Toyota Motor Corp.
Annual Report 2010

Plain-text annual report

TOYOTA MOTOR CORPORATION TOYOTA MOTOR CORPORATION Annual Report 2010 Purpose, Perspective and Passion Year ended March 31, 2010 Contents Consolidated Performance Highlights Special Feature: Reforging Bonds of Trust Leading the Automobile Industry in a New Age Toyota Business Revolution ・ The Transformation to an Evolutionary Business Model ・ State-of-the-Art Developments for the ・ Developing Products from the Immense China Market Customer’s Perspective in India’s High-Growth Market Top Messages ・ Chairman’s Message ・ President’s Message ・ Commitment to Quality Business Overview Operations ・ Automotive Operations ・ Financial Services ・ Other Business ・ Motoｒsports Activities Operations Corporate Information Property ・ R&D and Intellectual ・ Corporate Philosophy ・ Management Team ・ Corporate Governance ・ Risk Factors ・ Other Management and Corporate Data Financial Section ・ Message from the Executive Vice President Responsible for Accounting The future Toyota is aiming for. Investor Information Cautionary Statement with Respect to Forward-Looking Statements This presentation contains forward-looking statements that reflect Toyota’s plans and expectations. These forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause Toyota’s actual results, performance, achievements or financial position to be materially different from any future results, performance, achievements or financial position expressed or implied by these forward-looking statements. These factors include: (i) changes in economic conditions and market demand affecting, and the competitive environment in, the automotive markets in Japan, North America, Europe, Asia and other markets in which Toyota operates; (ii) fluctuations in currency exchange rates, particularly with respect to the value of the Japanese yen, the U.S. dollar, the Euro, the Australian dollar, the Canadian dollar and the British pound; (iii) changes in funding environment in financial markets; (iv) Toyota’s ability to realize production efficiencies and to implement capital expenditures at the levels and times planned by management; (v) changes in the laws, regulations and government policies in the markets in which Toyota operates that affect Toyota’s automotive operations, particularly laws, regulations and government policies relating to vehicle safety including remedial measures such as recalls, trade, environmental protection, vehicle emissions and vehicle fuel economy, as well as changes in laws, regulations and government policies that affect Toyota’s other operations, including the outcome of current and future litigation and other legal proceedings government proceedings and investigations; (vi) political instability in the markets in which Toyota operates; (vii) Toyota’s ability to timely develop and achieve market acceptance of new products that meet customer demand; (viii) any damage to Toyota’s brand image; and (ix) fuel shortages or interruptions in transportation systems, labor strikes, work stoppages or other interruptions to, or difficulties in, the employment of labor in the major markets where Toyota purchases materials, components and supplies for the production of its products or where its products are produced, distributed or sold. 　A discussion of these and other factors which may affect Toyota’s actual results, performance, achievements or financial position is contained in Toyota’s annual report on Form 20-F, which is on file with the United States Securities and Exchange Commission. Chairman’s Message Top Messages Top Messages Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Chairman's Message President's Message Commitment to Quality Thoroughly Reaffirming Toyota’s Founding Principles Worldwide competition in the automotive industry is growing more intense, as demonstrated by increasing demand for innovative and competitively priced products that meet unique customer needs. In addition, environmental concerns are becoming a higher priority for the international community. 　Toyota’s 70-year history has been very valuable in helping the Company address the major challenges it faces today. We have experienced recessions, automobile trade liberalization, environmental concerns, oil shocks and other major changes in the operating environment. In each case, we remained faithful to our founding principles of contributing to society. With humility, we learned and evolved. The current difficulties have given us cause to reaffirm these principles. We are confident that by providing safe, high-quality vehicles at affordable prices, the starting point for growth, we can overcome the issues we now face by adhering steadfastly to customer-first, Genchi Genbutsu (on-site, hands-on experience) principles and striving for continuous improvement. Building the Automobile of the Future The automobile industry is being driven by advances in environmental technology. Toyota will work to improve its technology, while broadening its strategy of sustainable mobility to include new technologies and products, partnerships, the urban environment and energy. By strengthening the bonds between the customers, dealers and suppliers who represent our Remaining True to Customer-First and Genchi Genbutsu Principles as We Build the Cars of the Future In fiscal 2010, Toyota faced very challenging business conditions, driving force, we will redouble our efforts to create a new future for the automobile. such that the Company initially forecast operating losses. Although 　I ask for the continued support and understanding of all of our stakeholders. a few emerging markets showed signs of recovery, the global economic crisis continued to affect markets in Japan, the United States, Europe and other parts of the world. Although Toyota July 2010 achieved profitability on a consolidated basis, we fell short of a full- scale earnings recovery. I apologize sincerely for any concern this may have caused our shareholders, investors, customers, suppliers, communities and other stakeholders. Under these circumstances, we made many difficult decisions and introduced new operating structures across the Company. In June 2009, we put in place a new management team to facilitate structural reforms and a recovery in performance. Returning to the spirit of manufacturing cars that has been essential to Toyota since its founding, we are preparing to take the next step forward. TOYOTA ANNUAL REPORT 2010 1 President’s Message Top Messages Top Messages Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Chairman's Message President's Message Commitment to Quality well as our overseas business operations for their efforts in working together to return the Company to its normal state as soon as possible. Above all, I am sincerely grateful to the more than 7 million customers around the world who purchased new Toyota vehicles during the past year. 　Thanks to everyone’s support, consolidated operating income for the fiscal year ended March 31, 2010, was ¥147.5 billion. I think that quickly moving into the black at a time that will determine car-making for the next 100 years is hugely significant to the formulation of our next growth strategy. I have defined fiscal 2011 as the year when Toyota makes a fresh start, and I intend to steer the Company toward a new growth strategy. 　One pillar of this new growth strategy is the next-generation eco-car. In May 2010, we announced a business partnership with Tesla Motors involving the development of an electric vehicle. In the spring of 2010, during a visit to the United States, I had an opportunity to test drive one of Tesla Motors’ electric vehicles, an experience that I can only describe as feeling the wind of the future. Not only was I impressed by Tesla’s technological capabilities, but I also sensed the energy that will enable them to produce the vehicle efficiently to meet market demands. 　In order to capitalize on technological transitions that occur once every hundred years, I think that the can-do spirit, quick decision-making and flexibility of venture businesses are as necessary as the methods of big corporations like Toyota. Toyota was also born as a venture business and that spirit has contributed to its growth over the years. By working with Tesla, I strongly believe we can reawaken the creative spirit in our own employees and accept the challenges of facing a new future. 　Since its foundation, Toyota’s unchanging mission has been to contribute to society by making safe and reliable vehicles. This will continue to be our priority. In addition, Toyota has been a dynamic company. As the particular needs of our customers evolve, I consider the response to ever-changing times as growth, and I hope that Toyota and I myself will continue to grow. photo by Kimimasa Mayama The Road to Making Better Cars A Fresh Start for Toyota— Contributing to Society through the Production of Safe and Reliable Vehicles I would like to express my heartfelt thanks for the warm, ongoing support of our stakeholders 　To this end, it is important that our customers, shareholders, regional communities, dealers, worldwide. suppliers, employees and all other stakeholders support the idea of Toyota’s continuing growth 　Over the past several months, I have been involved in a variety of meetings to explain our as being a good thing. ongoing commitment to safety and customer satisfaction. These included public hearings in 　The growth I want to pursue is not simply expansion to achieve a greater market share. Instead, the United States and explanatory meetings in Japan and other countries with the support of I envision a sustainable growth driven by each employee and based on delivering high quality related personnel from across the Company. During this time, I received constructive suggestions and safety at an affordable price—as demanded by our customers all over the world. for improvement as well as words of encouragement and support from many people. I am very 　Although the Company finds itself in an environment where conditions are extremely grateful to those who took the time to help us through this difficult time. challenging, the hearts of all Toyota associates are united in an effort to make better vehicles. I 　Looking back on the past year, I am reminded of when I was appointed as president in June 2009: hope Toyota will receive your continued support. then it felt like we were setting sail in stormy economic conditions. It was an extremely severe operating environment in which we were unable to relax for even one moment all year long. July 2010 　From our withdrawal from F1 to the shutdown of production at New United Motor Manufacturing Inc. (NUMMI), our former joint venture with GM, there were many hard choices to make. However, even in such a difficult period for Toyota, I am truly grateful to our dealers and suppliers who remained fully committed to providing as many vehicles as possible to customers, and to our employees as TOYOTA ANNUAL REPORT 2010 2 Commitment to Quality Chairman's Message President's Message Commitment to Quality Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information General Overview of Quality Issues Establishment of the Special Committee for Global Quality Today, as in the past, Toyota is focused on the customer. When problems arise, we thoroughly In March 2010, the Special Committee for Global Quality, chaired by TMC President Akio Toyoda, investigate the cause and make all necessary countermeasures and corrections. The idea of was established. This Global Quality Committee launched initiatives to address the deterioration creating better cars through repeated improvement has been the foundation of quality control of communications capabilities between the head office and other regions resulting from rapid efforts at Toyota since the Company was founded. We are confident that our quality efforts, globalization. One of the goals of the Global Quality Committee is to eliminate the haphazard embodied by the Toyota Production System, are among the very best in the world. sharing of quality information. The Global Quality Committee aims to strengthen quality 　Toyota has grown by quickly responding to market needs. In order to ensure that Toyota’s growth assurance systems through meticulous quality control in each region where Toyota operates. does not come at the expense of safety, we will reemphasize an alignment of our customers’ To this end, chief quality officers (CQOs), representatives, and related personnel in each region expectations with our quality control processes. Excellence of hardware Sense of safety Customersʼ expectations/demands ・Few problems ・Well-produced ・High performance ・Adequate explanation to 　customers ・Understanding of 　customersʼ feelings ・Consideration to 　customersʼ usage Focus on sense of safety as well as excellence of hardware New Quality Assurance Systems to Realize Safety and Security from the Customers’ Point of View Toyota is redoubling efforts to quickly regain the trust of its customers. Positioning quality from the customer’s point of view, we aim to ensure a system that will raise awareness and facilitate rapid response to market information. 　In the past, Toyota’s quality standards focused more on technical issues. Now, we are incorporating an awareness of the customer’s perspective as suppliers and dealers work together to alleviate customer concerns. To this end, we have established the Special Committee for Global Quality to develop and strengthen a more advanced quality assurance system and promote the global and rapid reform of all business processes from the customer’s point of view. As a result, amid the procurement of parts from developing countries and other advances of globalization in the automobile industry, we aspire to enhance our quality and service. gather to discuss quality issues with third-party experts and propose improvement plans. In the past, Senior Managing Director−level Quality Function Meetings were held five times a year to review quality assurance systems and mechanisms. From this point forward, we will conduct these meetings three times a year, with the Special Committee for Global Quality meeting semiannually. The first meeting of the Special Committee for Global Quality, held on March 30, 2010, focused on 1) recalls and other safety decisions; 2) improvement of information gathering; 3) timely and accurate disclosure; 4) overall product safety; and 5) quality assurance and human resource development. By focusing on these priority objectives, we will reinforce improvement efforts in tandem with overseas operations and dealerships. ■ Special Committee for Global Quality Committee chair: TMC President Toyoda Auditor Chair: Sasaki EVP Secretariat: Quality Group Domestic Sales Group Sales & Marketing Group Uchiyamada EVP, Funo EVP, Niimi EVP, Ichimaru EVP, Ihara SMD, Hayashi D, BR-CK R&D Group CS Group PE Group HR Group Manufacturing Group Purchasing Group PA Group Finance Group Regional Quality Task Force North America CQO N.A. Quality Task Force Europe CQO Euro. Quality Task Force China CQO （CQO team） AP CQO （CQO team） M.A.M. CQO （CQO team） China Quality Task Force AP Quality Task Force M.A.M. Quality Task Force Japan CQO Japan Quality Task Force Improve planning, control progress Confirmation and advice from outside experts Public disclosure TOYOTA ANNUAL REPORT 2010 3 Commitment to Quality Chairman's Message President's Message Commitment to Quality Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Sp ecific Measu res to Impro ve S a f e t y a n d Q u a l i ty ■ Current and Future Technical Offices （１） Strengthened Monitoring Function: The Early Detection and Resolution of Problems We are improving the safety decision-making process and speed of implementation by strengthening the process for gathering quality information from our customers in each region and rapidly and accurately analyzing the information. Furthermore, we will take the following measures to prevent safety issues before they occur. 　１）Strengthening the Information Gathering Function The inspection of Customer Vehicles: In the United States, Swift Market Analysis Response Teams (SMARTs) are committed to responding to customers within 24 hours of contact by the customer. A SMART dispatches trained technical field staff to inspect customer vehicles. In addition to evaluating customer vehicles, the SMART gathers data and parts as needed to ensure a thorough understanding of customer concerns in the field. 　In May 2010, the Design Quality Innovation Division was established within the technical divisions to reflect customer feedback in vehicle design, improve the quality of design drawings and develop human r e s o u r c e s . A l s o , w e a r e i m p l e m e n t i n g t h o r o u g h preventative measures that include gathering Japanese and overseas market information by SMART members as well as the inclusion of appropriate countermeasures ●…Existing sites ●…Scheduled sites ●…Proposed sites ●14 ●8 ●10 ●11 ●9 ●12 ●13 ●20 ●15 ●19 ● ●18 ●16 ●17 ●21 ●7 ●2 ●3 ●5 ●6 ●1 ●4 ●22 ＜North America＞We have plans to establish technical offices in five locations across the United States, including in New York, which has been in operation since 　　　　　　　　September 2009. We also have plans to establish two technical offices in Canada. 　　　　　　　　　Locations：❶New York, ❷San Francisco, ❸Denver, ❹Florida, ❺Texas, ❻Toronto, ❼Calgary ＜Europe＞New technical offices are scheduled to be established in ❽England, ❾Germany, ❿France, ⓫Spain, ⓬Italy, ⓭Russia and ⓮Northern Europe. ＜ C h i n a＞New technical offices are scheduled to be established in ⓯Beijing, ⓰Shanghai, ⓱Guangzhou, ⓲Chengdu, ⓳Tianjin and ⓴Changchun. 　　　　　In addition, we will strengthen the function of the existing 　Bahrain and 　Panama representative offices. We also plan to respond with direct visits to 　　　　　distributors in each country. ＜ J a p a n＞There are a total of 12 technical offices conducting operations across Japan. 21 22 　３）Using EDRs and Remote Communications Functions to Assist Root Cause Analysis Onboard event data recorders* (EDRs) record driver operation and vehicle performance data in the development of each design. A SMART vehicle inspection before and after an impact and are used in investigating the cause of an accident. Many 　２）Increasing the Number of Technical Offices vehicle models in Japan and the United States already have onboard EDRs, and by the end of 2010, EDRs will be included in all Toyota vehicles distributed in the United States. We are Consisting of several experts in the service, R&D and quality control areas, technical offices also working to improve the data readout function. Furthermore, the use of existing remote have been established in each region to enhance the gathering and communication of communications functions such as G-BOOK will help create a mechanism for information technical information that is used to determine the necessity of recalls and to improve overall quality. We are increasing the number of technical offices in North America from one to seven; we are also establishing new technical offices in other regions, including collection that is linked to quality improvements and useful for root cause analysis. * Event data recorder (EDR): A device that records acceleration, braking and other vehicle performance conditions for analysis when an impact occurs. seven in Europe and six in China. 　