments Total comprehensive income 5,891 Dividends paid (749) (749) Purchase and reissuance of common (1,862) (1,862) stock Balances at September 30, 2004 3,575 4,452 79,487 (1,210) (9,383) 76,921 The accompanying notes are an integral part of these statements. TOYOTA MOTOR CORPORATION Unaudited Consolidated Statements of Cash-flows For the six-month periods ended September 30, 2003 and 2004 Yen in millions U.S. dollars in millions (Note 4) For the six-month For the periods ended six-month period September 30, ended September 30, 2003 2004 2004 Cash flows from operating activities: Net income 524,460 584,038 5,259 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 475,938 485,311 4,370 Provision for doubtful accounts and credit losses 38,418 31,966 288 Pension and severance costs, less payments 33,957 3,085 28 Losses on disposal of fixed assets 18,896 18,914 170 Unrealized losses on available-for-sale securities, net 2,697 1,997 18 Deferred income taxes 21,996 49,858 449 Minority interest in consolidated subsidiaries 18,615 26,652 240 Equity in earnings of affiliated companies (40,993) (58,813) (529) Changes in operating assets and liabilities, and other 18,940 224,965 2,025 Net cash provided by operating activities 1,112,924 1,367,973 12,318 Cash flows from investing activities: Additions to finance receivables (4,182,349) (4,358,871) (39,251) Collection of and proceeds from sales of finance 3,727,776 3,837,570 34,557 receivables Additions to fixed assets excluding equipment leased to (445,522) (538,886) (4,853) others Additions to equipment leased to others (298,454) (361,708) (3,257) Proceeds from sales of fixed assets excluding equipment 31,234 29,152 263 leased to others Proceeds from sales of equipment leased to others 133,073 152,433 1,373 Purchases of marketable securities and security (1,137,863) (747,373) (6,730) investments Proceeds from sales of and maturity of marketable 705,614 226,907 2,043 securities and security investments Payments for additional investments in affiliated (18,876) (683) (6) companies, net of cash acquired Changes in investments and other assets, and other 13,263 1,168 10 Net cash used in investing activities (1,472,104) (1,760,291) (15,851) Cash flows from financing activities: Purchases of common stock (120,229) (206,917) (1,863) Proceeds from issuance of long-term debt 700,149 921,299 8,296 Payments of long-term debt (622,709) (538,467) (4,849) Increase in short-term borrowings 160,970 58,904 530 Dividends paid (69,782) (83,250) (749) Net cash provided by financing activities 48,399 151,569 1,365 Effect of exchange rate changes on cash and cash (38,036) 39,216 353 equivalents Net decrease in cash and cash equivalents (348,817) (201,533) (1,815) Cash and cash equivalents at beginning of period 1,592,028 1,729,776 15,577 Cash and cash equivalents at end of period 1,243,211 1,528,243 13,762 The accompanying notes are an integral part of these statements. TOYOTA MOTOR CORPORATION Notes to Consolidated Financial Statements 1. Basis of preparation: The accompanying semi-annual condensed consolidated financial statements of Toyota Motor Corporation (the 'parent company') as of September 30, 2004, and for the six-month periods ended September 30, 2003 and 2004, 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, 2004. 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, assembly and sale of passenger cars, sport-utility vehicles, minivans, 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 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 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. 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 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 currency exchange rates and all income and expense accounts of those subsidiaries are translated at the average currency exchange rates for the period. The resulting translation adjustments are included as a component of accumulated other comprehensive income. Foreign denominated receivables and payables are the translated at appropriate period-end currency exchange rates and the resulting transaction gains or losses are taken into income 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 in 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 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 JPY162,295 million and JPY175,343 million ($1,579 million) for the six-month periods ended September 30, 2003 and 2004, 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 its sale and other factors. Toyota provides 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 as to warranty claim recoveries from suppliers. Research and development costs are expensed as incurred and were JPY304,638 million and JPY351,419 million ($3,165 million) for the six-month periods ended September 30, 2003 and 2004, respectively. Cash and cash equivalents - Cash and cash equivalents include all highly liquid investments, generally 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 costs. 