Toyota 2006 Annual Report Download - page 67

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In calendar 2004 and 2005, Toyota produced 62.9% and
62.0% of Toyota’s non-domestic sales outside Japan, respectively.
In North America, 63.7% and 61.1% of vehicles sold in calendar
2004 and 2005 were produced locally, respectively. In Europe,
56.7% and 59.6% of vehicles sold in calendar 2004 and 2005
were produced locally, respectively. Localizing production
enables Toyota to purchase many of the supplies and resources
used in the production process, which allows for a better match
of local currency revenues with local currency expenses.
Toyota also enters into foreign currency transactions and
other hedging instruments to address a portion of its transac-
tion risk. This has reduced, but not eliminated, the effects of
foreign currency exchange rate fluctuations, which in some
years can be significant. See notes 20 and 21 to the consolidat-
ed financial statements for additional information regarding the
extent of Toyota’s use of derivative financial instruments to
hedge foreign currency exchange rate risks.
Generally, a weakening of the Japanese yen against other
currencies has a positive effect on Toyota’s revenues, operating
income and net income. A strengthening of the Japanese yen
against other currencies has the opposite effect. The Japanese
yen has on average been stronger against the U.S. dollar during
fiscal 2005 and weaker against the U.S. dollar during fiscal
2006. At the end of fiscal 2005 and 2006, the Japanese yen
was weaker against the U.S. dollar in comparison to the end of
the prior fiscal year. As compared to the euro, the Japanese yen
has on average been weaker during fiscal 2005 and 2006. At
the end of fiscal 2005 and 2006, the Japanese yen was weaker
against the euro compared to the end of the prior fiscal year.
See further discussion in the Market Risk Disclosures section
regarding “Foreign Currency Exchange Rate Risk”.
During fiscal 2005 and 2006, the average value of the yen
fluctuated against the major currencies including the U.S. dollar
and euro compared with the average value of the previous fiscal
year, respectively, as noted above. The operating results exclud-
ing the impact of currency fluctuations described in the “Results
of Operations—Fiscal 2006 Compared with Fiscal 2005” and
the “Results of Operations—Fiscal 2005 Compared with Fiscal
2004” show results of net revenues obtained by applying the
yen’s average exchange rate in the previous fiscal year to the
local currency-denominated net revenues for fiscal 2005 and
2006, respectively, as if the value of the yen had remained con-
stant for the comparable periods. Results excluding the impact
of currency fluctuations year-on-year are not on the same basis
as Toyota’s consolidated financial statements and do not con-
form with U.S. GAAP. Furthermore, Toyota does not believe
that these measures are a substitute for U.S. GAAP measures.
However, Toyota believes that such results excluding the impact
of currency fluctuations year-on-year provide additional useful
information to investors regarding the operating performance
on a local currency basis.
Segmentation
Toyota’s most significant business segment is its automotive
operations. Toyota carries out its automotive operations as a
global competitor in the worldwide automotive market.
Management allocates resources to, and assesses the perform-
ance of, its automotive operations as a single business segment
on a worldwide basis. Toyota does not manage any subset of its
automotive operations, such as domestic or overseas operations
or parts, as separate management units.
The management of the automotive operations is aligned
on a functional basis with managers having oversight responsi-
bility for the major operating functions within the segment.
Management assesses financial and non-financial data such as
units of sale, units of production, market share information,
vehicle model plans and plant location costs to allocate
resources within the automotive operations.
Geographic Breakdown
The following table sets forth
Toyota’s net revenues in each
geographic market based on the
country location of the parent
company or the subsidiary that
transacted the sale with the
external customer for the past
three fiscal years.
Yen in millions
For the year ended March 31,
2004 2005 2006
Japan................................... ¥7,167,704 ¥7,408,136 ¥7,735,109
North America ..................... 5,910,422 6,187,624 7,455,818
Europe................................. 2,018,969 2,305,450 2,574,014
Asia ..................................... 1,196,836 1,572,113 1,836,855
Other ................................... 1,000,829 1,078,203 1,435,113
Japan North America Europe
Asia All Other Markets
Revenues by Market
FY 2006
8.7%
6.8%
12.2%
35.5%
36.8%