４）Strengthening Information Analysis and Improving the Safety Decision-Making Process We have created an Integrated Quality Information System for the uniform management of customer complaint information from dealers and distributors, as well as warranty repair and technical information from a variety of sources, to strengthen our analysis capabilities. This effort targets the early detection and resolution of problem areas. In the safety decision-making process, customer representatives from each region participate in recall review meetings to improve the mechanism for accurately reflecting customer feedback and regional concerns. TOYOTA ANNUAL REPORT 2010 4 Commitment to Quality Chairman's Message President's Message Commitment to Quality Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information ■ Early Detection and Early Resolution based on Reinforced Information Gathering and Genchi Genbutsu Customer Dealer/Distributor Customer Quality Engineering Div. TMC Each region Authorities w a fl l i a c n h c e T Technical info. Warranty info. Customer complaint info. Expand intake of information such as incidents Reinforce investigation of customersʼ vehicles ・Team aiming to investigate certain 　vehicles within 24 hours (SMART team) ・Technical branch office (NA: 7, Euro: 6, China: 6) ・Distribution of Event Data Recorder (EDR) ・Utilization of remote function Integrated Quality Information System Strengthen Analysis of Information (Integrated IT system of variety quality info.) Gather info. s e i t i r o h t u A m o r f n o i t a m r o f n I Enhance Speed/Contents/Quantity of Information Gathering and Analysis （２） Strengthening Information Disclosure: Regaining Trust through Comprehensive Communication In addition to strengthening our processes for the gathering of field performance data, we are also enhancing the effectiveness of other quality improvement activities. Toyota will release the results of third-party expert reviews and assessments of the improvement measures adopted by the Special Committee for Global Quality. Also, Toyota is working closely with its dealers to promote safer driving by providing customers with comprehensive information regarding safety technology, safe driving methods, and other awareness tools that contribute to the safe use of vehicles. （３） Human Resource Development In July 2010, we established five Customer First Training Centers to maintain quality and further develop our human resources. These Customer First Training Centers are in Japan, North America, Europe, Southeast Asia and China. The HR training programs specialize in the cultivation of quality control experts and location-specific concerns and employ people who have been trained for specific regional programs. The programs include Basic Training —which focuses on the essence of the customer-first philosophy, the importance of quality and quality the Toyota way—and Expert Training, which cultivates expertise based on quality case studies. The first training center was set up in Japan in May 2009 and is already developing additional programs to be conducted at new centers as they are established. Main Activities Conducted at the Head Office Quality Inspection Building This facility conducts assessments, investigations and meetings on vehicles, parts and materials collected from the market based on customer suggestions. Using a process of assumption to confirm how parts are used and operated in the field. Parts investigation Checking of parts; Checking against schematic Example of analysis Taking a part returned from the market and installing it in a vehicle to re-create use and analyze the cause of the problem. Three-dimensional measurement Using a three-dimensional measuring instrument to produce pinpoint coordinates for checking against an original schematic. Confirmation by simulating field problem condition. Analysis in environment chamber. Primary analysis Detailed analysis Environment testing chamber Chamber capable of producing various temperature conditions (from minus 40℃ to 120℃). Hi-function shower Testing for water leaks with showers from various angles and also tilting the vehicle. 4-wheel chassis dynamo-meter Running a vehicle on quiet rollers to analyze cabin sound levels and isolate noise sources. Analysis without dissection CT scanner Using a CT scanner to produce a 3D image of the internal structure of parts and materials for analysis. Scanning Electron Microscope（SEM） The state of the object surface is observed clearly with high magnification. Human resources development Note: Quality Inspection Building established in 2004 Introduction to how Toyota trains quality-assurance enployees to confirm defects with real parts and passes on analytical know-how. TOYOTA ANNUAL REPORT 2010 5 Reforging Bonds of Trust Special Feature Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Special Feature Reforging Bonds of Trust Leading the Automobile Industry in a New Age Toyota Business Revolution As emerging markets such as China and India gain traction in the global economy, shifting the focus of growth and other strategies from developed countries to developing countries is an urgent issue. Aware of these changes, Toyota has already begun to advance a global strategy, which takes the concepts of Customer First and Genchi Genbutsu to the next level. 　This special feature focuses on Toyota business i n n o v a t i o n t h r o u g h e x a m p l e s o f b u s i n e s s development in the two largest developing nations. TOYOTA ANNUAL REPORT 2010 TOYOTA ANNUAL REPORT 2010 6 Reforging Bonds of Trust Special Feature Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information The Transformation to an Evolutionary Business Model Further Refinement of Our Customer First Principle Maximizing Customer Satisfaction by Strengthening Bonds and Building a Long-Term Trusting Relationship The era of mass production and mass consumption, along with the 20th century, is behind us. Auto manufacturers must evolve and adapt to the demands of the 21st century. Traditionally, the automotive business has flowed downstream in one direction, from manufacturers (production), to dealers (sales), to customers (purchase). At Toyota, we believe it is important to forge bonds that strengthen the link between these three parties and build a long-term trusting relationship. These bonds partner the ” hard power” of the basic vehicle functions of “go, turn and stop” with the ”soft power” of the function “get connected.” In China, we are building innovative relationships with customers through the forging of these bonds. In India, we are having success developing vehicles based on the needs of regional customers, rather than superimposing our global models on local markets. Providing the ultimate user experience through new relationships and realizing high-quality services that maximize customer satisfaction are linchpins of our business model for this new era, which seeks to redefine Customer First and Genchi Genbutsu for the next generation of automobile users. Accelerating the Creation and Growth of the Toyota Brand through Total Experience At Toyota, we believe consideration of the user’s total experience is an important factor in providing a service that maximizes customer satisfaction. This total experience involves strengthening bonds and building new relationships with customers by providing attractive sales services at three stages. The first stage seeks to convey the appeal of a space containing a Toyota vehicle and instill the desire to experience the inside of a Toyota dealership when viewed from the outside. The second stage focuses on the customer’s experience inside the dealership, while the third stage concentrates on the customer support experience provided by the aftercare service. By providing customers with this multi-staged total experience, we can reproduce the essence of the Toyota brand and, in the process, develop innovative services that we believe will accelerate our growth. Improving Dealer Operations with e-TOYOTA The “e” in our e-TOYOTA business comes from the word “evolutionary.” Accordingly, this business represents the cutting edge in terms of Toyota’s evolution, a business started in Japan that will lead the automobile industry into a new era, the scope of which has already been expanded overseas to Asia, China and North America. GAC Toyota Motor Co., Ltd. (GTMC), located in the city of Guangzhou in Guangdong, China, is engaged in flagship e-TOYOTA business projects. 　The basic strategy underlying our e-TOYOTA business, the spearhead of our next-generation business model, is to provide services that maximize customer satisfaction when searching for, purchasing and owning a vehicle, with all stages supported by an information network system. Rather than just planning IT solutions and tools, we apply them across the entire business domain, including production, distribution, sales and aftercare, aiming to establish an optimal link to the materialization of supply chain management. Taking Genchi Genbutsu to the Next Level From Design to Production, 100% Local Procurement: The Development of Vehicles Based on Regional Specifications From now on, the starting point for vehicle production will be the idea that the road makes the vehicle. Consumer needs differ by road maintenance conditions and fuel prices. To achieve growth in fast-growing, ever-changing developing nations, it is particularly important to make vehicles that take into consideration regional characteristics including consumer needs and road maintenance conditions. To this end, rather than the superimposition of a global model, the commercialization of the Etios, a compact car for the Indian market, represents a breakthrough in terms of construction methods that incorporated locally procured materials and local production technologies from the design stage. Aiming to create high-quality vehicles at affordable prices, we promoted localization, from the meticulous procurement of parts through the entire manufacturing process, as well as perfecting the optimal design for local conditions. We will use this experience and expertise to develop other emerging markets in countries around the world. ■ Transformation of Business Structure Traditional Business Structure Production Sales/Service Manufacturer Dealership Customer The car is a product. New Business Structure Customer Total Life Service Total Life Service Telematics Collaboration Dealership Manufacturer The car is an item to provide a lifestyle. TOYOTA ANNUAL REPORT 2010 TOYOTA ANNUAL REPORT 2010 7 Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Reforging Bonds of Trust Special Feature State-of-the-Art Developments for the Immense China Market Toward the Realization of Innovative Customer Relationships In 2004, GAC Toyota Motor Co., Ltd. (GTMC), was created as a factory that was the culmination of innovative technology and the latest equipment for that time. The factory was innovative in terms of equipment as well as the various elements that comprised its overall business approach, such as Just-In-Time, Jidoka, standardization, process management and other Toyota fundamentals. Kaizen (improvements) were implemented across the entire business domain by visualizing all vehicle-related operations in the areas of manufacturing, distribution, sales and aftercare service, affecting GTMC as well as dealerships. 　These activities have been put into practice as a result of the business revolution that united Toyota’s cutting-edge IT technology, knowledge gained through dealer operation improvements and cumulative human resource experience. Standardizing Service Quality Using e-CRB to Strengthen our Connection with Customers e-CRB (evolutionary customer relationship building) is a suite of IT systems centered on a cutting-edge customer management system that has significantly contributed to the standardization of service in the massive Chinese market. 　In 2009, the GTMC flagship dealer sold 4,300 new vehicles with the assistance of e-CRB in negotiations and the strengthening of customer relations. Supporting the ongoing approach of potential customers as well as regular contact with existing customers, the e-CRB assists with orders by standardizing and partitioning the various processes involved in sales and service activities and provides integrated management through IT. e-Dealers use e-CRB to share customer information with GTMC, which has been introduced at all GTMC dealer facilities. ■ CS Cycle of e-CRB Buy TOYOTA Satisfactory Purchase Experience Sophisticated Service-in Experience TCV 3D Sales Support System *2 Friendly & Reliable Delivery Experience Customer experience after purchase is categorized into five experiences: “Purchase Experience” “Delivery Experience,” “Owner Experience,” “Contact Experience,” and “Service-in Experience.” In each experience, e-CRB provides customers with exclusive and sophisticated experience. Express Maintenance Fast Inspection Service *5 SMB Appointment/Work Management System *1 e-CRB *3 SPM Sales Process Management System Owner Logs Exclusive Homepage for Owners *4 i-CROP Intelligent CR Management System Telematics Safety & Security, Remote Diagnostics Service Favorable Contact Experience Exclusive Owner Experience *1 e-CRB（evolutionary Customer Relationship Building） *2 TCV（Toyota Car Viewer） *3 SPM（Sales Process Management） *4 i-CROP（Intelligent Customer Relationship Optimization Program） *5 SMB（Service Management Board） *6 SLIM（Sales Logistics Integrated Management） *7 TOSS（Total Order Support System） A Favorable Contact Experience with i-CROP*4 i-CROP, the core of the e-CRB system, provides integrated customer relationship management and automatically creates customer approach plans for dealers involving periodic inspections and services, enabling timely follow-ups in conjunction with call centers, the Toyota Car Viewer (TCV) 3D negotiation support system and the Service Management Board (SMB) appointment and work management system. i-CROP uses customer information to coordinate after-sales customer support, aftercare service and vehicle replacement support, and provide a sophisticated dealer experience with a service that thoroughly meets the needs of each customer. Telematics Service for the Realization of Excellence in Customer Service As part of our efforts to provide a satisfying ownership experience in China, we developed the interactive information service G-BOOK, which makes use of an on-board telematics terminal. This system, which connects to e-CRB via a wireless network, is able to determine specific customer vehicle information, such as the timing of necessary maintenance. The service regularly gathers information regarding the status of vehicle operation and is able to determine vehicle speed and location, which enables it to understand what kind of region the purchased vehicle is being used in. G-BOOK is installed in high-end Camry and Crown vehicles, and almost all Lexus vehicles (excluding certain low-end models), and has been increasingly well received as a premium service. From 2010, we are expanding the application of G-BOOK to include low-end Camry vehicles to increase the penetration ratio. Extending the Kanban System to the Customer with the SLIM*6 Management Board The most advanced and specialized component of the IT system used by GTMC is the Sales Logistics Integrated Management (SLIM) system, a giant, multi-display management board that displays the real- time status of production, inventory, distribution and sales at a single glance. This system extends Toyota’s Kanban system by alerting users to excess or insufficient inventory conditions, changing production and distribution schedules, and allocating inventory to dealers as necessary. During the global financial crisis of autumn 2008, the SLIM management board showed high inventory levels, but emergency measures were executed with the aid of real-time information that enabled factory production to proceed without interruption. SLIM Management Board Responding to Chinese Customers’ Demand for Shorter Delivery Times with TOSS*7 The Total Order Support System (TOSS) makes further use of SLIM functionality to optimize the receipt and placement of orders at dealerships. TOSS regulates long-term inventory based on a cautionary notice regarding the difference between the number of ideal orders based on dealer sales performance and other factors, and the actual number of orders. In China, customers select the vehicles they want from available dealer inventories, which they then purchase and drive home as-is. Lost sales opportunities are a direct result of running out of top-selling vehicle inventory. TOSS facilitates high dealer inventory rotation while responding to Chinese customers’ demands for shorter delivery times. TOYOTA ANNUAL REPORT 2010 8 Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Reforging Bonds of Trust Special Feature ■ Overall System Outline of e-TOYOTA Business CUSTOMER DEALERSHIP DISTRIBUTOR G-BOOK Owner Homepage SMS Call Direct Mail Showroom TCV 3D Sales Support System New Car Yard IMS Inventory Management System *8 SLIM Management Board Call Center i-CMS Call Management System i-CROP Integrated CR Optimization Program Service Stall SMB Service Management Board Back Office SPM Sales Process Management System TOSS Total Order Support System SLIM Server TOSS *8 IMS（Inventory Management System） i-CROP i-SMS SMB Efforts toward the Establishment of Quality Service Changing Awareness through Human Resource Training In addition to the SLIM and e-CRB IT systems, GTMC’s true leadership lies in its efforts to transform the way working people think. These efforts focus on two areas, the first of which is the standardization of business operations. The process management and standardization that have been thoroughly implemented in our factory operations were also introduced in our on-site sales and aftercare services. e-CRB supports and displays the optimal movement of each employee. 　The other area of leadership involves human resource training. The smooth operation of excellent IT systems and customer visits to dealers, car sales and aftercare support are all activities conducted by people. Regardless of how superior the SLIM and e-CRB systems may be, if users neglect to register data into these systems, they will not work effectively. For this reason, the improvement of personnel skills is an important issue with regard to the operation of this mechanism. GTMC focuses efforts on human resource training for the stable operation of e-CRB, with particular emphasis on strengthening the structure for educating dealers with daily training and guidance efforts. 　In China, employees are extremely enthusiastic in their efforts to acquire advanced technologies and expertise. As a company created from the ground up and employing many young people with no previous training, GTMC has benefited from these improvements and is learning new operational skills. The e-CRB System Improves Customer Service and Employee Satisfaction We introduced the e-CRB system in August 2005. As a result, the daily recording of sales, CR and service staff activities has become a significant asset to our organization. Of course, this is also directly linked to our staff’s effectiveness and sense of achievement. In this way, we believe the e-CRB system contributes both to customer satisfaction (CS) and employee satisfaction (ES). e-Dealer Guangzhou Denker Lexus Ivan Yu, President Guangzhou Denker Lexus and e-CRB Guangzhou Denker Lexus is a Lexus dealership in Guangzhou, China, that opened in February 2005. In August of the same year, we launched the e-CRB system with the goal of improving customer satisfaction. Using i-CROP, we were able to consolidate the management of all service appointment information in one place as opposed to the former method, which was spread out across individual employee memos and computers. Furthermore, we are also able to share information regarding service appointments and work in progress via the SMB system. We established a specialized customer support division that uses e-CRB to develop regular customer follow-up activities. As a result, we are able to approach customers in a timely manner and have improved the retention ratio from 50% to 90%. Also, the introduction of System Trolleys in an attempt to improve operating efficiency during maintenance resulted in the reduction of time required for maintenance activities from one hour to 26 minutes. We have expanded the scope of the effective use of IT in sales activities such as potential customer follow-ups in an effort to continue providing customers with a high level of service every time we are in contact with them. System Trolley TOYOTA ANNUAL REPORT 2010 9 Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Meticulous Adherence to Customer Perspective and Genchi Genbutsu Toyota began introducing compact strategic vehicles into the Indian market in 2006, which were developed specifically for India rather than adapting existing global models for the Indian market. Based on the concept of providing an affordably priced vehicle that meets the demands of the Indian market, Toyota made painstaking efforts to understand local needs from the customers’ perspective and provide optimal products at an appropriate price in an attempt to increase demand. 　