Management’s Discussion and Analysis
The following Management’s Discussion and Analysis is based on current information known tomanagement as of June 29, 2000.

FINANCE
Toyoda’s financial policy is to secure adequate financing and liquidity for its operations and to maintainhealthy balance sheets.
Toyoda’s basic financial policy is that retained earnings and long-term debt should meet long-term
fund requirements such as capital expenditures. Toyoda uses short-term bank loans to fund a portionof its working capital requirements. However, working capital requirements, which are necessary on an
ongoing basis, are raised by long-term debt. Bonds, including convertible bonds, are the main source oflong-term debt, and during the fiscal year ended March 31, 2000, the sixth and seventh issuances ofbonds without collateral provided ¥15,000 million respectively, totaling ¥30,000 million. In addition,loans from Toyoda meet most of the fund requirements of its subsidiaries and affiliates mainly to reduce
their interest expenses and ensure the efficient use of funds.
Toyoda’s financial condition remained sound. Cash and cash equivalents, other liquid assets such as
short-term investments, free cash flows and fund raising from financial institutions provide adequate
funds for the working capital required to expand existing businesses and develop new projects as well
as for future capital expenditures.

ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
Total assets at the end of fiscal 2000 increased by ¥68,843 million, or 11.2 percent from the previousyear, to ¥685,914 million. This mainly reflected increases in cash and cash equivalents, investment

Total Assets,
Shareholders’ Equity andShareholders’ Equity Ratio(Years ended March 31)

securities and receivables – trade, and newly accounted deferred tax assets.
Current assets increased by ¥39,524 million, or 25.4 percent from the previous year, to ¥195,289(¥ Billion)

(%)

800

million. This was mainly due to increases in cash and cash equivalents which accrued from the issuancesof bonds without collateral and in receivables – trade. Short-term investments decreased due to a shift

60600

from time deposits to negotiable certificates of deposit. Receivables – trade increased by ¥9,966million, or 17.6 percent, to ¥66,459 million, mainly reflecting an increase in sales in the Automobile

40
400Segment. Inventories increased by ¥2,955 million, or 10.8 percent, to ¥30,215 million and the inventory
turnover period reached 16.8 days compared to 16.1 days in the previous year.

20

Investments and other assets increased by ¥23,580 million, or 11.9 percent from the previous year,200

to ¥221,226 million. This was attributable to purchases of additional shares in the Toyota Group

0companies, purchases of bonds and an increase in loans made for ST Liquid Crystal Display Corp. (STLCD) and to newly accounted deferred tax assets.
Property, plant and equipment decreased by ¥190 million, or 0.1 percent from the previous year,

096 97 98 99 00
Total Assets
Shareholders’ Equity
Shareholders’ Equity Ratioto ¥258,706 million. This reflected that depreciation, along with capital expenditures, exceeded¥60,000 million in fiscal 1998 and fiscal 1999 respectively, and capital expenditures during fiscal 2000
were held at almost the same level.

TOYODA AUTOMATIC LOOM WORKS, LTD. 17

Management’s Discussion and Analysis
The total of current liabilities and long-term liabilities at the end of the year increased by ¥52,178

Cash Flows(Years ended March 31)

million, or 17.6 percent from the previous year, to ¥349,302 million. This was due to increases in long-(¥ Billion)

term debt, payables – trade, and short-term bank loans, and to newly accounted deferred tax liabilities.

1,000

In current liabilities, an increase in payables – trade was attributable to an increase in the purchaseamount of raw materials, supplies and subcontractors’ expenses in March 2000. An increase in short-500

term bank loans was due to additions of newly consolidated subsidiaries. In addition, a decrease inpayables – other was due to a reduction in the purchase amount of plant and equipment.

0In long-term liabilities, long-term debt at the end of the year increased by ¥32,454 million, or 21.8
percent from the previous year, to ¥181,072 million, mainly due to the sixth and seventh issuances of(500)bonds without collateral of ¥15,000 million respectively, totaling ¥30,000 million. Shareholders’ equity
increased by ¥15,135 million, or 5.0 percent, to ¥316,293 million reflecting an increase in retained(1,000)

9798

9900

Net Cash Provided by Operating Activities
Net Cash Used in Investing Activities
Net Cash Provided by (Used in)
Financing Activities

Depreciation andAmortization of Intangibles(Years ended March 31)

earnings accompanying appropriation of income during the year. Shareholders’ equity per share basedon the number of shares outstanding at the end of the year stood at ¥1,162.62, compared to¥1,063.05 for the previous year.