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 of the investee. 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 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 sales. 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 JPY190,642 million and JPY207,835 million ($1,872 million) at March 31, 2004 and September 30, 2004, respectively. Had the 'first in, first out' basis been used for those companies using the LIFO basis, inventories would have been JPY21,463 million and JPY27,652 million ($249 million) higher than reported at March 31, 2004 and September 30, 2004, 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. Estimated useful lives range from 3 to 60 years for buildings and from 2 to 20 years for machinery and equipment. Vehicles and equipment 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 the 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 assets carrying value 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 the 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 by using a discounted cash flow analysis. 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 liabilities and assets 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 foreign exchange forward contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements 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 or not 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 earnings. 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 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 and adjustments to recognize additional minimum liabilities associated with Toyota's defined benefit pension plans. Accounting change - In September 2004, the Emerging Issues Task Force ('EITF') reached consensus on the disclosure provisions in its Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments ('EITF 03-1') for investments accounted for under the Statement of Financial Accounting Standards ('FAS') No. 115, Accounting for Certain Investments in Debt and Equity Securities, and FAS No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations. See note 5 for disclosures required by those provisions. Recent pronouncements to be adopted in future periods - No new accounting standards were issued subsequent to the annual report for the year ended March 31, 2004 that will be effective in future periods and are expected to have material impact on Toyota's consolidated financial statements. Reclassifications - Certain prior year amounts have been reclassified to conform to the presentation of the six-month period ended September 30, 2004. 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 JPY111.05 = U.S. $1, the approximate currency exchange rate at September 30, 2004, 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, 2004. 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, 2004 Gross Gross unrealized unrealized gains losses Fair value Cost Available-for-sale Debt securities 1,606,685 10,094 1,626 1,615,153 Equity securities 460,778 492,483 720 952,541 Total 2,067,463 502,577 2,346 2,567,694 Securities not practicable to fair value Debt securities 43,382 Equity securities 79,352 Total 122,734 Yen in millions September 30, 2004 Gross Gross unrealized unrealized gains losses Fair value Cost Available-for-sale Debt securities 2,087,913 8,865 388 2,096,390 Equity securities 454,206 414,764 772 868,198 Total 2,542,119 423,629 1,160 2,964,588 Securities not practicable to fair value Debt securities 44,840 Equity securities 94,334 Total 139,174 U.S. dollars in millions September 30, 2004 Gross Gross unrealized unrealized gains losses Fair value Cost Available-for-sale Debt securities 18,801 80 3 18,878 Equity securities 4,090 3,735 7 7,818 Total 22,891 3,815 10 26,696 Securities not practicable to fair value Debt securities 404 Equity securities 849 Total 1,253 Unrealized losses continuously over a 12 month period or more in the aggregate were not material both at March 31, 2004 and September 30, 2004. In the ordinary course of business, Toyota maintains long-term investment securities, included in 'Marketable securities and other securities investments', issued by a number of non-public companies which are recorded at cost, as their fair values were not readily determinable. Toyota's 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 testing for significant investments recorded at cost semi-annually, and 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 earnings. 