While thoroughly pursuing Toyota’s high QDR global standards regarding the strength and reliability of the basic performance aspects of “go, turn and stop,” we traveled around India, listening carefully to customer concerns with respect to sound and ride comfort, ease of operation and other performance- related areas, as well as the practicality of vehicle functions and equipment, in an effort to fully understand customer needs. 　At the same time, at the development stage, we made an effort to put our Genchi Genbutsu (on-site, hands-on experience) principles into practice by placing a priority on examining materials that can be procured locally and adopting structures and construction methods that are compatible with local production technology. The application of Genchi Genbutsu is not limited to India; this is how Toyota establishes solid positions in countries throughout the world. Etios is a newly developed compact vehicle in line with Toyota’s global strategy. The knowledge gained through the application of Genchi Genbutsu in India will be utilized by Toyota in other projects around the world. Etios (Hatchback) Reforging Bonds of Trust Special Feature Developing Products from the Customer’s Perspective in India’s High-Growth Market Development of New Compact Car Etios In recent years, the compact car market has been expanding rapidly, primarily in developing nations. This trend is also true in India, as customer demands for affordably priced, convenient vehicles are increasing by the day. Amid the rapid economic development of the past several years, India’s middle class has grown significantly, from 8% of households earning between 200 thousand and 1 million rupees in fiscal 2005 to 13% of households earning the same amount in fiscal 2009. One consequence of this trend was the sale of 2.27 million new vehicles in India in 2009, a 14% increase compared with the previous year. To achieve growth in the fast-growing Indian market, Toyota engineers personally conducted market research to review function and performance from a local perspective. The new compact car Etios is the result of these efforts. Toyota’s Position in the Indian Market In the Indian market in the second half of 2008, automotive manufacturers launched new models in the B-segment (subcompact), increasing the percentage of this segment in the passenger vehicle market. As a class of vehicles positioned to attract new customers, B-segment or smaller vehicles are expected to continue to play an important role in the market. 　Toyota has established an image as a top-name brand in India because of our achievement of advanced levels of quality, durability and reliability (QDR) with models such as the Corolla, Camry, Innova, Fortuner and Land Cruiser. However, until now, Toyota did not offer entry-level vehicles for Indian customers. This was what led to Toyota’s development of a compact vehicle that sought to provide high QDR standards at an affordable price. ■ Forecast of Vehicle Market in India ■ Sales Forecast of Toyota Vehicles （Thousands of units） （Thousands of units） 4,000 3,000 2,000 1,000 0 FY 1,989 1,900 236 253 254 265 2,150 295 300 3,000 3,000 2,500 355 350 376376 413413 3,500 630630 590590 570570 550550 1,150 1,150 2008 2009 2010 2011 2012 2015 400 300 200 100 0 FY (10%) (5.7%) (2.6%) 2008 2009 2010 2011 2012 2015 Commercial vehicles Others B-segment sedans B-segment hatchbacks A-segment Etios/Etios Liva Foriuner Innova Others Corolla （Data compiled by TMC） Note: Figures in parentheses indicate market share. （Data compiled by TMC） TOYOTA ANNUAL REPORT 2010 10 Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Reforging Bonds of Trust Special Feature Etios Development High QDR Features at an Affordable Price High QDR features at an affordable price are indispensable in India. Toyota began developing its first B-segment car for the Indian market by placing the highest priority on developing an affordably priced vehicle that is within reach of middle-class (family users) while providing value that is a step above the average and focusing on three selling points: “Highest Quality in its Class” with the inheritance of Toyota QDR, “Comfortable and Enjoyable Space for All” with superior seating comfort and storage and “Refined Style” that is unique to the market. Global Safety Standards Toyota conducted thorough safety research with regard to the Indian Etios. Customers in India often use vehicles to transport family members to and from different locations and on trips. Therefore, a sense of security when transporting precious family members is an essential requirement. Toyota pursued safety performance from both active and passive perspectives, focusing on safety requirements that surpass those of the competition. Local Climate Countermeasures In addition, when creating measures to counter the rusting and flooding that are possible in India’s diverse climate, we began by determining the areas on the body where rusting most easily occurs. To this end, body engineers traveled all over India, from coastal to inland regions, to verify areas prone to rusting and the severity of its occurrence. Based on this information, we are one of the few companies to adopt a rust-resistant sheet for sensitive areas. In consideration of the road flooding that frequently occurs during the rainy season in India, parts easily damaged by water, such as electrical components, sensors and shock absorbers, were designed to alleviate moisture- related problems and ensure high reliability. 　By selecting functions and equipment deemed necessary from the customers’ perspective, the Etios truly embodies the idea of a high-quality vehicle at an affordable price based on Toyota’s high standards of quality, durability and reliability. Recognizing the Need to Achieve High QDR at an Affordable Price Yoshinori Noritake Toyota Passenger Vehicle Development Center 2 Chief Engineer “In 2006, I visited India to determine the price range that was affordable to customers there and find out exactly what customers were looking for in terms of performance, functions and equipment. During my visit, I encountered severe weather, narrow roads, chronic traffic congestion and rough road surfaces, and observed that parking spaces were extremely limited. Experiencing this environment first hand, I understood the importance of B-segment cars to this market and was able to gain first-hand knowledge of the basic performance most suited to this environment. 　After our visit, we interviewed and surveyed a total of 700 customers in the summer of 2006 to clearly identify and further understand what is important to customers when purchasing a B-segment car. We found that cost, fuel efficiency, space and style are all major concerns. We also discovered that Indians expect vehicles to break down and that they are prepared to fix them if they do. 　By creating a vehicle that thoroughly incorporated these findings and provided performance and equipment at a price consistent with the customers’ perspective, we felt confident that demand from Indian customers would be high. We also recognized that, by incorporating Toyota’s strong QDR qualities to introduce a “failure-proof car” into the market, we would also be able to reduce running costs and pleasantly surprise customers who have come to expect breakdowns as a fact of life. It was in this spirit that the Etios was created as an affordably priced vehicle that is a class above the competition. 　The name Etios is based on the Greek word “ethos,” which means spirit, character and ideals. When we conducted local preference surveys to determine which name resonated most strongly with the people of India, Etios stood out as the overwhelming choice. 　The Etios was developed and designed from the perspective of customers in India and is produced in India. By injecting Toyota QDR into every detail of the vehicle, we were able to create a high-quality vehicle at an affordable price offering the essential functions, performance and equipment demanded by customers in India.” Etios (Sedan) TOYOTA ANNUAL REPORT 2010 11 Consolidated Performance Highlights Consolidated Performance Highlights Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information ■ Consolidated Performance (U.S. GAAP) ■ Consolidated Vehicle Production and Sales Yen in millions U.S. dollars* in millions % change Thousands of units % change 2008 2009 2010 2010 2010 vs. 2009 2008 2009 2010 2010 vs. 2009 For the Year: Net Revenues ............................................ ¥26,289,240 ¥20,529,570 ¥18,950,973 $203,687 Operating Income (Loss) ...................... 2,270,375 （461,011） Net Income (Loss) ..................................... 1,717,879 （436,937） ROE .................................................................. 14.5% - 4.0% 147,516 209,456 2.1% 1,586 2,251 ̶ At Year-End: Total Assets ................................................. ¥32,458,320 ¥29,062,037 ¥30,349,287 Shareholders’ Equity .............................. 11,869,527 10,061,207 10,359,723 $326,196 111,347 -7.7 ̶ ̶ ̶ +4.4 +3.0 2008 ¥540.65 140.00 3,768.97 Per Share Data: Net Income (Loss) (Basic) ...................... Annual Cash Dividends ....................... Shareholders' Equity .............................. Stock Information (March 31): Stock Price .................................................... Market Capitalization (Yen in millions, U.S. dollars in millions) ..... Yen 2009 U.S. dollars* % change 2010 2010 2010 vs. 2009 ¥ （139.13） 100.00 ¥ 66.79 45.00 3,208.41 3,303.49 $0.72 0.48 35.51 ̶ -55.0 +3.0 +20.0 +20.0 ¥4,970 ¥3,120 ¥3,745 $40.25 ¥17,136,548 ¥10,757,752 ¥12,912,751 $138,787 * U.S. dollar amounts have been translated at the rate of ¥93.04=US$1, the approximate current exchange rate at March 31, 2010. ■ Net Revenues by Regions Vehicle Production by Region: Japan ................................................................................................. Overseas Total ................................................................................ 　North America ........................................................................... 　Europe .......................................................................................... 　Asia ................................................................................................ 　Central and South America ................................................... 　Oceania ........................................................................................ 　Africa ............................................................................................. 5,160 3,387 1,268 711 961 150 149 148 4,255 2,796 919 482 947 151 130 167 Consolidated Total ....................................................................... 8,547 7,051 Vehicle Sales by Region: Japan ................................................................................................. Overseas Total ................................................................................ 　North America ........................................................................... 　Europe .......................................................................................... 　Asia ................................................................................................ 　Central and South America ................................................... 　Oceania ........................................................................................ 　Africa ............................................................................................. 　Middle East ................................................................................. 　Other ............................................................................................ 2,188 6,725 2,958 1,284 956 320 289 314 597 7 1,945 5,622 2,212 1,062 905 279 261 289 606 8 3,956 2,853 1,042 433 1,021 146 106 105 6,809 2,163 5,074 2,098 858 979 231 251 184 466 7 Consolidated Total ....................................................................... 8,913 7,567 7,237 -7.0 +2.0 +13.4 -10.2 +7.8 -3.2 -18.7 -37.3 -3.4 +11.2 -9.7 -5.2 -19.2 +8.3 -17.2 -3.9 -36.2 -23.1 -19.3 -4.4 （¥ Billion） 16,000 12,000 8,000 4,000 0 Japan North America Europe Asia Other Regions ■ Principal Market Data: Automotive Market (Sales) Japan United States Europe Asia China (Thousands of units) 20,000 15,000 10,000 5,000 0 FY ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 Note: Fiscal years ended March 31 TOYOTA ANNUAL REPORT 2010 TOYOTA ANNUAL REPORT 2010 ʼ05 ʼ06 ʼ07 ʼ08 ʼ09 CY Source: Toyota Motor Corporation　 Note: Market definitions Europe: Germany, France, the United Kingdom, Italy, Spain, the Netherlands, Belgium, Portugal, Denmark, Greece, Ireland, Sweden, Austria, Finland, Switzerland, Norway, Poland, 　　　　Hungary, and the Czech Republic 　　　　　　 Asia: Indonesia, Thailand, the Philippines, Malaysia, Singapore, Vietnam, Taiwan, South Korea and Brunei Darussalam Japan: minivehicles included ʼ09 ʼ09 ʼ09 ʼ08 ʼ07 ʼ06 ʼ05 ʼ08 ʼ07 ʼ06 ʼ05 ʼ08 ʼ07 ʼ06 ʼ05 ʼ08 ʼ07 ʼ06 ʼ05 ʼ09 12 Automotive Operations (Market Environment and Overview) Business Overview Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Automotive Operations Financial Services Operations Other Business Operations Motorsports Activities ■ Net Revenues （¥ Billion） 25,000 20,000 15,000 10,000 5,000 0 FY ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 Note: Fiscal years ended March 31 ■ Operating Income （¥ Billion） 2,200 2,000 1,800 1,600 400 200 0 -200 -400 FY ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 　Net revenues in Japan declined 7.9%, or ¥966.4 billion, to ¥11.2 trillion, while cost-reduction efforts and lower fixed costs resulted in an operating loss of ¥225.2 billion, a ¥12.3 billion improvement over the ¥237.5 billion operating loss in the previous fiscal year. North America Although impacted by the recall, the market recovery trend and improved earnings in the Financial Services Operations led to significant improvements in the North American Automotive Operations. Consolidated vehicle sales declined 5.2%, or 114 thousand units, to 2.10 million units. Our U.S. market share was 17%, with Lexus sales of approximately 25 thousand units. Consolidated production increased 13.4%, to 1.04 million units. 　Net revenues in North America decreased 8.9%, or ¥552.4 billion, to ¥5.7 trillion. Operating income was ¥85.4 billion, ¥475.6 billion higher than the previous year, reflecting our efforts to reduce fixed costs and Toyota continued its efforts to manufacture vehicles that meet the needs of countries and achieve cost reduction, a decrease in allowance for credit and residual value losses in our finance services regions and strengthen its initiatives regarding environmentally friendly models. While the subsidiaries and in gains on interest rate swaps and certain other instruments stated at fair value. severe operating environment reduced revenue in each region in fiscal 2010, thorough efforts to improve earnings resulted in improved operating income in all regions. M a r k e t E n v i r o n m e n t a n d P e r f o r m a n c e S u m m a r y During the year, Automotive Operations in China, India and other emerging markets continued to expand, and stimulus measures supported demand in developed countries. Nevertheless, overall market conditions remained difficult, owing to a demand shift toward compact, more affordably priced vehicles. 　Amid these conditions, Toyota’s consolidated vehicle sales declined 330 thousand units, or 4.4%, to 7.24 million units. Consolidated vehicle production also decreased 242 thousand units, or 3.4%, to 6.81 million units. In addition to lower vehicle production and sales, performance was also impacted by currency exchange fluctuations, resulting in a 7.4% decrease in net revenues to ¥17.2 trillion. In terms of operating income, cost-reduction efforts and decreased fixed costs resulted in an operating loss of ¥86.3 billion, a ¥308.5 billion improvement over the ¥394.8 billion operating loss in the previous fiscal year. 　Performance by geographic segments was as follows. Europe Consolidated vehicle sales in Europe during the period under review declined 19.2%, or 204 thousand units, to 858 thousand units. 　Toyota’s European market share (25 countries) was 5.7%. Lexus sales totaled approximately 26 thousand units. 　Consolidated production declined 10.2%, to 433 thousand units. 　Net revenues decreased 28.7%, or ¥866.1 billion, to ¥2.1 trillion. In terms of operating income, efforts to reduce fixed costs and achieve cost reduction resulted in an operating loss of ¥33.0 billion, a ¥110.3 billion improvement over the ¥143.3 billion operating loss in the previous fiscal year. Asia Led by robust sales in Taiwan and Thailand, consolidated vehicle sales in Asia grew 8.2%, or 74 thousand units, to 979 thousand units. Consolidated production increased 7.8%, to 1.02 million units. 　Although net revenues declined 2.4%, or ¥64.0 billion, to ¥2.7 trillion, operating income increased 15.6%, or ¥27.5 billion, to ¥203.6 billion as a result of increases in production and sales. Furthermore, unit sales* in China, where growth is expected to continue, grew 21.2%, to 716 thousand units in 2009. * Unit sales figures for China include domestically produced units as well as units imported from Japan. Japan Fiscal 2010 consolidated domestic sales increased 11.2%, or 218 thousand units, to 2.16 million units as a result of the aggressive introduction of new products and the sales efforts of domestic dealers. Toyota and Lexus market shares excluding minivehicles were 48.2% and 44.3% including minivehicles, both of which represent the highest market share yet achieved by Toyota. Furthermore, Lexus sales totaled Central and South America, Oceania, Africa, the Middle East, etc. Toyota’s consolidated vehicle sales in all these regions were sluggish in fiscal 2010, declining 21.1%, or 304 thousand units, to 1.14 million units in total. Consolidated production in Central and South America, Oceania and Africa decreased 20.3%, or 91 thousand units, to 357 thousand units. 　