CASH FLOWS(¥ Billion)

During the fiscal year ended March 31, 2000, net cash provided by operating activities was ¥68,058

60

million, an increase of ¥23,920 million, or 54.2 percent compared to the previous year. Net cash used
in investing activities was ¥67,187 million, a decrease of ¥29,040 million, or 30.2 percent. Net cash
40

provided by financing activities increased by ¥3,132 million, or 12.9 percent, to ¥27,500 million.
Despite the adverse effects of translation difference, cash and cash equivalents at end of year increasedby ¥27,377 million, or 54.8 percent compared to the previous year, to ¥77,332 million.

20The increase in net cash provided by operating activities during the year principally reflected
increases in income before income taxes, payables – trade, and depreciation and amortization of0

96 97 98 99 00

intangibles exceeding increases in receivables – trade and inventories. The increases in receivables –trade, inventories and payables – trade were mainly due to sales increases in the Automobile Segment,

Automobile
Materials Handling Equipment
Textile Machinery*
Othersbacked by the strong performance of the Vitz (Yaris) and car air-conditioning compressors.
Depreciation and amortization of intangibles during the year increased by ¥8,372 million, or 24.4
percent from the previous year, to ¥42,752 million, affected by capital expenditures exceeding ¥60,000

Capital Expenditures

million in fiscal 1998 and fiscal 1999, respectively.

(Years ended March 31)(¥ Billion)
60

In net cash used in investing activities during the year, payments for purchases of property, plantand equipment decreased by ¥25,625 million, or 33.0 percent from the previous year, to ¥52,082
million. Capital expenditures decreased by ¥15,722 million, or 26.0 percent, to ¥44,746 million. The
breakdown of capital expenditures during the year were ¥33,058 million, a decrease of ¥14,577 million,
or 30.6 percent, in the Automobile Segment, with most of the sum invested in production equipment

40for car air-conditioning compressors; ¥5,426 million, a decrease of ¥6,265 million, or 53.6 percent, inthe Materials Handling Equipment Segment; and ¥1,042 million, an increase of ¥379 million, or 57.2percent, in the Textile Machinery Segment. Payments for purchases of investment securities decreased

20by ¥10,661 million, or 39.8 percent, to ¥16,101 million, consisting mainly of additional purchases ofshares in the Toyota Group companies, such as DENSO Corporation, accounting for approximately 60
096 97 98 99 00
Automobile
Materials Handling Equipment
Textile Machinery*
Otherspercent, and purchases of bonds approximately 25 percent. Payments for loans made during the year
increased by ¥4,523 million, or 75.6 percent, to ¥10,503 million, of which loans to ST-LCD accounted*Note: From fiscal 1999 the Textile Machinery Segment was separated from the “Others” Segment.

18TOYODA AUTOMATIC LOOM WORKS, LTD.

for approximately 60 percent. Payments for acquisition of business for water jet looms from Nissan
Texsys Co., Ltd. of ¥1,498 million were also accounted for during the year.
Net cash provided by financing activities during the year included a decrease in proceeds fromissuances of bonds by ¥10,242 million, or 25.5 percent from the previous year, to ¥29,849 million.
Retirements of shares, which totaled ¥9,999 million in fiscal 1998 and ¥9,225 million in fiscal 1999, was
not accounted for in fiscal 2000. Toyoda paid cash dividends of ¥4,863 million during the year.

OVERVIEW OF PERFORMANCE
Foreign Exchange Fluctuations and Basic Countermeasures
The average exchange rate of the yen to the U.S. dollar (TTB) during the fiscal year ended March 31,
2000 was ¥111.62, an appreciation of ¥16.63, or 13.0 percent over the previous year.

