Toyota 2005 Annual Report Download - page 58

56 >MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
used for translation purposes, net revenues in fiscal 2005
would have increased by 3.4% in Japan, 10.0% in North
America, 12.2% in Europe and 21.5% in all other markets
compared with the prior year.
The following is a discussion of net revenues for each of
Toyota’s business segments. The net revenue amounts
discussed are amounts before the elimination of interseg-
ment revenues.
Automotive Operations Segment
Net revenues from Toyota’s automotive operations, which
constitute the largest percentage of Toyota’s net revenues,
increased in fiscal 2005 by ¥1,139.7 billion, or 7.1% com-
pared with the prior year to ¥17,113.5 billion. The increase
resulted primarily from the approximate ¥1,300.0 billion
impact attributed to combined net impact of vehicle unit
sales growth and changes in sales mix and the impact of
increased parts and service sales. These overall increases
were partially offset by unfavorable currency fluctuations
totaling ¥270.0 billion. Eliminating the difference in the
yen value used for translation purposes, automotive
operations net revenues would have been approximately
¥17,383.5 billion in fiscal 2005, an 8.8% increase
compared to the prior year. In fiscal 2005, net revenues in
Japan were favorably impacted primarily attributed to
vehicle unit sales growth in both the domestic and export
markets, which was partially offset by changes in sales mix
compared to fiscal 2004. Net revenues in North America
were favorably impacted by vehicle unit sales growth, but
were partially offset by the impact of foreign currency
fluctuations during fiscal 2005. Net revenues in Europe
were favorably impacted primarily by vehicle unit sales
growth and foreign currency translation rates fluctuations
during fiscal 2005. Net revenues in all other markets were
favorably impacted, primarily attributed to vehicle unit
sales growth due to IMV (Innovative International Multi-
Purpose Vehicle), which was launched in fiscal 2004.
Financial Services Operations Segment
Net revenues in fiscal 2005 for Toyota’s financial services
operations increased by ¥44.3 billion or 6.0% compared to
the prior year to ¥781.2 billion. This increase resulted
primarily from the impact of a higher volume of
financings and the impact of adjustments made by a sales
financing subsidiary in the United States for the correction
of errors relating to prior periods (see note 24 to the
consolidated financial statements), but was partially offset
by the impact of unfavorable foreign currency fluctuations
during fiscal 2005. Eliminating the difference in the yen
value used for translation purposes, financial services
operations net revenues would have been approximately
¥803.7 billion during fiscal 2005, a 9.1% increase com-
pared with the prior year.
All Other Operations Segment
Net revenues for Toyota’s other businesses increased by
¥134.1 billion, or 15.0%, to ¥1,030.3 billion during fiscal
2005 compared with the prior year. This increase
primarily relates to increased production volume and sales
attributed to the housing business.
Operating Costs and Expenses
Operating costs and expenses increased by ¥1,251.5
billion, or 8.0%, to ¥16,879.3 billion during fiscal 2005
compared with the prior year. The increase resulted
primarily from the approximate ¥1,100.0 billion impact
on costs of products attributed to combined net impact of
vehicle unit sales growth and changes in sales mix, a ¥72.9
billion increase in research and development expenses, a
¥59.8 billion decrease in net gain on the transfer to the
government of the substitutional portion of certain
employee pension funds in Japan, increased expenses in
expanding business operations and increased costs related
to the corresponding increase in parts and service sales.
These increases were partially offset by approximately
¥160.0 billion of cost reduction efforts in fiscal 2005.
In 2001, the Corporate Defined Benefit Pension Plan
Law was enacted and allowed a company to transfer the
substitutional portion of the obligation to the govern-
ment. The parent company and certain subsidiaries in
Japan applied for an exemption from the payment of
benefits related to future employee services with respect to
the substitutional portion of their employee pension funds
and obtained approval from the Minister of Health, Labor,
and Welfare. These companies also applied for approval
for the separation of the benefit obligations of the
substitutional portion which relates to past employee
services. After approval was obtained, the parent company
and certain subsidiaries in Japan completed the transfers
of the government-specified portion of plan assets relating
to the substitutional portion in fiscal 2004. Several
additional subsidiaries in Japan also completed the
transfers of the government-specified portion of plan
assets in fiscal 2005. The gains and losses relating to these
transfers were treated in accordance with the Emerging
Issues Task Force (“EITF”) No. 03-02, Accounting for the
transfer to the Japanese Government of the Substitutional
Portion of Employee Pension Fund Liabilities.
In connection with these transfers, for fiscal 2004 and
2005, settlement losses relating to the transfer of the
substitutional portion was ¥213.9 billion and ¥74.3 billion,
respectively and is reflected in cost of products sold
(¥190.1 billion and ¥65.9 billion, respectively) and selling,