As a result, net revenues declined 11.1%, or ¥209.1 billion, to ¥1.7 trillion, while net income approximately 37 thousand units. Consolidated vehicle production declined 7.0%, to 3.96 million units. increased 31.8%, or ¥27.9 billion, to ¥115.5 billion. TOYOTA ANNUAL REPORT 2010 13 Automotive Operations (Market Environment and Overview) Business Overview Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Automotive Operations Financial Services Operations Other Business Operations Motorsports Activities Future Growth Strategy in Consideration of Issues during the Past Year Restoring Our Profit Base: Production Restructuring Plan While proactively investing in growth areas, we will strive to realize a muscular profit structure that is relatively impervious to changes in the business environment. While In consideration of the various issues faced during the past year, Toyota’s growth increasing local production in emerging markets such as China and India, in developed strategy for the continued realization of Genchi Genbutsu and high quality at countries with mature markets, including Japan, North America and Europe, we will review affordable prices will center on a thorough customer-first perspective. Specifically, production models in response to changes in the market structure and create a flexible we will review our product lineups to match customer needs in each region and and efficient production system that is resistant to exchange rate fluctuations to realize an create a production system that responds to changes in market structure while optimal global supply system with clearly positioned strategies in each region. optimally allocating resources in areas where we want to advance. Accelerating Growth: Support for Developing Nations and Next-Generation Eco-Cars To accelerate growth, we are placing a priority on business in developing nations and on next-generation eco-cars. 　First, with regard to developing nations, we will promote the expansion of product lineups primarily in China and India, as well as the development of a production system. In fast-growing China, a new plant was built in Changchun to further expand production capacity in response to local demand, with operation scheduled to commence in the first half of 2012. To expand Toyota’s product lineup, we have begun local production of the Camry hybrid, following the Prius. Furthermore, in the Indian market, the newly developed Etios compact car, designed to thoroughly meet the needs of local drivers, is scheduled to go on sale at the end of this year. 　Second, with regard to our priority focus on next-generation eco-cars, we plan on raising the level of hybrid technology and expanding models. As for plug-in hybrid vehicles (PHVs), we have begun aggressive efforts toward a 2012 sales launch. In terms of electric vehicles (EVs), in May we announced a business partnership with Silicon Valley EV venture Tesla Motors with the aim of strengthening our next-generation eco-car development structure. Region Strategic Positioning North America An important base in terms of volume and profitability Production System Reviews P r o m o t e s e l f - r e l i a n c e f r o m d e v e l o p m e n t t o p r e - p r o d u c t i o n t o production in an attempt to revamp the production structure, taking into consideration local demand trends and the future of hybrid and compact vehicles. Europe A market for further improved technology Engage in the building of appealing vehicles and consider production structure while monitoring product trends. Japan A base for developing models, providing assistance to our overseas operations and for building vehicles for export Taking external environment into account, broadly review our current production structure. ・Thorough review of domestic production model Conduct mass production of export vehicles in regions where demand 　exists, and produce models focusing on new technologies, new 　concepts and new manufacturing methods. ・C r e a t e a f l e x i b l e a n d e f f i c i e n t p r o d u c t i o n s t r u c t u r e t h a t c a n 　respond to changes in demand 　C r e a t e a p r o d u c t i o n s t r u c t u r e c e n t e r e d o n t h e s a m e t y p e s o f 　platform, including the introduction of mixed production lines. ・“Stop and Consolidate” domestic production facilities 　Maintain current production levels by evening out plant and line 　utilization rates to increase efficiency. TOYOTA ANNUAL REPORT 2010 14 Financial Services Operations Business Overview Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Automotive Operations Automotive Operations Financial Services Operations Other Business Operations Motorsports Activities ■ Net Revenues （¥ Billion） 1,500 1,000 500 0 FY ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 ■ Operating Income （¥ Billion） 250 200 150 100 50 0 -50 -100 FY 　Our financial services operations are primarily handled by Toyota Financial Services Corporation (TFS), which has overall control of financial services subsidiaries worldwide. TFS provides financial services primarily for vehicle purchases and leases to approximately 8.1 million customers in 33 countries and regions worldwide. 　Operating activities during the period under review included enhancing our relationships with distributors by providing financial products and services that met various national and regional customer characteristics among regional strategies. New lending share remained high. ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 　In Japan, in addition to automotive financing, TFS broadens customer relationships through Note: Fiscal years ended March 31 the provision of credit cards, home loans and other sound financial services designed to meet the Toyota provides automotive financing and other financial services designed to meet customer needs and respond to regional characteristics that contribute to the sales promotion of Group products. Despite a decline in revenues reflecting the challenging operating environment, a thorough response to various risks and the expansion of lending margins resulted in increased income. ■ Financial Services Operations Organization ■ Overview of Toyotaʼs Financial Services Operations Toyota Motor Corporation Toyota Financial Services Corporation Total assets ¥13.3 trillion Net revenues ¥1.2 trillion Operating income ¥247.0 billion Operating areas 33 countries and regions worldwide No. of employees approx. 8,000 (As of March 31, 2010) Overseas Sales Finance Companies Toyota Finance Corporation Toyota Asset Management Co., Ltd. M a r k e t E n v i r o n m e n t a n d P e r f o r m a n c e S u m m a r y In fiscal 2010, our financial services operations generated operating income of ¥246.9 billion. This was primarily due to expanded margins resulting from a decrease in allowance for credit and residual value losses caused by the business recovery in the second half and continued low interest rates as a result of liquidity provided by the governments of various countries. intimate needs of our customers. 　Overseas, in an attempt to develop business in emerging markets TFS increased its number of sales bases in China from 27 cities at the beginning of the year to 66 cities, progressing inland from coastal cities to the interior of the country. 　In such major markets as Europe and the United States, TFS aims for further income growth amid severe business conditions by working to secure margins and achieve thorough low-cost operations with consideration for vehicle sales support and the balancing of business risks. 　To respond to dramatic changes in the business environment, TFS will actively strengthen its internal controls and business infrastructure, focusing on the IT platform, human resource development in management and other enhancements to the business platform to further develop groupwide compliance and risk management structures. ■ Financial Services Operations Organization ■ Overview of Toyotaʼs Financial Services Operations Toyota Motor Corporation Toyota Financial Services Corporation Total assets ¥13.3 trillion Net revenues ¥1.2 trillion Operating income ¥247.0 billion Operating areas 33 countries and regions worldwide No. of employees approx. 8,000 (As of March 31, 2010) Overseas Sales Finance Companies Toyota Finance Corporation Toyota Asset Management Co., Ltd. TOYOTA ANNUAL REPORT 2010 TOYOTA ANNUAL REPORT 2010 15 Other Business Operations Business Overview Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Automotive Operations Automotive Operations Financial Services Operations Other Business Operations Motorsports Activities ■ Net Revenues （¥ Billion） ■ Operating Income （¥ Billion） 1,400 1,300 1,200 1,100 1,000 0 FY ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 Note: Fiscal years ended March 31 40 30 20 10 0 -10 FY ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 Toyota uses technologies and expertise gained from automotive operations to operate a variety of businesses that help people lead more fulfilling and enjoyable lives. Although the number of homes sold in the core housing business continued to improve, overall sales in this segment were lower than last year, resulting in decreased revenues and income in fiscal 2010. M a r k e t E n v i r o n m e n t a n d P e r f o r m a n c e S u m m a r y In fiscal 2010, net revenues of other business operations declined ¥237.3 billion, or 20.0%, to ¥947.6 billion and operating income decreased ¥18.8 billion, to a loss of ¥8.9 billion. This was due to sales decreases in the information technology and telecommunications business and other businesses, although the number of home sales in the housing business—a core business in this segment—fell slightly from the previous year. 　Other business operations include the intelligent transport systems, information technology and telecommunications, e-TOYOTA, housing, marine, and biotechnology and afforestation businesses. In all these operations, we are fostering a workplace culture that encourages creativity and entrepreneurship. Also, we are seeking ideas for new businesses outside the Toyota Group as another key aspect in order to create future core businesses. Intelligent Transport Systems Business Toyota is involved in the planning and development of products and services for Intelligent Transport Systems (ITS). We view this technology as a valuable way to link motor vehicles and transportation infrastructures, thereby contributing to sustainable economic development. 　We are continuing work on the creation of vehicle–infrastructure cooperative systems that support safe driving so that traffic accidents of the future can be prevented more effectively than current safety technologies allow. To this end, we participated in road tests and public demonstrations in various regions through the cooperation of the public and private sectors. 　In the fall of 2009, Toyota developed a DSRC* unit that provides drivers with information about obstacles on the road ahead. This technology has been introduced into the roadway infrastructure with units already installed in some vehicles. * 5.8 GHz dedicated short-range communications. Additional details available at URL TOYOTA ANNUAL REPORT 2010 Information Technology and Telecommunications Business In addition to serving as a sales agency for cell phones provided by KDDI Corporation, a general telecommunications service provider, Toyota is engaged in the planning and commercialization of services that integrate vehicles and cell phones. Toyota is enhancing the comfort of cars with car navigation system technology that makes use of wireless Bluetooth® communications*, the hands-free telephone technology, enabling the playback of songs that have been downloaded on a cell phone, and the Seamless Navigation System, which allows users to enter a destination by transferring store and facility location data obtained with a cell phone. * Bluetooth® is a wireless technology that uses short length radio waves to enable communications between cell phones and other devices over short distances. e-TOYOTA Business Toyota is developing e-TOYOTA business operations to facilitate the integration of IT services and automobiles. We designed and developed the GAZOO members-only automobile portal site, a three-dimensional virtual city called TOYOTA METAPOLIS, and other services. In the field of telematics, we are developing G-BOOK/G-Link, an information service for onboard terminals, with other telematics services planned for China and other countries. Additional details available at URL Housing Business Since Toyota entered the housing business in 1975, Toyota Home operations have expanded to provide homes offering high durability and earthquake resistance, as well as excellent security, health and environmental features. From January 2010, we began using the catch all phrase Eco-Mirai Home as an expression of the product features involved in our building environment- friendly homes that conserve and create energy while having the durability to last for many years. Our Sincé home series, which reduce overall household CO2 emissions, received a special award for energy and CO2 conservation at the House of the Year in Electric 2009 Awards in Japan. Additional details available at URL Marine Business In the marine business, Toyota manufactures and sells pleasure boats, marine engines and a variety of marine components. All products take full advantage of our engine technologies and other advanced technologies cultivated during years of automotive manufacturing. 　Our PONAM-28L luxury fishing cruiser received the first Japan Boat of the Year award in March 2009 and the Good Design Award in October 2009. Additional details available at URL Biotechnology and Afforestation Business Toyota is making every effort to contribute to the creation of a resource recycling society through its biotechnology and afforestation operations. 　Following previous afforestation and forestry development projects in Australia, the Philippines and China, we are engaged in a forest restoration model project in the town of Odaicho, located in Japan’s Mie Prefecture. 　We are proactively developing floriculture, roof gardening and bio-plastic businesses, and in September 2009 we were awarded the Ministry of Land, Infrastructure, Transport and Tourism Award at the Eighth Competition for Specialized Greening Technology for Rooftops, Wall Facings and New Green Spaces for greening activities focused on the wall at the Tressa Yokohama north wing. 　In August 2009, we concluded our sweet potato cultivation and processing operations in Indonesia, moving them to the tropical resource crop research institute. Additional details available at URL 16 Motorsports Activities Business Overview Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Automotive Operations Financial Services Operations Other Business Operations Motorsports Activities Toyota views motorsports activities as a valuable component of the process of conceiving vehicles that embody dreams and excitement. Formula Nippon In Formula Nippon, the premier formula racing category in Japan, Toyota supplied RV8K V8 3.4-liter engines for eight cars driven by five racing teams. In 2010, we aim to recapture the title with a car A c t i v i t i e s S u m m a r y powered by a Toyota engine. In 2009, Toyota was a prominent participant at the highest levels of automobile racing, including the Formula One World Championship (F1) races around the globe, SUPER GT and Formula Nippon series races in Japan, and NASCAR* races in the United States. In addition, we played a part in developing young drivers through activities including the Toyota Young Drivers Program (TDP). 　In 2010, we will continue to participate in the top categories of SUPER GT, Formula Nippon and NASCAR and develop the skills of young drivers through TDP activities while increasing our involvement this year in motorsports activities in which customers participate. * The National Association for Stock Car Auto Racing (NASCAR) is the largest sanctioning body of stock car racing in the United States, consisting of a 　variety of race series using modified stock cars run primarily on the North American continent. NASCAR In the NASCAR Sprint Cup Series, NASCAR’s highest-ranking races, as well as the Nationwide Series, we captured the series championship for the second consecutive year in 2009 with the Toyota Camry, and look for another victory this year. 　The Toyota Tundra will again compete in the NASCAR Camping World Truck Series, where we have captured the manufacturer’s championship for four straight years. Toyota Young Drivers Program (TDP) This program supports the ongoing skills development of promising young drivers with the objective of cultivating talented racing drivers to compete in top category races in Japan and SUPER GT On the domestic racing scene, Toyota Technocraft Co., Ltd. (TRD), supported teams running the overseas. Lexus SC430 vehicles participated in GT500 races, the top class of SUPER GT. In the GT300 class, Grassroots Motorsports Activities we provided support for teams racing the Lexus IS350 and Toyota Corolla Axio. In 2009, the We support customer-participatory programs such as the Hybrid Driving Challenge through the GT500 and GT300 class driver and team each won top awards. promotion of GAZOO Racing activities, which convey the dreams and excitement of automobiles Additional details available at URL and enable participants to experience motor sports and circuits firsthand. 　Also, the Lexus LFA was the winner in its class* at the 2010 24-Hour Nürburgring race, where it competed for the third straight year. * Close-to-production engine (4,000 cc to 6,250 cc class). SUPER GT Formula Nippon NASCAR Grassroots Motorsports: the Hybrid Driving Challenge Winning TDP drivers in the GT500 class (Center left: Hiroaki Ishiura; center right: Kazuya Oshima) <2010 SUPER GT, Race 3> TOYOTA ANNUAL REPORT 2010 TOYOTA ANNUAL REPORT 2010 17 R&D and Intellectual Property Corporate Information Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information R&D and Intellectual Property Corporate Philosophy Management Team Corporate Governance Risk Factors Other Management and Corporate Data Toyota R&D is dedicated to the development of attractive, affordable, high-quality products for customers worldwide. The intellectual property that R&D generates is a vital management resource that Toyota utilizes and protects to maximize its corporate value. R&D Guiding Principles ● Providing clean and safe products and enhancing the quality of life of people everywhere through all our activities. ● Pursuing advanced technological development in a wide range of fields, we pledge to provide attractive products and services that respond to the needs of customers worldwide. R&D Activities The overriding goal of Toyota’s technology and product development activities is to minimize the Basic Research Development theme discovery Research on basic vehicle-related technology Forward-Looking and Leading-Edge Technology Technological breakthroughs related to components and systems Development of leading-edge components and systems ahead of Development competitors Product Development Primary responsibility for new model development Development of all-new models and existing-model upgrades R&D Expenditures In fiscal 2010, R&D expenditures totaled ¥725.3 billion, down 19.7% from the previous fiscal year, representing 3.8% of consolidated net revenues. We worked closely with suppliers to develop components and products more efficiently and took steps to reduce our own R&D expenses. At the same time, we plan to continue making substantial investments in R&D involving forward- looking, leading-edge technologies and the development of products associated with the negative aspects of driving, such as traffic accidents and the burden that automobiles have on the environment, energy, and safety. These investments are essential to preserving our competitive environment, and maximize the positive aspects, such as driving pleasure, comfort, and convenience. edge in terms of technologies and products. By achieving these sometimes conflicting goals to a high degree, we want to open the door to the automobile society of the future. 　