Net Sales, Overseas Sales
and Overseas Sales Ratio(Years ended March 31)(¥ Billion)

Overseas sales during the year increased by ¥13,255 million, or 7.4 percent from the previous year,(%)

800

to ¥191,992 million. The ratio to total sales was 30.7 percent; both the amount and the ratio of30

overseas sales are increasing due to the rapid development of globalization. Toyoda therefore plans to600

minimize adverse effects of foreign exchange fluctuations on its financial results by establishing exchange
20

forward contracts and foreign currency option contracts in order to hedge fluctuation risk related to400

the export and import of materials, parts and products. Toyoda also seeks to localize materials and10parts procurement as well as to move production closer to overseas markets in order to reduce200

inventories and costs.
00

Operating Performance

96 97 98 99 00
Net Sales
Overseas Sales
Overseas Sales Ratio

The Japanese economy began to recover slowly in the latter half of the fiscal year, with industrial
production activities and capital expenditures improving despite restrained personal consumption in thedifficult employment conditions. Overseas economies generally held steady, sustained by continuing
strength in the U.S. economy and the recovery of domestic demand in the European economy.
Against this background, Toyoda has met customers’ expectations, remained committed to quality
as a top priority, developed various attractive products, aggressively conducted sales promotions, andreduced costs throughout Toyoda, thus developing its strength.
As a result, net sales during the year increased by 12.0 percent from the previous year, andoperating income increased 16.3 percent. The increase in net sales was attributable mainly to increases

R&D Expenses andR&D Expenses toNet Sales Ratio(Years ended March 31)

in the production of the Vitz (Yaris) and car air-conditioning compressors. The increase in operating
income was accomplished by cost reduction and improved productivity, in addition to the increase in(¥ Billion)

(%)

30

net sales, despite the increase in depreciation and the impact of foreign exchange fluctuations.
4Net Sales

20

Reflecting the aforementioned factors, net sales during the year increased by ¥66,897 million, or 12.0
percent from the previous year, to ¥625,773 million.

210

Cost of Sales, and Selling, General and Administrative Expenses
Cost of sales increased by ¥61,765 million, or 12.5 percent, to ¥557,554 million from the previous0year, principally reflecting increases in manufacturing costs along with rises in production to meet strong
demand for products in the Automobile Segment. In addition, the ratio of cost of sales to net sales

096 97 98 99 00
R&D Expenses
R&D Expenses to Net Sales Ratio

TOYODA AUTOMATIC LOOM WORKS, LTD. 19

Management’s Discussion and Analysis
slightly increased from 88.7 percent during the previous year to 89.1 percent. Selling, general andOperating Income andOperating Marginadministrative expenses increased by ¥1,079 million from the previous year, to ¥39,352 million; the(Years ended March 31)(¥ Billion)(%)

ratio to net sales slightly decreased from 6.8 percent to 6.3 percent. Research and development
expenses during the year totaled ¥24,062 million, an increase of ¥831 million, or 3.6 percent compared40

to the previous year, with the ratio to net sales standing at 3.8 percent. These expenses consisted
6

mainly of ¥14,949 million for the Automobile Segment, ¥7,238 million for the Materials Handling

30

Equipment Segment and ¥656 million for the Textile Machinery Segment.
420

Operating Income210

Operating income during the year increased by ¥4,053 million, or 16.3 percent from the previous year,to ¥28,867 million, reflecting the aforementioned factors. The operating margin slightly increased from0096 97 98 99 00
Operating Income
Operating Margin

4.4 percent during the previous year to 4.6 percent.
Other Income and Expenses
Other expenses, net, totaled ¥1,705 million, compared to ¥1,642 million for the previous year. Thiswas principally due to increases in income from sales of securities, despite increases in loss fromNet Income, ROS and ROE(Years ended March 31)(¥ Billion)

disposal of property, plant and equipment and equity in net loss of affiliates. Equity in net loss of affiliates
increased from ¥3,763 million in fiscal 1999 to ¥5,036 million in fiscal 2000, reflecting sharp increases in(%)

depreciation of ST-LCD associated with the start of commercial operations.

6

Income before Income Taxes

2015

Income before income taxes increased by ¥3,990 million, or 17.2 percent from the previous year, to4¥27,162 million.