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, 2004 2004 2004 Vehicles 1,387,404 1,550,039 13,958 Equipment 106,376 114,304 1,029 1,493,780 1,664,343 14,987 Less - Accumulated depreciation (375,861) (413,675) (3,725) Vehicles and equipment on operating leases, net 1,117,919 1,250,668 11,262 Rental income from vehicles and equipment on operating leases were JPY149,591 million and JPY140,711 million ($1,267 million) for the six-month periods ended September 30, 2003 and 2004, 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 2005 277,044 2,495 2006 190,868 1,719 2007 103,369 931 2008 40,985 369 2009 13,848 124 Thereafter 11,414 103 Total minimum future rentals 637,528 5,741 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 swap agreements 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 swap agreements mainly to convert its fixed-rate debt to variable-rate debt. Toyota uses interest rate swap agreements in managing its exposure to interest rate fluctuations. Interest rate swap agreements are executed as either an integral part of specific debt transactions or on a portfolio basis. Toyota uses interest rate currency swap agreements 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 swap agreements, which involve the exchange of foreign currency principal and interest obligations for each functional currency obligation at agreed-upon currency exchange and interest rates. For the six-month periods ended September 30, 2003 and 2004, the ineffective portions of Toyota's fair value hedge relationships, which are included in cost of financing operation, 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 swap agreements, 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. 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, 2004 2004 2004 Building 10,937 11,627 105 Machinery and equipment 161,446 163,708 1,474 Less - Accumulated depreciation (118,956) (124,433) (1,121) 53,427 50,902 458 Amortization expenses under capital leases for the six-month periods ended September 30, 2003 and 2004 were JPY9,116 million and JPY6,674 million ($60 million), respectively. Future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of September 30, 2004 are as follows: 12-month periods ending September 30 Yen in millions U.S. dollars in millions 2005 16,508 149 2006 16,147 145 2007 16,758 151 2008 6,155 56 2009 5,680 51 Thereafter 20,577 185 Total minimum lease payments 81,825 737 Less - Amount representing interest (8,096) (73) Present value of net minimum lease payments 73,729 664 Less - Current obligations (15,253) (137) Long-term capital lease obligations 58,476 527 Rental expenses under operating leases for the six-month periods ended September 30, 2003 and 2004 were JPY40,679 million and JPY40,241 million ($362 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, 2004 are as follows: 12-month periods ending September 30 Yen in U.S. dollars millions in millions 2005 8,648 78 2006 6,465 58 2007 4,807 43 2008 3,712 33 2009 3,087 28 Thereafter 9,844 89 Total minimum future rentals 36,563 329 9. Other commitments and contingencies, concentrations and factors that may affect future operations: Commitments outstanding at September 30, 2004 for the purchase of property, plant and equipment and other assets are JPY85,105 million ($766 million). Toyota enters into contracts with Toyota dealers to guarantee customers' payment of their installment payables that arises 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 range from one month to 35 years at September 30, 2004; however, they are generally shorter than the useful lives of products sold. Toyota is required to execute its guarantee primarily when customers are unable to make required payments. The maximum potential amount of future payments as of September 30, 2004 is JPY1,056,896 million ($9,517 million). Liabilities for guarantee of JPY4,092 million ($37 million) have been provided for as of September 30, 2004. Under these guarantee contracts, Toyota is entitled to recover any amount paid by Toyota from the customers whose obligations Toyota 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. Twenty-six similar actions were filed in federal district courts in California, Illinois, New York, Massachusetts, Florida, New Jersey and Pennsylvania. Additionally, fifty-five parallel class actions were filed in state courts in California, Minnesota, New Mexico, New York, Tennessee, Wisconsin, Arizona, Florida, Iowa and New Jersey on behalf of the same purchasers in these states. As of September 30, 2004, 