To ensure efficient progress in R&D activities, we coordinate and integrate all phases, from basic research R&D Organization Toyota operates a global R&D organization with the primary goal of building automobiles that to forward-looking technology and product development. With respect to such basic research issues precisely meet the needs of customers in every region of the world. as energy, the environment, information technology, telecommunications, and materials, projects are 　In Japan, R&D operations are led by Toyota Central Research & Development Laboratories, regularly reviewed and evaluated in consultation with outside experts to achieve efficient R&D cost control. Inc., which works closely with Daihatsu Motor Co., Ltd., Hino Motors, Ltd., Toyota Auto Body Co., And with respect to forward-looking, leading-edge technology and product development, we establish Ltd., Kanto Auto Works, Ltd., and many other Toyota Group companies. Overseas, we have a cost-performance benchmarks on a project-by-project basis to ensure efficient development investment. worldwide network of technical centers as well as design and motorsports R&D centers. ■ R&D Expenses （¥ Billion） 1,000 800 600 400 200 0 FY ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 Note: Fiscal years ended March 31 TOYOTA ANNUAL REPORT 2010 Please click here for further details on domestic and overseas R&D bases. 18 R&D and Intellectual Property Corporate Information Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information R&D and Intellectual Property Corporate Philosophy Management Team Corporate Governance Risk Factors Other Management and Corporate Data Intellectual Property Guiding Principle ● Securing greater corporate flexibility and maximizing corporate value through the appropriate acquisition and utilization of intellectual property. Intellectual Property Activities Toyota’s competitiveness springs from the forward-looking R&D stance that is instrumental to core strengths associated with products and technologies. Underlying each new product that emerges from R&D, there are always intellectual properties such as inventions and expertise that we value as important management resources. Intellectual Property Systems R&D and intellectual property activities are organizationally linked to enable us to focus on selected development themes and build a strong patent portfolio. We have established an Intellectual Property Committee made up of individuals involved with management, R&D, and intellectual property. This committee acquires and utilizes important intellectual property that contributes to business operations and helps determine policies for management risks associated with intellectual property. Intellectual Property Strategies Toyota carefully analyzes patents and the need for patents in each area of research to formulate more effective R&D strategies. We identify R&D projects in which Toyota should acquire patents, and file relevant applications as necessary to help build a strong global patent portfolio. In addition, we want to contribute to sustainable mobility by promoting the spread of technologies with environmental and safety benefits. This is why we take an open stance to patent licensing, and grant licenses when appropriate terms are met. A good example of this policy is the licensing to other companies of patents in the area of hybrid technology, which is one of our core technologies involving environmental energy. TOYOTA ANNUAL REPORT 2010 19 Corporate Philosophy Corporate Information Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information R&D and Intellectual Property Corporate Philosophy Management Team Corporate Governance Risk Factors Other Management and Corporate Data Since its foundation, Toyota has continuously strived to contribute to the sustainable development of society through the manufacturing and provision of innovative and quality products and services that lead the times. The foundations of these endeavors are the Guiding Principles at Toyota and the CSR* Policy: Contribution towards Sustainable Development. *CSR = Corporate Social Responsibility Guiding Principles at Toyota The Guiding Principles at Toyota (adopted in 1992 and revised in 1997) reflect the kind of CSR Policy: Contribution towards Sustainable Development CSR Policy: Contribution towards Sustainable Development (adopted in 2005 and revised in 2008) company that Toyota seeks to be in light of the unique management philosophy, values, and explains how we adapt the Guiding Principles at Toyota with regards to social responsibilities to methods that it has embraced since its foundation. Toyota hopes to contribute to society through our stakeholders. its corporate activities based on understanding and sharing of the Guiding Principles at Toyota. 1) Honor the language and spirit of the law of every nation and undertake open and fair corporate activities to be a good corporate citizen of the world. 2) Respect the culture and customs of every nation and contribute to economic and social development through corporate activities in the communities. 3) Dedicate ourselves to providing clean and safe products and to enhancing the quality of life everywhere through all our activities. 4) Create and develop advanced technologies and provide outstanding We, TOYOTA MOTOR CORPORATION and our subsidiaries, take initiative to contribute to harmonious and sustainable development of society and the earth through all business activities that we carry out in each country and region, based on our Guiding Principles. 　We comply with local, national and international laws and regulations as well as the spirit thereof and we conduct our business operations with honesty and integrity. 　In order to contribute to sustainable development, we believe that management interacting with its stakeholders as described on the following page is of considerable importance, and we will endeavor to build and maintain sound relationships with our stakeholders through products and services that fulfill the needs of customers worldwide. open and fair communication. 5) Foster a corporate culture that enhances individual creativity and teamwork value, while honoring mutual trust and respect between labor and management. 6) Pursue growth in harmony with the global community through innovative management. 7) Work with business partners in research and creation to achieve stable, long- term growth and mutual benefits, while keeping ourselves open to new partnerships. 　We expect our business partners to support this initiative and act in accordance with it. TOYOTA ANNUAL REPORT 2010 20 Corporate Philosophy Corporate Information Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information R&D and Intellectual Property Corporate Philosophy Management Team Corporate Governance Risk Factors Other Management and Corporate Data Customers Based on our philosophy of “Customer First,” we develop and provide ■ Shareholders ■ We strive to enhance corporate value while achieving a stable and innovative, safe and outstanding high-quality products and services that meet a wide variety of customers’ demands to enrich the lives of people around the world. (Guiding Principles 3 and 4) ■ We will endeavor to protect the personal information of customers and everyone else we are engaged in business with, in accordance with the letter and spirit of each country’s privacy laws. (Guiding Principles 1) Employees ■ We respect our employees and believe that the success of our business is led by each individual’s creativity and good teamwork. We stimulate personal growth for our employees. (Guiding Principles 5) ■ We support equal employment opportunities, diversity and inclusion for our employees and do not discriminate against them. (Guiding Principles 5) ■ We strive to provide fair working conditions and to maintain a safe and healthy working environment for all our employees. (Guiding Principles 5) ■ We respect and honor the human rights of people involved in our business and, in particular, do not use or tolerate any form of forced or child labor. (Guiding Principles 5) ■ Through communication and dialogue with our employees, we build and share the value “Mutual Trust and Mutual Responsibility” and work together for the success of our employees and the company. We recognize our employees’ right to freely associate, or not to associate, complying with the laws of the countries in which we operate. (Guiding Principles 5) ■ Management of each company takes leadership in fostering a corporate culture, and implementing policies, that promote ethical behavior. (Guiding Principles 1 and 5) Business Partners ■ We respect our business partners such as suppliers and dealers and work with them through long-term relationships to realize mutual growth based on mutual trust. (Guiding Principles 7) ■ Whenever we seek a new business partner, we are open to any and all candidates, regardless of nationality or size, and evaluate them based on their overall strengths. (Guiding Principles 7) ■ We maintain fair and free competition in accordance with the letter and spirit of each country’s competition laws. (Guiding Principles 1 and 7) long-term growth for the benefit of our shareholders. (Guiding Principles 6) ■ We provide our shareholders and investors with timely and fair disclosure on our operating results and financial condition. (Guiding Principles 1 and 6) Global Society/ Environment Local Communities ■ We aim for growth that is in harmony with the environment by seeking to minimize the environmental impact of our business operations, such as by working to reduce the effect of our vehicles and operations on climate change and biodiversity. We strive to develop, establish and promote technologies enabling the environment and economy to coexist harmoniously, and to build close and cooperative relationships with a wide spectrum of individuals and organizations involved in environmental preservation. (Guiding Principles 3) Community ■ We implement our philosophy of “respect for people” by honoring the culture, customs, history and laws of each country. (Guiding Principles 2) ■ We constantly search for safer, cleaner and superior technology that satisfy the evolving needs of society for sustainable mobility. (Guiding Principles 3 and 4) ■ We do not tolerate bribery of or by any business partner, government agency or public authority and maintain honest and fair relationships with government agencies and public authorities. (Guiding Principles 1) Nurturing Society ■ Wherever we do business, we actively promote and engage, both individually and with partners, in nurturing society activities that help strengthen communities and contribute to the enrichment of society. (Guiding Principles 2) TOYOTA ANNUAL REPORT 2010 21 Management Team As of June 24, 2010 Corporate Information Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information R&D and Intellectual Property Corporate Philosophy Management Team Corporate Governance Risk Factors Other Management and Corporate Data We are convinced that the fiscal year ending March 31, 2011, offers Toyota the chance for a truly fresh start. To make the most of this opportunity, we are implementing new strategies that chart a course toward growth. ■ Representative Directors Chairman of the Board Fujio Cho Vice Chairmen of the Board Katsuaki Watanabe Kazuo Okamoto President, Member of the Board Akio Toyoda ■ Directors and Auditors Executive Vice Presidents, Members of the Board （Main operational responsibilities） Senior Managing Directors, Members of the Board （Chief officer, Deputy chief officer, General manager or Overseas subsidiary of residence） Takeshi Uchiyamada Product Management/Research & Development Nobuyori Kodaira Business Development Group/IT & ITS Group/ Corporate Planning Div./Environmental Affairs Div./ e-TOYOTA Div. Yukitoshi Funo Government & Public Affairs/Operation Planning & Support/ Asia & Oceania Operations/Middle East Operations/ Africa and Latin America Operations Akira Okabe Asia & Oceania Operations Group/ Middle East, Africa and Latin America Operations Group Atsushi Niimi Strategic Production Planning/ Production Engineering/Manufacturing/ North America Operations/China Operations Shinichi Sasaki Business Development/ IT & ITS/Information Systems/Purchasing/ Customer Service/Quality Yoichiro Ichimaru Corporate Planning/Japan Sales Satoshi Ozawa General Administration & Human Resources/ Accounting/Europe Operations Shinzo Kobuki R&D Group 2/R&D Management Div./ Higashifuji Technical Administration Div./Vehicle Control System Development Div./ Advanced Vehicle Control System Development Div./ Automotive Software Engineering Div. Akira Sasaki China Operations Group/ Toyota Motor (China) Investment Co., Ltd. Mamoru Furuhashi Government & Public Affairs Group/ Tokyo Secretarial Div./ Tokyo General Administration Div. Iwao Nihashi Customer Service Operations Group/ Quality Group/TQM Promotion Div. Tadashi Yamashina Technical Administration Group/Motor Sports Div. Note: Yoichi Kaya, Yoichi Morishita, Akishige Okada and Kunihiro Matsuo satisfy the qualifications of Outside Corporate Auditors as provided in Article 2, 　　 Item 16, of the “Corporation Act.” TOYOTA ANNUAL REPORT 2010 22 ■取締役および監査役 専務取締役 （本部長、副本部長、センター長、統括となっている本部・部、常勤の海外事業体を記載） （本部長、副本部長、センター長、統括となっている本部・部、 取締役 常勤の海外事業体を記載） 安形 哲夫 Tetsuo Agata トヨタ モーター エンジニアリング アンド マニュファクチャリング ノース アメリカ（株） 前川 眞基 Masamoto Maekawa 国内営業本部、東京担当 稲葉 良　 Yoshimi Inaba 北米本部、トヨタ モーター ノース アメリカ（株） 林 南八 Nampachi Hayashi オーダーデリバリー改善推進担当、TPS指導担当、 TPS徹底推進担当 事業開発本部、情報事業本部、総合企画部、調査部、 常勤監査役 　原 保守 Yasumori Ihara CSR・環境部、e-TOYOTA部 岩瀬 隆彦 Takahiro Iwase 生産技術本部、製造本部、 グローバル生産推進センター、安全健康推進部、 プラント・エンジニアリング部、工程改善部、 生技管理部 石井 克政 Yoshimasa Ishii 営業企画本部、営業支援部、営業業務部、 営業企画部 白根 武史 Takeshi Shirane 調達本部 加藤 光久 Mitsuhisa Kato □□□□□□□□□□□□□□ 天野 吉和 Yoshikazu Amano 山口 千秋 Chiaki Yamaguchi 中津川 昌樹 Masaki Nakatsugawa 監査役 茅 陽一 Yoichi Kaya 森下 洋一 Yoichi Morishita 岡田 明重 Akishige Okada 松尾 邦弘 Kunihiro Matsuo 山科 忠 Tadashi Yamashina 技術管理本部、モータースポーツ部 伊地知 (cid:8686)彦 Takahiko Ijichi 経理本部 Management Team As of June 24, 2010 Corporate Information Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information R&D and Intellectual Property Corporate Philosophy Management Team Corporate Governance Risk Factors Other Management and Corporate Data Senior Managing Directors, Members of the Board （Chief officer, Deputy chief officer, General manager or Overseas subsidiary of residence） Directors, Members of the Board Corporate Auditors （Chief officer, Deputy chief officer, General manager or Overseas subsidiary of residence） Takahiko Ijichi General Administration & Human Resources Group/ Accounting Group/Information Systems Group Yoshimi Inaba North America Operations Group/ Toyota Motor North America, Inc. Nampachi Hayashi Strategic Production Planning Group, responsible for Order-to-Delivery KAIZEN Promotion/ Production Engineering Group, responsible for TPS Supervising/ Manufacturing Group, responsible for TPS Thorough Promotion Yoichi Kaya Yoichi Morishita Akishige Okada Full-Time Corporate Auditors Yoshikazu Amano Kunihiro Matsuo Chiaki Yamaguchi Masaki Nakatsugawa Tetsuo Agata Toyota Motor Engineering & Manufacturing North America, Inc. Masamoto Maekawa Japan Sales Operations Group/ Tokyo metropolitan area Yasumori Ihara Purchasing Group/Corporate Planning Div./ Research Div. Takahiro Iwase Production Engineering Group/ Manufacturing Group Yoshimasa Ishii Europe Operations Group/ Operation Planning & Support Group Takeshi Shirane Strategic Production Planning Group/ Global Production Center Mitsuhisa Kato Customer Service Operations Group/ Product Development Group/R&D Group 1 TOYOTA ANNUAL REPORT 2010 23 Corporate Governance Corporate Information Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information R&D and Intellectual Property Corporate Philosophy Management Team Corporate Governance Risk Factors Other Management and Corporate Data Toyota’s Basic Approach to Corporate Governance Toyota’s top management priority is to steadily increase corporate value over the long term. Further, our fundamental management philosophy is to remain a trusted corporate citizen in international society through open and fair business activities that honor the language and spirit of the law of every nation. In order to put that philosophy into practice, Toyota builds favorable relationships with all of its stakeholders, including shareholders, customers, business partners, local communities, and employees. We are convinced that providing products that fully cater to customer needs is essential to achieve stable, long-term growth. That philosophy is outlined in the “Guiding Principles at Toyota.” Further, to explain those principles in more detailed terms, we prepared and issued the “Contribution towards Sustainable Development” statement in January 2005. Through such initiatives, Toyota is taking concrete measures to reinforce its corporate governance functions and to become an even more competitive global company. Specifically, we have introduced a unique management system focused on prompt decision making for developing our global strategy and speeding up operations. Furthermore, we have a range of long-standing in-house committees and councils responsible for monitoring and discussing management and corporate activities from the viewpoints of various stakeholders to ensure heightened transparency and the fulfillment of social obligations. Ultimately, however, a well-developed awareness of ethics among individuals is the key to successful governance systems. Without such awareness—regardless of the governance structure of a company— corporate governance cannot function effectively. Toyota has a unique corporate culture that places emphasis on problem solving and preventative measures, such as problem solving based on the actual situation on the site and highlighting problems by immediately flagging and sharing them. In other words, because Toyota’s approach is to build in quality through manufacturing processes, enhancing the quality of everyday operations strengthens governance. Toyota’s management team and employees conduct operations and make decisions founded on that common system of checks and balances and on high ethical standards. Toyota’s Management System Toyota introduced its current management system in 2003. The main differences between the current system and the former system are that the current system set a new non-board position of Managing Officers and reduced the number of directors. Under the current system, with respect to various operational functions across the entire Company, in principle the Senior Managing Directors, who are Directors, serve as the highest authorities of their specific operational functions while non-board Managing Officers implement the actual operations. The distinctive feature of this system is that, based on Toyota’s philosophy of emphasizing developments on the site, the Senior Managing Directors serve as the link between management and on-site operations, instead of focusing exclusively on management. As a result, this system enables the management to make decisions directly with on-site operations by reflecting on-site personnel opinions on management strategy and swiftly implementing management decisions into actual operations. Systems for Ensuring Appropriate Management As a system to ensure appropriate management, Toyota has convened meetings of its International Advisory Board (IAB) annually in principle since 1996. The IAB consists of approximately 10 distinguished advisors from overseas with backgrounds in a wide range of fields, including politics, economics, the environment, and business. Through the IAB, we receive advice on a diversity of business issues from a global perspective. In addition, Toyota has a wide variety of conferences and committees for deliberations and the monitoring of management and corporate activities that reflect the views of a range of stakeholders, including the Labor-Management Council, the Joint Labor-Management Round Table Conference, the Toyota Environment Committee, and the Stock Option Committee. Moreover, Toyota established the CSR Committee by integrating the Corporate Ethics Committee and the Corporate Philanthropy Committee in October 2007. Accountability Toyota has engaged in timely and fair disclosure of corporate and financial information as stated in “CSR Policy: Contribution towards Sustainable Development.” In order to ensure the accuracy, fairness, and timely disclosure of information, Toyota has established the Disclosure Committee chaired by an officer of the Accounting Division. The Committee holds regular meetings for the purpose of preparation, reporting and assessment of its annual securities report, quarterly report under the Financial Instruments and Exchange Law of Japan and Form 20-F under the U.S. Securities Exchange Act, and also holds extraordinary committee meetings from time to time whenever necessary. Compliance To firmly establish corporate ethics and ensure strict compliance, Toyota’s CSR Committee, consisting of Directors at the executive vice president level and above as well as representatives of Corporate Auditors, to deliberate important issues and measures relating to corporate ethics, compliance and risk management. Toyota has also created a number of facilities for employees to make inquiries concerning compliance matters, including the Compliance Hotline, which enables them to consult with an outside attorney, and takes measures to ensure that Toyota is aware of significant information concerning legal compliance as quickly as possible. 　