Management’s Discussion and Analysis

The material in this section was derived from information available to TOYODA’s management as of December 22, 2000.
Finance
TOYODA has instituted fundamental financial policies to ensure appropriate funding and liquidity, as well as maintain healthybalance sheets.
In principle, TOYODA meets its capital expenditures and other long-term funding needs through retained earnings andlong-term debt, while using short-term bank loans for operating funds. Long-term debt is raised mainly through bond issues,
including convertible bonds. To partially cover the funds required for the acquisition of BT Industries AB (BT Industries), TOYODA
raised a total of ¥40.0 billion in July 2000 through two issues of bonds without collateral in Japan. Further, in October 2000, toraise funds for the acquisition of BT Industries, as well as for capital expenditures, TOYODA issued 30 million new shares,
raising a total of ¥55.7 billion. The issue of new shares was based upon a management decision, taken from a medium-range
perspective, to ensure TOYODA’s sound financial condition.
Financial Position
As of September 2000, the value of TOYODA’s total assets reached ¥1,781.9 billion, which represented an increase of¥1,096.0 billion over the end of the previous fiscal year (ended March 31, 2000). This resulted from the introduction of new
accounting standards, including those for financial instruments, during the period under review. Shares of the Toyota Group,including Toyota Motor Corporation, and other investment securities, which had previously been calculated at the historicalcost, were recalculated at current market value as of September 30, 2000. This resulted in an increase of ¥949.8 billion in
the value of securities compared with the end of the previous fiscal year.
Inventories increased ¥17.0 billion over the end of the previous fiscal year, due mainly to the consolidation of BT Industries,
acquired in June 2000, and other factors. Also mainly reflecting the acquisition of BT Industries, property, plant and equipment
increased ¥22.5 billion, to ¥281.2 billion, over the end of the previous fiscal year, while consolidation difference of ¥81.7 billion
was recorded under assets. Current liabilities rose ¥64.0 billion from the end of the previous fiscal year, to ¥209.9 billion, due
mainly to the consolidation of BT Industries, an increase in commercial paper issued to partially fund the acquisition of BT
Industries, and other factors. In conjunction with the equity finance through the issue of new shares in October 2000, the entire¥20.0 billion commercial paper was redeemed in the same month. Long-term liabilities rose ¥477.5 billion from the end of theprevious fiscal year, to ¥680.9 billion, through the adoption of mark-to-market accounting, which resulted in an increase ofdeferred tax liabilities by ¥391.1 billion and an increase of ¥40.0 billion in bonds without collateral. Shareholders’ equity rose
¥557.0 billion from the end of the previous fiscal year, to ¥873.3 billion, as a result of the adoption of mark-to-market
accounting, and other factors.
Cash FlowsNet cash provided by operating activities in the first half of the fiscal year under review amounted to ¥36.1 billion, consisting
chiefly of income before income taxes of ¥13.8 billion and depreciation and amortization of intangibles of ¥19.6 billion. Net cashused in investing activities totaled ¥97.4 billion and was derived mainly from the acquisition of shares of BT Industries. Net cash
provided by financing activities reached ¥56.6 billion and was derived from the issue of commercial paper, bonds without
collateral, and other factors.
As a result of the above activities, cash and cash equivalents at end of six-month period dropped ¥4.7 billion from theprevious fiscal year-end, to ¥72.7 billion.

6TOYODA AUTOMATIC LOOM WORKS, LTD.

Overview of Performance
Sales
During the period under review, consolidated net sales increased 18.2% over the corresponding period of the previous fiscalyear, to ¥344.2 billion. Sales in all business segments rose over the corresponding period of the previous fiscal year. Sales inJapan increased 18.0% over the corresponding period of the previous fiscal year, to ¥231.0 billion. Overseas sales increased
18.8%, to ¥113.3 billion, while the overseas sales ratio raised from overseas activities rose 0.1 percentage point, to 32.9%. The
acquisition of BT Industries was considered to have taken place at the end of the first half of the current fiscal year, althoughTOYODA actually acquired BT Industries in June 2000. Therefore, BT Industries’ financial data are not included in theconsolidated statements of income and are only consolidated in the balance sheets.
Profit and Loss
Cost of sales during the period under review rose 16.3% over the corresponding period of the previous fiscal year, to ¥302.8billion, while selling, general and administrative expenses rose 3.7%, to ¥19.9 billion. However, operating income increased
83.4% over the corresponding period of the previous fiscal year, to ¥21.5 billion. The cost of sales ratio improved 1.4 percentage
points from the corresponding period of the previous year, to 88.0%. This was achieved through the enhancement of the facility
utilization ratio, stemming from improved productivity and production efficiency, cost reduction, and other factors. Furthermore,
the operating margin during the period under review increased 2.2 percentage points, to 6.2%. Other income during the period
totaled ¥5.5 billion, due mainly to a decrease in income from sales of securities. Additionally, other expenses were reduced ¥2.3billion, to ¥6.9 billion, due to lower equity in loss of affiliates and other factors. Due to the introduction of the new accounting
standards for retirement benefits during the period under review, the aggregate funding shortfall of ¥19.1 billion was disposed of
as a special loss. In order to compensate for this loss, a special gain of ¥15.1 billion was established through the contribution ofcertain investment securities held by TOYODA to an employee retirement benefit trust.
As a result of the above activities, income before income taxes rose ¥3.1 billion, to ¥13.8 billion.
Further, net income for the period under review rose ¥3.0 billion from the corresponding period of the previous fiscal year,to ¥8.0 billion. Return on sales rose 0.6 percentage point from the corresponding period of the previous fiscal year, to 2.3%.

TOYODA AUTOMATIC LOOM WORKS, LTD.

7