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, but did not bar the plaintiffs from seeking injunctive relief against the alleged antitrust violations. The plaintiffs have already submitted an amended compliant in order to proceed on the claim for damages. In the process of the federal district court case, Toyota is now responding to the plaintiff's discovery requests. Toyota believes that its actions have been lawful and intends to vigorously defend these cases. Toyota has various other 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: 1) manufacturers shall bear all or 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; 2) manufacturers may not use certain hazardous materials in vehicles to be sold after July 2003; 3) vehicles type-approved and put on the market after three years after the amendment of 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 4) End-of-life vehicles must meet actual re-use and recovery targets of 80% and 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 have adopted legislation to implement the directive. In addition, Sweden and Denmark have existing legislation that partially implements the directive. Belgium has partially adopted legislation implementing the directive. The implementation of the directive has also been in progress in 10 states newly joined the European Union in May 2004. In addition, under this directive member states must take measures to ensure that car manufacturers, distributors and other auto-related businesses establish adequate End-of-life vehicle disposal facilities 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, 2004. Depending on the legislation implemented in the member states that have not yet enacted legislation and 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 are 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, assembles and distributes passenger cars, sport-utility vehicles, minivans, 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 Toyota's housing business and various other business activities. The following tables present certain information regarding Toyota's industry segments and operations by geographic areas as of March 31, 2004 and September 30, 2004 and for the six-month periods ended September 30, 2003 and 2004: Information about segment results and assets - As of March 31, 2004 and for the six-month period ended September 30, 2003: Yen in millions Automotive Financial All Other Intersegment Total Services Elimination/ Unallocated Amount Net revenues External customers 7,584,310 362,460 277,471 - 8,224,241 Inter-segment 6,126 9,000 126,208 (141,334) - Total net revenues 7,590,436 371,460 403,679 (141,334) 8,224,241 Operating expenses 6,887,802 309,779 397,632 (138,741) 7,456,472 Operating income(loss) 702,634 61,681 6,047 (2,593) 767,769 Segment assets * 10,207,395 8,138,297 941,925 2,752,611 22,040,228 Investment in equity 1,092,713 211,657 - 60,407 1,364,777 method investees * Depreciation 368,242 97,493 10,203 - 475,938 Expenditures for 459,390 238,155 20,371 26,060 743,976 segment assets * Representing figures as of March 31, 2004. As of and for the six-month period ended September 30, 2004: Yen in millions Automotive Financial All Other Intersegment Total Services Elimination/ Unallocated Amount Net revenues External customers 8,332,161 374,408 319,096 - 9,025,665 Inter-segment 7,477 9,958 147,795 (165,230) - Total net 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 10,602,067 9,060,240 927,781 2,720,106 23,310,194 Investment in equity 1,159,997 207,182 - 55,064 1,422,243 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 U.S. dollars in millions Automotive Financial All Other Intersegment Total Services Elimination/ Unallocated Amount Net revenues External customers 75,031 3,371 2,874 - 81,276 Inter-segment 67 90 1,331 (1,488) - Total net revenues 75,098 3,461 4,205 (1,488) 81,276 Operating expenses 68,283 2,536 4,090 (1,434) 73,475 Operating income 6,815 925 115 (54) 7,801 Segment assets 95,471 81,587 8,355 24,494 209,907 Investment in equity 10,446 1,865 - 496 12,807 method investees Depreciation 3,407 867 96 - 4,370 Expenditures for 4,895 2,660 192 363 8,110 segment assets Revenue and operating income of the Financial Services segment for the six-month period ended September 30, 2004, includes the impact of adjustments made by a sales financing subsidiary in the United States of America relating to the correction of errors relating to prior periods. Geographic Information - As of March 31, 2004 and for the six-month period ended September 30, 2003: Yen in millions Japan North Europe Other Intersegment Total America foreign Elimination/ countries Unallocated Amount