Toyota will implement the tenets of ethical business practice by further promoting the “Guiding Principles at Toyota” and the “Toyota Code of Conduct” and by educating and training employees at all levels and in all areas of operations. To monitor the management, Toyota has adopted an auditor system that is based on the Japanese Corporation Act. In order to increase transparency of corporate activities, four of Toyota’s seven Corporate Auditors are outside Corporate Auditors. Corporate Auditors support the Company’s corporate governance efforts by undertaking audits in accordance with the audit policies and plans determined by the Board of Corporate Auditors. Toyota has secured the personnel and framework supporting the audit by Corporate Auditors. The Outside Corporate Auditors advise Toyota from a fair and neutral perspective, based on their broad experiences and insight in their respective field of expertise. The state of internal controls and internal audit are reported to Corporate Auditors (including Outside Corporate Auditors) through the Board of Corporate Auditors and the “CSR Committee”, and the status of accounting audits is reported by independent External Auditors to the Corporate Auditors (including Outside Corporate Auditors) through the Board of Corporate Auditors. TOYOTA ANNUAL REPORT 2010 24 Corporate Governance Corporate Information Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information R&D and Intellectual Property Corporate Philosophy Corporate Philosophy Management Team Corporate Governance Risk Factors Other Management and Corporate Data For internal audit, the management and a specialized independent organization evaluate the effectiveness of internal controls over financial reporting in accordance with Article 404 of the U.S. Sarbanes–Oxley Act, applicable to Toyota from the year ended March 31, 2007 to establish a solid system. In addition, in accordance with Article 24-4-4-1 of the Financial Instruments and Exchange Law, which is applicable to Toyota starting with the year ended March 31, 2009, there is an assessment system to ensure that financial statements and other financial information are prepared properly. In order to enhance the reliability of the financial reporting of Toyota, the three auditing functions, audit by Corporate Auditors, internal audit, and accounting audit by Independent External Auditors, aid in conducting an effective and efficient audit through meetings held periodically and as necessary to share information and come to understandings through discussion on audit plans and results. ■ Toyotaʼs Corporate Governance Emphasizing Frontline Operation + Mulitidirectional Monitoring Appointment Shareholders Board of Corporate Auditors Majority are outside corporate auditors External Accounting Auditor Audit for consolidated financial statements and internal control over financial reporting Board of Directors Senior Managing Directors Managing Officers International Advisory Board Labor-Management Council Joint Labor-Management Round Table Conference CSR Committee* Toyota Environment Committee Stock Option Committee Disclosure Committee Internal Auditing Department （internal control systems） * Review issues relating to corporate ethics, legal compliance, risk management, nurturing society and environmental management Corporate Social Responsibility To maintain stable, long-term growth in international society, companies have to earn the respect and trust of society and individuals. Rather than simply contributing to economic development through operational activities, growing in harmony with society is a must for good corporate citizens. Mindful of the foregoing, Toyota has a range of committees that are tasked with monitoring corporate activities and management in relation to social responsibilities, including the CSR Committee and the Toyota Environment Committee. Toyota’s Basic Approach to Internal Control System integrate the principles of problems identification (“Mondai Hakken”) and continuous improvements (“Kaizen”) into our business operation processes and make continuous efforts to train our employees who put these principles into practice. With the above understanding, internal control has been developed under the following basic policies. （１）System to ensure that the Directors execute their responsibilities in compliance with 　　　relevant laws and regulations and the Articles of Incorporation 　１）Toyota will ensure that Directors act in compliance with relevant laws and regulations and the Articles of Incorporation, based on the Code of Ethics and other explanatory documents that include necessary legal information, presented on occasions such as trainings for new Directors. 　２）Toyota will make decisions regarding business operations after comprehensive discussions at the Board meetings and other meetings of various cross-sectional decision-making bodies. Matters to be decided are properly submitted and discussed at the meetings of those decision- making bodies in accordance with the relevant rules. 　３）Toyota will appropriately discuss significant matters and measures relating to issues such as corporate ethics, compliance, and risk management at the CSR Committee and other meetings. Toyota will also discuss and decide at the meetings of various cross-sectional decision-making bodies policies and systems to monitor and respond to risks relating to organizational function. （２）System to retain and manage information relating to performance of duties by Directors 　　Information relating to exercising duties by Directors shall be appropriately retained and managed by 　　each division in charge pursuant to the relevant internal rules and laws and regulations. （３）Rules and systems related to the management of risk of loss 　１）Toyota will properly manage the capital fund through its budgeting system and other forms of control, conduct business operations, and manage the budget, based on the authorities and responsibilities in accordance with the “Ringi” system (effective consensus-building and approval system). Significant matters will be properly submitted and discussed at the Board meetings and other meetings of various bodies in accordance with the standards stipulated in the relevant rules. 　２）Toyota will ensure accurate financial reporting by issuing documentation on the financial flow and the control system etc., and by properly and promptly disclosing information through the Disclosure Committee. 　３）Toyota will manage various risks relating to safety, quality, the environment and compliance by establishing rules or preparing and delivering manuals, as necessary, in each relevant division. 　４）As a precaution against events such as natural disasters, Toyota will prepare manuals, conduct emergency drills, arrange risk diversification and insurance as needed. （４）System to ensure that Directors exercise their duties efficiently 　１）Toyota will manage consistent policies by specifying the policies at each level of the organization based on the medium- to long-term management policies and the Company’s policies for each fiscal term. Based on the “Guiding Principles at Toyota” and the “Toyota Code of Conduct,” we, together with our subsidiaries, have created and maintained a sound corporate climate. In our actual operations, we 　２）The Chief Officer, as a liaising officer between the management and operational functions, will direct and supervise Managing Officers based on the management policies and delegate the TOYOTA ANNUAL REPORT 2010 25 Corporate Governance Corporate Information Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information R&D and Intellectual Property Corporate Philosophy Management Team Corporate Governance Risk Factors Other Management and Corporate Data executive authority over each division to the Managing Officers so that flexible and timely decision making can be achieved. 　３）Toyota from time to time will make opportunities to listen to the opinions of various stakeholders, including external experts, and reflect those opinions in Toyota’s management and corporate activities. （10）Other systems to ensure that the Corporate Auditors conducted audits effectively Toyota will ensure that the Corporate Auditors attend major Board meetings, inspect important Company documents, and make opportunities to exchange information between the Corporate Auditors and Accounting Auditor periodically and as needed, as well as appoint external experts. （５）System to ensure that employees conduct business in compliance with relevant laws and 　　　regulations and the Articles of Incorporation 　１）Toyota will clarify the responsibilities of each organization unit and maintain a basis to ensure continuous improvements in the system. 　２）Toyota will continuously review the legal compliance and risk management framework to ensure effectiveness. For this purpose, each organization unit shall confirm the effectiveness by conducting self-checks among others, and report the result to the CSR Committee. 　３）Toyota will promptly obtain information regarding legal compliance and corporate ethics and respond to problems and questions related to compliance through its corporate ethics inquiry office and other channels. （６）System to ensure the appropriateness of business operations of the corporation and the business 　　　group consisting of the parent company and subsidiaries 　１）Toyota will expand the “Guiding Principles at Toyota” and the “Toyota Code of Conduct” to its subsidiaries as TMC’s common charter of conduct, and develop and maintain a sound environment of internal controls for TMC. Toyota will also promote the “Guiding Principles at Toyota” and the “Toyota Code of Conduct” through personal exchange. 　２）Toyota will manage its subsidiaries in a comprehensive manner by clarifying the roles of the division responsible for the subsidiaries’ financing and management and the roles of the division responsible for the subsidiaries’ business activities. Those divisions will confirm the appropriateness and legality of the operations of the subsidiaries by exchanging information with those subsidiaries, periodically and as needed. （７）System concerning employees who assist the Corporate Auditors when required Toyota will establish a Corporate Auditors Department and assign a number of full-time staff to support this function. （８）Independence of the employees described in the preceding item Any changes in personnel in the Corporate Auditors Department will require prior consent of the Board of Corporate Auditors or a full-time Corporate Auditor selected by the Board of Corporate Auditors. （９） System for Directors and employees to report to Corporate Auditors, and other relative systems 　１）Directors, from time to time, will properly report to the Corporate Auditors any major business operations through the divisions in charge. If any fact that may cause significant damage to the Company is discovered, they will report the matter to the Corporate Auditors immediately. 　２）Directors, Managing Officers, and employees will report to the Corporate Auditors on the business upon requests by the Corporate Auditors, periodically and as needed. Toyota’s Basic Policy and Preparation towards the Elimination of Antisocial Forces （１）Basic Policy for Elimination of Antisocial Forces Based upon the “Guiding Principles at Toyota” and the “Toyota Code of Conduct,” Toyota’s basic policy is to have no relationship with antisocial forces. Toyota will take resolute action as an organization against any undue claims and actions by antisocial forces or groups, and has drawn the attention of such policy to its employees by means such as clearly stipulating it in the “Toyota Code of Conduct.” （２）Preparation towards Elimination of Antisocial Forces 　１）Establishment of Divisions Overseeing Measures Against Antisocial Forces and Posts in 　　　　　　Charge of Preventing Undue Claims Toyota established divisions that oversee measures against antisocial forces (“Divisions Overseeing Measures Against Antisocial Forces”) in its major offices as well as assigned persons in charge of preventing undue claims. Toyota also established a system whereby undue claims, organized violence and criminal activities conducted by antisocial forces are immediately reported to and consulted with Divisions Overseeing Measures Against Antisocial Forces. 　２）Liaising with Specialist Organizations Toyota has been strengthening its liaison with specialist organizations by joining liaison committees organized by specialists such as the police. It has also been receiving guidance on measures to be taken against antisocial forces from such committees. 　３）Collecting and Managing Information concerning Antisocial Forces By liaising with experts and the police, Divisions Overseeing Measures Against Antisocial Forces share up-to-date information on antisocial forces and utilize such information to call Toyota’s employees’ attention to antisocial forces. 　４）Preparation of Manuals Toyota compiles cases concerning measures against antisocial forces and distributes them to each department within Toyota. 　５）Training Activities Toyota promotes training activities to prevent damages caused by antisocial forces by sharing information on antisocial forces within the Company as well as holding lectures at Toyota and its Group companies. Regarding significant differences in corporate governance practices between Toyota and U.S. companies listed on the New York Stock Exchange, please refer to the annual report on Form 20-F filed with the United States Securities and Exchange Commission. Form 20-F can be viewed at the Company’s web site (http://www.toyota.co.jp/en/ir/library/sec/index.html). TOYOTA ANNUAL REPORT 2010 26 Risk Factors Corporate Information Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information R&D and Intellectual Property Corporate Philosophy Management Team Corporate Governance Risk Factors Other Management and Corporate Data Operational and other risks faced by Toyota that could significantly influence the decisions of investors are set out below. However, the following does not encompass all risks related to the operations of Toyota. There are risk factors other than those given below. Any such risk factors could influence the decisions of investors. The forward-looking statements included below are based on information available as of June 25, 2010, the filing date of Form 20-F. Industry and Business Risks The worldwide automotive market is highly competitive The worldwide automotive market is highly competitive. Toyota faces intense competition from automotive manufacturers in the markets in which it operates. Competition has intensified amidst difficult overall market conditions due to the weak global economy. In addition, competition is likely to further intensify in light of continuing globalization in the worldwide automotive industry, possibly resulting in further industry reorganization. Factors affecting competition include product quality and features, safety, reliability, the amount of time required for innovation and development, pricing, fuel economy, customer service and financing terms. Increased competition may lead to lower vehicle unit sales, which may result in a further downward price pressure and adversely affect Toyota’s financial condition and results of operations. Toyota’s ability to adequately respond to the recent rapid changes in the automotive market and to maintain its competitiveness will be fundamental to its future success in existing and new markets and its market share. There can be no assurances that Toyota will be able to compete successfully in the future. The worldwide automotive industry is highly volatile Each of the markets in which Toyota competes has been subject to considerable volatility in demand. Demand for vehicles depends to a large extent on social, political and economic conditions in a given market and the introduction of new vehicles and technologies. As Toyota’s revenues are derived from sales in markets worldwide, economic conditions in such markets are particularly important to Toyota. During fiscal 2010, despite government efforts to stimulate demand in Japan, North America and Europe, which are Toyota’s main markets, market conditions in those areas remained difficult, and Toyota was adversely affected by changes in the market structure with further shifts in consumer demand to compact and low-priced vehicles. Such weakness in demand for automobiles and changes in market structure is continuing, and it is unclear how long this situation would continue or how it would transition in the future. Toyota’s financial condition and results of operations may be adversely affected if the weakness in demand for automobiles and changes in market structure continue or progress further. Demand may also be affected by factors directly impacting vehicle price or the cost of purchasing and operating vehicles such as sales and financing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations (including tariffs, import regulation and other taxes). Volatility in demand may lead to lower vehicle unit sales, which may result in a further downward price pressure and adversely affect Toyota’s financial condition and results of operations. Toyota’s future success depends on its ability to offer new innovative competitively priced products that meet customer demand on a timely basis Meeting customer demand with attractive new vehicles and reducing the amount of time required for product development are critical to automotive manufacturers. In particular, it is critical to meet customer demand with respect to quality, safety and reliability. The timely introduction of new vehicle models, at competitive prices, meeting rapidly changing customer preferences and demands is more fundamental to Toyota’s success than ever, as the automotive market is rapidly transforming in light of the weak global economic conditions. There is no assurance, however, that