2

Income Taxes and Deferred Tax Benefit

105

Net of income taxes and deferred tax benefit increased by ¥679 million, or 5.7 percent from the0096 97 98 99 00
Net IncomeROSROE

previous year, to ¥12,583 million. The ratio of income taxes to income before income taxes (theeffective rate of income taxes) decreased from 51.4 percent during the previous year to 46.3 percent,mainly due to the reduction in the rate of income taxes in Japan and to the adoption of tax effectaccounting.
Net Income

Net Income per Share(Years ended March 31)(¥)

Net income increased by ¥3,295 million, or 31.7 percent from the previous year, to ¥13,686 million,
partly influenced by tax effect accounting, which became applicable during the year. The ratio of net
income to net sales, return on sales (ROS), increased from 1.86 percent to 2.19 percent. The ratio of80

net income to shareholders’ equity (using the average of such amounts at fiscal 1999 end and fiscal
2000 end), return on equity (ROE), increased from 3.43 percent to 4.43 percent. Primary net income

60

per share (EPS) and diluted net income per share increased from ¥36.30 and ¥32.62 in fiscal 1999 to¥48.32 and ¥43.18 in fiscal 2000, respectively.

4020096 97 98 99 00
Primary
Diluted20TOYODA AUTOMATIC LOOM WORKS, LTD.

DIVIDEND POLICY
Based on remaining competitive, increasing corporate value and maintaining stable dividends, Toyoda
will continue to meet its shareholders’ expectations when considering factors such as performance anddividend payout ratio. Toyoda will utilize retained earnings for research, development and investment
to ensure growth, strength and the aggressive promotion of business in order to secure returns toshareholders.
In accordance with the resolution at the General Meeting of Shareholders held on June 29, 2000,
Toyoda determined that cash dividends payable for shareholders as of the end of the year would be ¥8per share. Since another ¥8 per share has already been paid as semi-annual dividends, annual dividends
will be ¥16 per share, for a dividend payout ratio of 26.4 percent.

THE YEAR 2000 (Y2K) PROBLEM
Since 1996, Toyoda has recognized the year 2000 (Y2K) problem as an important managerial issue interms of maintaining continuity of operations and relations with its customers and suppliers. Toyodatook broad measures to ensure the Y2K compliance of its internal information systems, equipment andproducts. After the new year, Toyoda has continued to monitor the latest developments in relation tothe Y2K problem through its channels for customers and internal communications network.
Fortunately, no problem has occurred which could seriously affect its customers, operations, orconsolidated financial condition.

EMPLOYEE PENSION PLAN
Starting in the fiscal year ending March 31, 2001, a new method of accounting for retirement benefits,
which will employ an approach similar to that of IAS, will be applied to Toyoda. In accordance with thenew method, Toyoda has calculated the present value of its projected benefit obligations (including
lump-sum severance payment obligations) as of April 1, 2000 to be ¥62.0 billion. The aggregate market
value of Toyoda’s pension assets as of that date was ¥23.0 billion, and the amount of accrued
severance benefit reserved on the same date was ¥19.6 billion. As a result, Toyoda’s aggregate funding
shortfall as of that date was ¥19.4 billion.
At present, Toyoda plans to amortize the entire amount of the funding shortfall in the first six
months of fiscal 2001. Also, prior to September 30, 2000, Toyoda plans to contribute certain of its
investment securities that have valuation profit into an employee retirement benefit trust, to beaccounted for as pension assets. It is not possible at this time to ascertain the exact amount of thoseinvestment securities, because of fluctuations in stock prices. Toyoda will recognize amortization
expenses for the first six months of fiscal 2001 in an amount equal to the entire funding shortfall as ofApril 1, 2000, but will, for the same period, realize gain on disposition of investment securities that arecontributed as pension assets. Toyoda currently estimates that it will recognize an extraordinary loss of¥4.5 billion after taking into account the aforementioned gain for the first six months of fiscal 2001.
Toyoda plans to continue the present employee pension plan, but it recognizes the amendment ormodification of the plan, such as adoption of a defined contribution plan (Japanese version of 401(k)), asa theme which it should examine.

TOYODA AUTOMATIC LOOM WORKS, LTD. 21