Net revenues External customers 3,325,570 2,896,155 977,630 1,024,886 - 8,224,241 Inter-segment 2,171,720 117,912 54,645 77,931 (2,422,208) - Total net revenues 5,497,290 3,014,067 1,032,275 1,102,817 (2,422,208) 8,224,241 Operating expenses 4,967,548 2,850,451 1,009,801 1,049,524 (2,420,852) 7,456,472 Operating income 529,742 163,616 22,474 53,293 (1,356) 767,769 Segment assets * 10,210,904 6,674,694 1,842,947 1,567,276 1,744,407 22,040,228 Long-lived assets 3,032,629 1,536,550 448,954 336,514 - 5,354,647 * * Representing figures as of March 31, 2004. As of and for the six-month period ended September 30, 2004: Yen in millions Japan North Europe Other Intersegment Total America foreign Elimination/ countries Unallocated Amount Net revenues External customers 3,540,760 3,102,246 1,129,304 1,253,355 - 9,025,665 Inter-segment 2,239,791 87,520 71,993 78,951 (2,478,255) - Total net revenues 5,780,551 3,189,766 1,201,297 1,332,306 (2,478,255) 9,025,665 Operating expenses 5,289,985 2,944,990 1,135,027 1,261,412 (2,471,998) 8,159,416 Operating income 490,566 244,776 66,270 70,894 (6,257) 866,249 Segment assets 10,217,231 7,452,016 2,080,172 1,705,329 1,855,446 23,310,194 Long-lived assets 3,040,406 1,659,928 490,765 404,712 - 5,595,811 U.S. dollars in millions Japan North Europe Other Intersegment Total America foreign Elimination/ countries Unallocated Amount Net revenues External customers 31,884 27,936 10,170 11,286 - 81,276 Inter-segment 20,170 788 648 711 (22,317) - Total net revenues 52,054 28,724 10,818 11,997 (22,317) 81,276 Operating expenses 47,636 26,520 10,221 11,359 (22,261) 73,475 Operating income 4,418 2,204 597 638 (56) 7,801 Segment assets 92,006 67,105 18,732 15,356 16,708 209,907 Long-lived assets 27,379 14,948 4,419 3,644 - 50,390 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 Other foreign countries. 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 JPY3,270,973 million and JPY3,292,816 million ($29,652 million) as of March 31, 2004 and September 30, 2004, respectively. Transfers between industry or geographic segments are made at amounts which Toyota's management believes approximate arm's-length prices. In measuring the reportable segments' income or losses, operating income consists of net revenues less operating expenses. Overseas revenues by destination - The following information shows revenues that are attributed to countries based on the location of the 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 supplemental information in order to provide readers with valuable information. Yen in millions U.S. dollars in millions For the six-month periods ended For the six-month September 30, period ended September 30, 2003 2004 2004 North America 3,013,321 3,194,425 28,766 Europe 944,563 1,139,092 10,257 Other foreign countries 1,601,666 1,865,702 16,801 Certain financial statement data on non-financial services business and financial services business - The financial data 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, 2004 2004 2004 Non-Financial Services Business Current assets Cash and cash equivalents 1,618,876 1,314,036 11,833 Time deposits 16,689 13,511 122 Marketable securities 444,543 678,372 6,109 Trade accounts and notes receivable, 1,570,205 1,427,122 12,851 less allowance for doubtful accounts Inventories 1,083,326 1,191,041 10,725 Prepaid expenses and other current assets 1,391,600 1,592,838 14,343 Total current assets 6,125,239 6,216,920 55,983 Investments and other assets 4,254,625 4,477,055 40,316 Property, plant and equipment 4,398,163 4,522,952 40,729 14,778,027 15,216,927 137,028 Total Non-Financial Services Business assets Financial Services Business Current assets Cash and cash equivalents 110,900 214,207 1,929 Time deposits 51,784 54,864 494 Marketable securities 3,914 800 7 Finance receivables, net 2,608,340 2,835,006 25,529 Prepaid expenses and other current assets 605,019 584,485 5,264 Total current assets 3,379,957 3,689,362 33,223 Noncurrent finance receivables, net 3,221,013 3,830,554 34,494 Investments and other assets 580,843 467,465 4,209 Property, plant and equipment 956,484 1,072,859 9,661 8,138,297 9,060,240 81,587 Total Financial Services Business assets Elimination of assets (876,096) (966,973) (8,708) Total assets 22,040,228 23,310,194 209,907 Yen in millions U.S. dollars in millions March 31, September 30, September 30, 2004 2004 2004 Non-Financial Services Business Current liabilities Short-term borrowings 718,396 758,411 6,829 Current portion of long-term debt 62,634 66,061 595 Accounts payable 1,695,255 1,628,552 14,665 Accrued expenses 1,084,357 1,151,471 10,369 Income taxes payable 241,691 255,131 2,298 