Toyota will adequately and appropriately respond to changing customer preferences and demands with respect to quality, safety, reliability, styling and other features in a timely manner. Even if Toyota succeeds in perceiving customer preferences and demands, there is no assurance that Toyota will be capable of developing and manufacturing new, price-competitive products in a timely manner with its available technology, intellectual property, sources of raw materials and parts and components, and production capacity, including cost reduction capacity. Further, there is no assurance that Toyota will be able to implement capital expenditures at the level and times planned by management. Toyota’s inability to develop and offer products that meet customers’ preferences and demands with respect to quality, safety, reliability, styling and other features in a timely manner could result in a lower market share and reduced sales volumes and margins, and may adversely affect Toyota’s financial condition and results of operations. Toyota’s ability to market and distribute effectively is an integral part of Toyota’s successful sales Toyota’s success in the sale of vehicles depends on its ability to market and distribute effectively based on distribution networks and sales techniques tailored to the needs of its customers. There is no assurance that Toyota will be able to develop sales techniques and distribution networks that effectively adapt to changing customer preferences or changes in the regulatory environment in the major markets in which it operates. Toyota’s inability to maintain well- developed sales techniques and distribution networks may result in decreased sales and market share and may adversely affect its financial condition and results of operations. Toyota’s success is significantly impacted by its ability to maintain and develop its brand image In the highly competitive automotive industry, it is critical to maintain and develop a brand image. In order to maintain and develop a brand image, it is necessary to further increase customers’ confidence by providing safe, high-quality products that meet customer preferences and demands. If Toyota is unable to effectively maintain and develop its brand image as a result of its inability to provide safe, high-quality products or as result of the failure to promptly implement safety measures such as recalls when necessary, vehicle unit sales and/or sale prices may decrease, and as a result revenues and profits may not increase as expected or may decrease, adversely affecting its financial condition and results of operations. The worldwide financial services industry is highly competitive The worldwide financial services industry is highly competitive. Increased competition in automobile financing may lead to decreased margins. A decline in Toyota’s vehicle unit sales, an increase in residual value risk due to lower used vehicle price, an increase in the ratio of credit losses and increased funding TOYOTA ANNUAL REPORT 2010 27 Risk Factors Corporate Information Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information R&D and Intellectual Property Corporate Philosophy Management Team Corporate Governance Risk Factors Other Management and Corporate Data costs are factors which may impact Toyota’s financial services operations. The likelihood of these factors materializing continues to remain at a high level amidst weak global economic conditions, and competition in automobile financing has intensified. If Toyota is unable to adequately respond to the changes and competition in automobile financing, Toyota’s financial services operations may adversely affect its financial condition and results of operations. Financial Market and Economic Risks Toyota’s operations are subject to currency and interest rate fluctuations Toyota is sensitive to fluctuations in foreign currency exchange rates and is principally exposed to fluctuations in the value of the Japanese yen, the U.S. dollar and the euro and, to a lesser extent, the Australian dollar, the Canadian dollar and the British pound. Toyota’s consolidated financial statements, which are presented in Japanese yen, are affected by foreign currency exchange fluctuations through both translation risk and transaction risk. Changes in foreign currency exchange rates may affect Toyota’s pricing of products sold and materials purchased in foreign currencies. In particular, strengthening of the Japanese yen against the U.S. dollar can have an adverse effect on Toyota’s operating results. The Japanese yen has been appreciating against major currencies including the U.S. dollar in the past year. If the Japanese yen continues to appreciate against major currencies, including the U.S. dollar, Toyota’s financial condition and results of operations may be adversely affected. 　Toyota believes that its use of certain derivative financial instruments including interest rate swaps and increased localized production of its products have reduced, but not eliminated, the effects of interest rate and foreign currency exchange rate fluctuations. Nonetheless, a negative impact resulting from fluctuations in foreign currency exchange rates and changes in interest rates may adversely affect Toyota’s financial condition and results of operations. High prices of raw materials and strong pressure on Toyota’s suppliers could negatively impact Toyota’s profitability Increases in prices for raw materials that Toyota and Toyota’s suppliers use in manufacturing their products or parts and components such as steel, precious metals, non-ferrous alloys including aluminum, and plastic parts, may lead to higher production costs for parts and components. This could, in turn, negatively impact Toyota’s future profitability because Toyota may not be able to pass all those costs on to its customers or require its suppliers to absorb such costs. The downturn in the financial markets could adversely affect Toyota’s ability to raise capital The world economy continues to be weak and business conditions remain difficult. A number of financial institutions and investors have been facing difficulties providing capital to the financial markets at levels corresponding to their own financial capacity. As a result, there is a risk that companies may not be able to raise capital under terms that they would expect to receive with their creditworthiness. If Toyota is unable to raise the necessary capital under appropriate conditions on a timely basis, Toyota’s financial condition and results of operations may be adversely affected. Political, Regulatory and Legal Risks The automotive industry is subject to various governmental regulations The worldwide automotive industry is subject to various laws and governmental regulations including those related to vehicle safety and environmental matters such as emission levels, fuel economy, noise and pollution. In particular, automotive manufacturers such as Toyota are required to implement safety measures such as recalls for vehicles that do not or may not comply with the safety standards of laws and governmental regulations. In addition, Toyota may, in order to reassure its customers of the safety of Toyota’s vehicles, decide to voluntarily implement recalls or other safety measures even if the vehicle complies with the safety standards of relevant laws and governmental regulations. Many governments also impose tariffs and other trade barriers, taxes and levies, or enact price or exchange controls. Toyota has incurred, and expects to incur in the future, significant costs in complying with these regulations. If Toyota launches products that result in safety measures such as recalls, Toyota may incur various costs including significant costs for free repairs. Furthermore, new legislation or changes in existing legislation may also subject Toyota to additional expenses in the future. If Toyota incurs significant costs related to implementing safety measures or meeting laws and governmental regulations, Toyota’s financial condition and results of operations may be adversely affected. Toyota may become subject to various legal proceedings. Toyota may become subject to various legal proceedings As an automotive manufacturer, Toyota may become subject to legal proceedings in respect of various issues, including product liability and infringement of intellectual property. Toyota may also be subject to legal proceedings brought by its shareholders and governmental proceedings and investigations. Toyota is in fact currently subject to a number of pending legal proceedings and government investigations. A negative outcome in one or more of these pending legal proceedings could adversely affect Toyota’s financial condition and results of operations. Toyota may be adversely affected by political instabilities, fuel shortages or interruptions in transportation systems, natural calamities, wars, terrorism and labor strikes Toyota is subject to various risks associated with conducting business worldwide. These risks include political and economic instability, natural calamities, fuel shortages, interruption in transportation systems, wars, terrorisms, labor strikes and work stoppages. The occurrence of any of these events in the major markets in which Toyota purchases materials, parts and components and supplies for the manufacture of its products or in which its products are produced, distributed or sold, may result in disruptions and delays in the operations of Toyota’s business. Significant or prolonged disruptions and delays in Toyota’s business operations may adversely affect Toyota’s financial condition and results of operations. TOYOTA ANNUAL REPORT 2010 28 Other Management and Corporate Data Corporate Information Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information R&D and Intellectual Property Corporate Philosophy Management Team Corporate Governance Risk Factors Other Management and Corporate Data Please Click below to access the contents. Facilities Market/Toyota Sales and Production Design, R&D North America/ Latin America Toyota Group Europe/Africa Japanese Production Sites and Dealers Worldwide Operations Asia Oceania/ the Middle East Vehicle Production, Sales and Exports by Region Overseas Model Lineup by Country and Region Product Lineup History of Toyota History of Toyota TOYOTA ANNUAL REPORT 2010 29 Message from the Executive Vice President Responsible for Accounting Financial Section Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information promotion measures. Also, the rapid appreciation of the Japanese yen against the U.S. dollar, the euro and other currencies reduced the profitability of exports. 　Despite the severe business environment, our dealers and suppliers remained fully committed to providing as many vehicles as possible to customers. Our employees in Japan, as well as those involved in overseas operations, made every effort to work together to achieve cost reductions and decrease fixed costs. The result of their continued hard work was ¥1,690.0 billion in cost reductions, as well as lowering the break-even point. These cost reductions were a result of the further strengthening of activities in collaboration with our suppliers, including the expansion of models covered under emergency VA (Value Analysis) from 15 to 50 vehicles. We also reviewed all expenses related to fixed costs as well as made reductions to raise the efficiency of capital expenditures. We will continue to improve our corporate structure in the fiscal year ending March 31, 2011 and beyond. Consolidated Financial Forecasts for Fiscal 2011 For fiscal 2011, ending March 31, 2011, we forecast vehicle sales of 7.29 million units, net revenues of ¥19,200.0 billion, operating income of ¥280.0 billion, and net income of ¥310.0 billion on a consolidated basis. The exchange rates assumed for this forecast are ¥90 per US$1 and ¥125 per €1. 　Consolidated operating income is expected to increase as a result of ongoing activities to improve profitability, including ¥130.0 billion cost-reduction and a ¥160.0 billion decrease in expenses. Factors that are expected to decline operating income include the effect of exchange rate fluctuations amounting to ¥80.0 billion, sales volume/mix effects of ¥50.0 billion and ¥27.5 billion from other factors. 　Looking ahead, to realize sustainable growth we will continue working to improve our corporate structure and maintain and improve the break-even point, while placing the highest Targeting sustainable growth through steadfast efforts to improve quality and reduce costs Fiscal 2010 Business Results In fiscal 2010, ended March 31, 2010, on a consolidated basis vehicle sales declined 330 thousand units, priority on customer safety and confidence. We will also make every effort toward the early to 7,237 thousand units, and net revenues decreased 7.7%, to ¥18,950.9 billion. However, we recorded commercialization of next-generation environmental and safety technologies that will be operating income of ¥147.5 billion, up ¥608.5 billion from the operating loss posted in fiscal 2009. Net successful in the face of intense competition. income totaled ¥209.4 billion, an increase of ¥646.4 billion from a net loss in fiscal 2009. 　With regard to cost reductions and the decrease in fixed costs, we promoted large cost 　Factors contributing to the increase in operating income included ¥520.0 billion from cost-reduction reductions as an emergency countermeasure in the fiscal year ended March 31, 2010. We will efforts, ¥470.0 billion from the reduction in fixed costs, a ¥270.0 billion increase in income from our ensure that these work structures and approaches remain in place to achieve steady results. financial services operations, excluding valuation gains/losses from interest rate swaps and ¥38.5 From the perspective of development and design, we will devote our efforts to cost reductions billion from other factors. Major factors reducing earnings were a lower sales volume and changes in and quality maintenance and improvements while strengthening the training and development the product mix, totaling ¥370.0 billion, and exchange rate fluctuations, amounting to ¥320.0 billion. of employees in these processes. We aim to improve both quality and profitability by putting A worsening market environment due to the financial crisis affected sales volume and the sales mix, Toyota’s Monozukuri (manufacturing) philosophy into practice in all three areas of quality, cost which was lower in the first half, compared with the same period of the previous fiscal year. In the and human resource cultivation. second half despite the impact of the recall, unit sales were up year on year. This was due to measures by various nations to stimulate demand, which revitalized the market, as well as the effect of our sales TOYOTA ANNUAL REPORT 2010 30 Message from the Executive Vice President Responsible for Accounting Financial Section Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information F i n a n c i a l S t r a t e g y D i v i d e n d s a n d S h a r e A c q u i s i t i o n s The three key components of Toyota’s financial strategy are growth, efficiency and stability. We consider benefiting shareholders one of our top management priorities, and makes an effort 　We believe that the balanced pursuit of these three priorities over the medium to long term to realize sustainable growth through ongoing structural improvements to enhance our corporate will allow us to achieve steady and sustainable growth as well as increase corporate value. value. We strive to continue paying dividends while giving due consideration to factors such as the business results in each term, investment plans, and cash reserves. １）Growth: Sustainable growth through continuous forward-looking investments We believe that automotive markets worldwide will grow over the medium to long term. As 　To survive amid tough competition, we wi ll utilize our in ternal funds fo r the e arly commercialization of next-generation technologies targeting safety and the environment. We will they expand, the center of market growth will shift toward fuel-efficient vehicles, such as hybrid make customer safety and security our highest priority, along with initiatives that respond to the vehicles and compact vehicles and toward resource-rich and emerging markets. We plan to invest needs of customers in emerging markets. Accordingly, we declared an annual dividend payment of actively in these areas to respond to structural shifts in demand and ensure long-term sustainable ¥45 per share for the fiscal year ended March 31, 2010. growth. Concurrently, we plan to continue accelerating measures to provide high-quality, 　Given the uncertain outlook for global financial conditions, we will put a priority on securing cash affordable and attractive products that meet customers’ needs in each country and region and to reserves. Accordingly, we did not repurchase our own shares in fiscal 2010, and we plan to forgo provide further support in the areas where we want to advance, namely, emerging markets and such repurchases for the foreseeable future. next-generation eco-cars. 　