Other current liabilities 971,796 1,065,345 9,593 Total current liabilities 4,774,129 4,924,971 44,349 Long-term liabilities Long-term debt 771,791 764,403 6,883 Accrued pension and severance costs 724,369 713,352 6,424 Other long-term liabilities 600,158 605,394 5,452 Total long-term liabilities 2,096,318 2,083,149 18,759 Total Non-Financial Services Business liabilities 6,870,447 7,008,120 63,108 Financial Services Business Current liabilities Short-term borrowings 2,029,258 2,152,069 19,379 Current portion of long-term debt 1,088,762 1,094,264 9,854 Accounts payable 15,287 20,596 185 Accrued expenses 53,031 62,186 560 Income taxes payable 10,864 16,119 145 Other current liabilities 259,826 286,132 2,577 Total current liabilities 3,457,028 3,631,366 32,700 Long-term liabilities Long-term debt 3,726,355 4,304,904 38,766 Accrued pension and severance costs 1,200 1,443 13 Other long-term liabilities 244,386 326,398 2,939 Total long-term liabilities 3,971,941 4,632,745 41,718 Total Financial Services Business liabilities 7,428,969 8,264,111 74,418 Elimination of liabilities (884,048) (976,445) (8,793) Total liabilities 13,415,368 14,295,786 128,733 Minority interest in consolidated subsidiaries 446,293 472,332 4,253 Shareholders' equity 8,178,567 8,542,076 76,921 22,040,228 23,310,194 209,907 Total liabilities and shareholders' equity Statements of income - U.S. dollars Yen in millions in millions For the six-month For the six-month period ended period ended September 30, September 30, 2003 2004 2004 Non-Financial Services Business Net revenues 7,867,021 8,655,852 77,945 Costs and expenses Cost of revenues 6,275,627 6,958,489 62,661 Selling, general and administrative 880,774 925,295 8,332 Total costs and expenses 7,156,401 7,883,784 70,993 Operating income 710,620 772,068 6,952 Other income, net 44,272 40,854 368 Income before income taxes, 754,892 812,922 7,320 minority interest and equity in earnings of affiliated companies Provision for income taxes 285,959 319,354 2,875 Income before minority interest and 468,933 493,568 4,445 equity in earnings of affiliated companies Minority interest in consolidated (18,150) (26,413) (238) subsidiaries Equity in earnings of affiliated 37,413 50,762 457 companies Net income- Non- Financial Services 488,196 517,917 4,664 Business Financial Services Business Net revenues 371,460 384,366 3,461 Costs and expenses Cost of revenues 192,157 182,535 1,643 Selling, general and administrative 117,622 99,164 893 Total costs and expenses 309,779 281,699 2,536 Operating income 61,681 102,667 925 Other expenses, net (4,689) (2,395) (22) Income before income taxes, 56,992 100,272 903 minority interest and equity in earnings of affiliated companies Provision for income taxes 23,840 41,976 378 Income before minority interest and 33,152 58,296 525 equity in earnings of affiliated companies Minority interest in consolidated (465) (239) (2) subsidiaries Equity in earnings of affiliated 3,580 8,051 72 companies Net income- Financial Services 36,267 66,108 595 Business Elimination of net income (3) 13 0 Net income 524,460 584,038 5,259 Statement of cash flows - U.S. dollars Yen in millions in millions For the six-month For the six-month periods ended period ended September 30, September 30, 2003 2004 2004 Non-Financial Services Business Cash flows from operating activities Net income 488,196 517,917 4,664 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 378,445 389,059 3,503 Pension and severance costs, less payments 34,000 2,857 26 Losses on disposal of fixed assets 18,423 18,540 167 Unrealized losses on available-for-sale 2,697 1,997 18 securities, net Deferred income taxes 6,831 19,492 176 Minority interest in consolidated 18,150 26,413 238 subsidiaries Equity in earnings of affiliated companies (37,413) (50,762) (457) Changes in operating assets and liabilities, (44,461) 22,187 199 and other Net cash provided by operating activities 864,868 947,700 8,534 Cash flows from investing activities Additions to fixed assets excluding equipment (433,924) (531,073) (4,783) leased to others Additions to equipment leased to others (71,897) (74,094) (667) Proceeds from sales of fixed assets excluding 25,888 26,037 234 equipment leased to others Proceeds from sales of equipment leased to 24,840 38,576 347 others Purchases of marketable securities and security (968,766) (686,319) (6,180) investments Proceeds from sales of and maturity of 582,102 166,815 1,502 marketable securities and security investments Payments for additional investments in (18,876) (683) (6) affiliated companies, net of cash acquired Changes in investments and other assets, and (3,170) 42,691 385 other Net cash used in investing activities (863,803) (1,018,050) (9,168) Cash flows from financing activities Purchases of common stock (120,229) (206,917) (1,863) Proceeds from issuance of long-term debt 32,088 13,463 121 Payments of long-term debt (111,290) (28,653) (258) Increase (Decrease) in short-term borrowings (4,387) 45,804 413 Dividends paid (69,782) (83,250) (750) Other (15,000) (7,000) (63) Net cash used in financing activities (288,600) (266,553) (2,400) Effect of exchange rate changes on cash and cash (30,774) 32,063 289 equivalents Net decrease in cash and cash equivalents (318,309) (304,840) (2,745) Cash and cash equivalents at beginning of period 1,437,731 1,618,876 14,578 Cash and cash equivalents at end of period 1,119,422 1,314,036 11,833 U.S. dollars Yen in millions in millions For the six-month period For the six-month periods ended ended September 30, September 30, 2003 2004 2004 Financial Services Business Cash flows from operating activities Net income 36,267 66,108 595 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 97,493 96,252 867 Deferred income taxes 15,033 30,358 273 Minority interest in consolidated 465 239 2 subsidiaries Equity in earnings of affiliated (3,580) (8,051) (72) companies Changes in operating assets and 524 163,504 1,472 liabilities, and other Net cash provided by operating activities 146,202 348,410 3,137 Cash flows from investing activities Additions to finance receivables (4,182,349) (4,358,871) (39,251) Collection of and proceeds from sales of 3,727,776 3,837,570 34,557 finance receivables Additions to fixed assets excluding equipment (11,598) (7,813) (70) leased to others Additions to equipment leased to others (226,557) (287,614) (2,590) Proceeds from sales of fixed assets excluding 5,346 3,115 28 equipment leased to others Proceeds from sales of equipment leased to 108,233 113,857 1,025 others Purchases of marketable securities and (169,097) (61,054) (550) security investments Proceeds from sales of and maturity of 123,512 60,092 541 marketable securities and security investments Changes in investments and other assets, and (19,281) (20,247) (182) other Net cash used in investing activities (644,015) (720,965) (6,492) Cash flows from financing activities Proceeds from issuance of long-term debt 706,040 928,861 8,365 Payments of long-term debt (546,392) (543,592) (4,895) Increase in short-term borrowings 299,919 76,440 688 Other 7,000 63 Net cash provided by financing activities 474,567 468,709 4,221 Effect of exchange rate changes on cash and cash (7,262) 7,153 64 equivalents Net increase (decrease) in cash and cash (30,508) 103,307 930 equivalents Cash and cash equivalents at beginning of period 154,297 110,900 999 Cash and cash equivalents at end of period 123,789 214,207 1,929 Consolidated Effect of exchange rate changes on cash and cash (38,036) 39,216 353 equivalents Net decrease in cash and cash equivalents (348,817) (201,533) (1,815) Cash and cash equivalents at beginning of period 1,592,028 1,729,776 15,577 Cash and cash equivalents at end of period 1,243,211 1,528,243 13,762 11. Per share amounts Reconciliations of the differences between basic and diluted net income per share for the six-month periods ended September 30, 2003 and 2004 are as follows: Yen in Thousands Yen U.S. dollars millions of shares Net income Weighted- Net income Net income average shares per share per share For the six-month period ended September 30, 2003 Basic net income per common share 524,460 3,419,900 153.36 Effect of dilutive securities Assumed exercise of dilutive 90 stock options Diluted net income per common share 524,460 3,419,990 153.35 For the six-month period ended September 30, 2004 Basic net income per common share 584,038 3,312,441 176.32 1.59 Effect of dilutive securities Assumed exercise of dilutive 760 stock options Diluted net income per common share 584,038 3,313,201 176.28 1.59 Certain stock options were not included in the computation of diluted net income per common share for the six-month periods ended September 30, 2003 and 2004 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, 2004 and September 30, 2004. 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. Yen in Thousands Yen U.S. dollars millions of shares Net assets Shares issued Net assets Net assets and per share per share outstanding at the end of the period As of March 31, 2004 Net assets per common share 8,178,567 3,329,921 2,456.08 As of September 30, 2004 Net assets per common share 8,542,076 3,281,975 2,602.72 23.44 This information is provided by RNS The company news service from the London Stock Exchange

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