We will continue striving to further improve profits and meet the expectations of our ２）Efficiency: Improving profitability and capital efficiency To meet ongoing demand for hybrid and compact vehicles, we aim to provide high-quality vehicles at affordable prices and to improve profitability through further cost reductions. We will also create a structure for efficient development, production and sales that can respond flexibly to changes in the external environment. In manufacturing, we will expand local production in high-growth emerging markets. On the other hand, in the developed countries such as Japan, the United States and Europe, we intend to revise our current product lineup to reflect changes in the market structure. We will also build a flexible and efficient production system that is resistant to foreign exchange fluctuations. Through the creation of a global and optimal supply system, we aim to realize a strong profit structure. ３）Stability: Maintaining a solid financial base We preserve a solid financial base by ensuring sufficient liquidity and stable shareholders’ equity. Our sound financial position enables us to maintain our level of capital expenditures and investment in research and development even when the price of raw materials increases or there is drastic foreign exchange rate fluctuation. In view of anticipated medium- to long-term growth shareholders. ■ Net Revenues （¥ Billion） 30,000 25,000 20,000 15,000 10,000 0 FY ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 ■ Operating Income （¥ Billion） 2,500 2,000 1,500 1,000 500 0 -500 FY ʼ06 ʼ07 ʼ08 ʼ09 ʼ10 Note: Fiscal years ended March 31 Note: Fiscal years ended March 31 in automotive markets worldwide, we believe that maintaining adequate liquidity is essential ■ Vehicle Sales by Region for the implementation of forward-looking investment to improve products and develop next- generation technologies, as well as to establish a structure for production and sales in both the Japanese and overseas markets. We will continue to pursue further capital efficiency and improved cash flows. Japan North America Europe Asia Others 29.9% 29.0% 11.9% 13.5% 15.7% TOYOTA ANNUAL REPORT 2010 31 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Selected Financial Summary (U.S. GAAP) Financial Section Toyota Motor Corporation Fiscal years ended March 31 For the Year: Net Revenues: 2001 2002 Yen in millions 2003 2004 2005 Sales of Products ·················································································· Financing Operations ········································································ Total ········································································································ ¥ 12,402,104 553,133 ¥ 12,955,237 Costs and Expenses: Cost of Products Sold ········································································· Cost of Financing Operations ························································ Selling, General and Administrative ··········································· Total ········································································································ Operating Income (Loss) % of Net Revenues ·············································································· Income (Loss) before Income Taxes and Equity in Earnings of Affi liated Companies ·············································· Provision for Income Taxes ································································ Net Income (Loss) attributable to Toyota Motor Corporation ·· ROE ···················································································································· Net Cash Provided by Operating Activities ································· Net Cash Used in Investing Activities ············································· Net Cash Provided by (Used in) Financing Activities ············· R&D Expenses ···························································································· Capital Expenditures for Property, Plant and Equipment* · Depreciation ································································································ ¥ 10,218,599 427,340 1,518,569 ¥ 12,164,508 ¥ 790,729 6.1% 1,107,289 523,876 674,898 9.6% ¥ 1,428,018 (1,318,738) (166,713) 475,716 762,274 784,784 At Year-End: Toyota Motor Corporation Shareholdersʼ Equity ····················· Total Assets ··································································································· Long-Term Debt ························································································ Cash and Cash Equivalents ·································································· Ratio of Toyota Motor Corporation Shareholdersʼ Equity ··· ¥ 7,077,411 17,019,783 3,083,344 1,510,892 41.6% ¥ 13,499,644 690,664 ¥ 14,190,308 ¥ 10,874,455 459,195 1,763,026 ¥ 13,096,676 ¥ 1,093,632 7.7% 972,101 422,789 556,567 7.8% ¥ 1,532,079 (1,810,230) 392,148 589,306 940,547 809,841 ¥ 7,264,112 19,305,730 3,722,706 1,657,160 37.6% Per Share Data: Net Income (Loss) attributable to Toyota Motor Corporation (Basic) ·············································· Annual Cash Dividends ·········································································· Toyota Motor Corporation Shareholdersʼ Equity ······················ ¥ 180.65 25 1,921.29 ¥ 152.26 28 2,015.82 2001 2002 ¥ 14,793,973 707,580 ¥ 15,501,553 ¥ 11,914,245 423,885 1,891,777 ¥ 14,229,907 ¥ 1,271,646 8.2% 1,226,652 517,014 750,942 10.4% ¥ 1,940,088 (2,001,448) 37,675 668,404 1,005,931 870,636 ¥ 7,121,000 20,152,974 4,137,528 1,592,028 35.3% Yen 2003 ¥ 211.32 36 2,063.43 ¥ 16,578,033 716,727 ¥ 17,294,760 ¥ 13,506,337 364,177 1,757,356 ¥ 15,627,870 ¥ 1,666,890 9.6% 1,765,793 681,304 1,162,098 15.2% ¥ 2,186,734 (2,216,495) 242,223 682,279 945,803 969,904 ¥ 8,178,567 22,040,228 4,247,266 1,729,776 37.1% ¥ 17,790,862 760,664 ¥ 18,551,526 ¥ 14,500,282 369,844 2,009,213 ¥ 16,879,339 ¥ 1,672,187 9.0% 1,754,637 657,910 1,171,260 13.6% ¥ 2,370,940 (3,061,196) 419,384 755,147 1,068,287 997,713 ¥ 9,044,950 24,335,011 5,014,925 1,483,753 37.2% 2004 2005 ¥ 342.90 45 2,456.08 ¥ 355.35 65 2,767.67 Stock Information (March 31): Stock Price ····································································································· Market Capitalization (Yen in millions) ·········································· Number of Shares Issued (shares) ··················································· ¥4,350 ¥16,029,739 3,684,997,492 ¥3,650 ¥ 13,332,491 3,649,997,492 ¥2,635 ¥ 9,512,343 3,609,997,492 ¥3,880 ¥ 14,006,790 3,609,997,492 ¥3,990 ¥ 14,403,890 3,609,997,492 * Excluding vehicles and equipment of operating leases TOYOTA ANNUAL REPORT 2010 32 Selected Financial Summary (U.S. GAAP) Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Toyota Motor Corporation Fiscal years ended March 31 For the Year: Net Revenues: 2006 2007 Yen in millions 2008 2009 2010 % change 2010 vs. 2009 Sales of Products ················································································· Financing Operations ······································································· Total ······································································································· ¥ 20,059,493 977,416 ¥ 21,036,909 Costs and Expenses: Cost of Products Sold ········································································ Cost of Financing Operations ······················································· Selling, General and Administrative ·········································· Total ······································································································· Operating Income (Loss) ······································································ % of Net Revenues ············································································· Income (Loss) before Income Taxes and Equity in Earnings of Affi liated Companies ················································ Provision for Income Taxes ·································································· Net Income (Loss) attributable to Toyota Motor Corporation ·· ROE ···················································································································· Net Cash Provided by Operating Activities ································· Net Cash Used in Investing Activities ············································· Net Cash Provided by (Used in) Financing Activities ············· R&D Expenses ······························································································ Capital Expenditures for Property, Plant and Equipment* · Depreciation ································································································ ¥ 16,335,312 609,632 2,213,623 ¥ 19,158,567 ¥ 1,878,342 8.9% 2,087,360 795,153 1,372,180 14.0% ¥ 2,515,480 (3,375,500) 876,911 812,648 1,523,459 1,211,178 At Year-End: Toyota Motor Corporation Shareholdersʼ Equity ······················ Total Assets ··································································································· Long-Term Debt ························································································ Cash and Cash Equivalents ·································································· Ratio of Toyota Motor Corporation Shareholdersʼ Equity····· ¥ 10,560,449 28,731,595 5,640,490 1,569,387 36.8% ¥ 22,670,097 1,277,994 ¥ 23,948,091 ¥ 18,356,255 872,138 2,481,015 ¥ 21,709,408 ¥ 2,238,683 9.3% 2,382,516 898,312 1,644,032 14.7% ¥ 3,238,173 (3,814,378) 881,768 890,782 1,425,814 1,382,594 ¥ 11,836,092 32,574,779 6,263,585 1,900,379 36.3% Per Share Data: Net Income (Loss) attributable to Toyota Motor Corporation (Basic) ·············································· Annual Cash Dividends ·········································································· Toyota Motor Corporation Shareholdersʼ Equity ······················ Stock Information (March 31): 2006 2007 ¥ 421.76 90 3,257.63 ¥ 512.09 120 3,701.17 ¥ 24,820,510 1,468,730 ¥ 26,289,240 ¥ 20,452,338 1,068,015 2,498,512 ¥ 24,018,865 ¥ 2,270,375 8.6% 2,437,222 911,495 1,717,879 14.5% ¥ 2,981,624 (3,874,886) 706,189 958,882 1,480,570 1,491,135 ¥ 11,869,527 32,458,320 5,981,931 1,628,547 36.6% Yen 2008 ¥ 540.65 140 3,768.97 ¥ 19,173,720 1,355,850 ¥ 20,529,570 ¥ 17,468,416 987,384 2,534,781 ¥ 20,990,581 ¥ (461,011) ‒2.2% (560,381) (56,442) (436,937) ‒4.0% ¥ 1,476,905 (1,230,220) 698,841 904,075 1,364,582 1,495,170 ¥ 10,061,207 29,062,037 6,301,469 2,444,280 34.6% ¥ 17,724,729 1,226,244 ¥ 18,950,973 ¥ 15,971,496 712,301 2,119,660 ¥ 18,803,457 ¥ 147,516 0.8% 291,468 92,664 209,456 2.1% ¥ 2,558,530 (2,850,184) (277,982) 725,345 604,536 1,414,569 ¥ 10,359,723 30,349,287 7,015,409 1,865,746 34.1% ‒7.6 ‒9.6 ‒7.7 ‒8.6 ‒27.9 ‒16.4 ‒10.4 ̶ ̶ ̶ ̶ ̶ ̶ +73.2 ̶ ̶ ‒19.8 ‒55.7 ‒5.4 +3.0 +4.4 +11.3 ‒23.7 ̶ 2009 2010 % change 2010 vs. 2009 ¥ (139.13) 100 3,208.41 ¥ 66.79 45 3,303.49 Stock Price ····································································································· Market Capitalization (Yen in millions) ·········································· Number of Shares Issued (shares) ··················································· ¥6,430 ¥23,212,284 3,609,997,492 ¥7,550 ¥27,255,481 3,609,997,492 ¥4,970 ¥17,136,548 3,447,997,492 ¥3,120 ¥10,757,752 3,447,997,492 ¥3,745 ¥12,912,751 3,447,997,492 * Excluding vehicles and equipment of operating leases TOYOTA ANNUAL REPORT 2010 ̶ ‒55.0 +3.0 +20.0 +20.0 ̶ 33 Consolidated Segment Information Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Toyota Motor Corporation Fiscal years ended March 31 Business Segment: Net Revenues: 2005 2006 2007 2008 2009 2010 Yen in millions % change 2010 vs. 2009 Automotive ········································ ¥ 17,113,535 ¥ 19,338,144 ¥ 21,928,006 ¥ 24,177,306 ¥ 18,564,723 ¥ 17,197,428 Financial Services ···························· All Other ··············································· Intersegment Elimination ··········· Consolidated································· 781,261 1,030,320 (373,590) ¥ 18,551,526 996,909 1,190,291 (488,435) ¥ 21,036,909 1,300,548 1,323,731 (604,194) ¥ 23,948,091 1,498,354 1,346,955 (733,375) ¥ 26,289,240 1,377,548 1,184,947 (597,648) ¥ 20,529,570 1,245,407 947,615 (439,477) ¥ 18,950,973 Operating Income (Loss): Automotive ········································ ¥ 1,452,535 ¥ 1,694,045 ¥ 2,038,828 ¥ 2,171,905 ¥ (394,876) Financial Services ···························· All Other ··············································· Intersegment Elimination ··········· Consolidated································· 200,853 33,743 (14,944) ¥ 1,672,187 155,817 39,748 (11,268) ¥ 1,878,342 158,495 39,679 1,681 ¥ 2,238,683 86,494 33,080 (21,104) ¥ 2,270,375 (71,947) 9,913 (4,101) ¥ (461,011) ¥ (86,370) 246,927 (8,860) (4,181) ¥ 147,516 Geographic Segment: Net Revenues: Japan ······················································ ¥ 12,004,155 ¥ 13,111,457 ¥ 14,815,282 ¥ 15,315,812 ¥ 12,186,737 ¥ 11,220,303 North America ··································· Europe ··················································· Asia ·························································· Other ······················································ Intersegment Elimination Consolidated 6,373,453 2,479,427 1,625,422 1,183,702 (5,114,633) ¥ 18,551,526 7,687,942 2,727,409 2,042,806 1,601,736 (6,134,441) ¥ 21,036,909 9,029,773 3,542,193 2,225,528 1,922,742 (7,587,427) ¥ 23,948,091 9,423,258 3,993,434 3,120,826 2,294,137 (7,858,227) ¥ 26,289,240 Operating Income (Loss): Japan ······················································ ¥ 987,242 ¥ 1,075,890 ¥ 1,457,246 ¥ 1,440,286 North America ··································· Europe ··················································· Asia ·························································· Other ······················································ Intersegment Elimination ··········· Consolidated································· 447,559 108,541 93,772 47,454 (12,381) ¥ 1,672,187 495,638 93,947 145,546 67,190 131 ¥ 1,878,342 449,633 137,383 117,595 83,497 (6,671) ¥ 2,238,683 305,352 141,571 256,356 143,978 (17,168) ¥ 2,270,375 6,222,914 3,013,128 2,719,329 1,882,900 (5,495,438) ¥ 20,529,570 ¥ (237,531) (390,192) (143,233) 176,060 87,648 46,237 5,670,526 2,147,049 2,655,327 1,673,861 (4,416,093) ¥ 18,950,973 ¥ (225,242) 85,490 (32,955) 203,527 115,574 1,122 ¥ (461,011) ¥ 147,516 ‒7.4 ‒9.6 ‒20.0 ̶ ‒7.7 ̶ ̶ ̶ ̶ ̶ ‒7.9 ‒8.9 ‒28.7 ‒2.4 ‒11.1 ̶ ‒7.7 ̶ ̶ ̶ +15.6 +31.9 ‒97.6 ̶ TOYOTA ANNUAL REPORT 2010 34 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Consolidated Quarterly Financial Summary Financial Section Toyota Motor Corporation Fiscal years ended March 31 Net Revenues ·········································································· % Change ········································································ Operating Income (Loss) ··················································· % Change ········································································ Operating Income Margin ················································ Income (Loss) before Income Taxes and Equity in Earnings of Affi liated Companies % Change ········································································ Net Income (Loss) attributable to Toyota Motor Corporation ·········································· % Change ········································································ First Quarter ¥6,215.1 ‒4.7% 412.5 ‒38.9% 6.6% 453.0 ‒38.7% 353.6 ‒28.1% Business Segment: Net Revenues: Automotive ···································································· Financial Services ························································ All Other ··········································································· Intersegment Elimination ······································· Consolidated····························································· ¥ 5,720.9 363.1 288.2 (157.1) ¥ 6,215.1 Operating Income (Loss): Automotive ···································································· Financial Services ························································ All Other ··········································································· Intersegment Elimination ······································· Consolidated····························································· ¥332.3 79.1 2.9 (1.8) ¥412.5 Geographic Segment: Net Revenues: Japan ·················································································· North America ······························································· Europe ··············································································· Asia ······················································································ Other ·················································································· Intersegment Elimination ······································· Consolidated····························································· ¥ 3,660.8 2,091.1 916.2 798.3 628.7 (1,880.0) ¥ 6,215.1 Operating Income (Loss): Japan ·················································································· North America ······························································· Europe ··············································································· Asia ······················································································ Other ·················································································· Intersegment Elimination ······································· Consolidated····························································· ¥217.1 69.1 20.3 69.3 44.5 (7.8) ¥412.5 2009 Second Quarter ¥5,975.3 ‒7.9% 169.5 ‒71.6% 2.8% 183.4 ‒70.6% 139.8 ‒69.0% ¥5,439.8 374.6 314.2 (153.3) ¥5,975.3 ¥133.6 28.1 8.9 (1.1) ¥169.5 ¥ 3,546.5 1,861.9 867.7 827.7 592.7 (1,721.2) ¥ 5,975.3 ¥104.6 (34.9) (11.5) 67.8 34.6 8.9 ¥169.5 Yen in billions Third Quarter ¥4,802.8 ‒28.4% (360.6) ̶ % ‒7.5% Fourth Quarter ¥ 3,536.3 ‒46.2% (682.5) ̶ % ‒19.3% First Quarter ¥ 3,836.0 ‒38.3% (194.9) ̶ % ‒5.1% 2010 Second Quarter ¥4,541.6 ‒24.0% 58.0 ‒65.8% 1.3% Third Quarter ¥5,292.9 10.2% 189.1 ̶ % 3.6% Fourth Quarter ¥ 5,280.4 49.3% 95.3 ̶ % 1.8% (282.1) ̶ % (164.7) ̶ % ¥4,311.1 346.6 294.3 (149.2) ¥4,802.8 ¥(232.7) (123.9) 0.0 (4.0) ¥(360.6) ¥ 3,014.1 1,339.0 660.5 683.9 381.5 (1,276.2) ¥ 4,802.8 ¥(164.2) (247.4) (43.4) 40.5 33.5 20.4 ¥(360.6) (914.7) ̶ % (765.8) ̶ % ¥3,092.9 293.2 288.2 (138.0) ¥3,536.3 ¥(628.1) (55.4) (1.9) 2.9 ¥(682.5) ¥1,965.3 930.9 568.7 409.5 280.0 (618.1) ¥3,536.3 ¥(395.0) (177.0) (108.7) (1.6) (25.1) 24.9 ¥(682.5) (138.5) ̶ % (77.8) ̶ % ¥3,413.0 320.1 204.1 (101.2) ¥3,836.0 ¥(239.1) 49.6 (4.6) (0.8) ¥(194.9) ¥2,181.8 1,175.2 515.1 494.1 343.3 (873.5) ¥3,836.0 ¥(212.0) (3.7) (20.4) 26.9 17.4 (3.1) ¥(194.9) 75.5 ‒58.8% 21.8 ‒84.4% ¥4,108.3 312.0 225.1 (103.8) ¥4,541.6 ¥(21.3) 74.8 5.0 (0.5) ¥ 58.0 ¥ 2,656.3 1,419.1 564.3 589.8 389.7 (1,077.6) ¥ 4,541.6 ¥(45.6) 30.5 1.7 38.5 23.3 9.6 ¥ 58.0 224.9 ̶ % 153.2 ̶ % ¥4,861.1 307.2 226.2 (101.6) ¥5,292.9 ¥124.5 80.6 (14.4) (1.6) ¥189.1 ¥ 3,093.8 1,622.7 561.0 762.5 494.0 (1,241.1) ¥ 5,292.9 ¥ 33.9 79.7 (21.3) 67.1 39.4 (9.7) ¥189.1 129.5 ̶ % 112.2 ̶ % ¥4,815.0 306.2 292.2 (133.0) ¥5,280.4 ¥49.6 41.9 5.1 (1.3) ¥95.3 ¥ 3,288.3 1,453.5 506.7 809.0 446.8 (1,223.9) ¥ 5,280.4 ¥ (1.5) (21.2) 7.0 71.0 35.5 4.5 ¥95.3 TOYOTA ANNUAL REPORT 2010 35 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section All fi nancial information discussed in this section is derived from Toyotaʼs consolidated fi nancial statements that appear elsewhere in this annual report. The fi nancial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Overview fi nancial include The business segments of Toyota automotive operations, services operations and all other operations. Automotive operations are Toyotaʼs most signifi cant business segment, accounting for 89% of Toyotaʼs total revenues before the elimination of intersegment revenues for fi scal 2010. Toyotaʼs primary markets based on vehicle unit sales for fi scal 2010 were Japan (30%), North America (29%), Europe (12%) and Asia (14%). During fi scal 2010, as a result of announcements of recalls and other safety measures for several models of vehicles in several countries, the number of recalls and other safety measures increased. These recalls and other safety measures have impacted the fi nancial results of the automotive and fi nancial services operations and led to a number of claims, lawsuits and government investigations. As a result of the foregoing, the fi scal 2010 operating results of the automotive operations were principally aff ected by factors including but not limited to the accrued costs related to the recalls and other safety measures announced in fi scal 2010, a temporary decrease in sales mainly in North America and additional costs resulting from a change in the estimation model of expenses related to future recalls and other safety measures. In fi scal 2010, Toyota has employed an estimation model for recalls and other safety measures which takes into account Toyotaʼs historical experience and individual occurrences of recalls and other safety measures to accrue recall costs at the time of vehicle sale. In addition, as a result of the above, the fi scal 2010 operating results of the fi nancial services operations were principally aff ected by the evaluation for credit losses and residual value losses at March 31, 2010. Not all of the impacts described above are fi nancially signifi cant or are able to be precisely measured. Toyota has included in the following discussion and analysis, where relevant, signifi cant impacts of these items. Automotive Market Environment The worldwide automotive market is highly competitive and volatile. The demand for automobiles is aff ected by a number of factors including social, political and general economic conditions; introduction of new vehicles and technologies; and costs incurred by customers to purchase and operate vehicles. These factors can cause consumer demand to vary substantially in diff erent geographic markets and for diff erent types of automobiles. The automotive industry generally experienced diffi cult market conditions during fi scal 2010 due to changes in market demand resulting from a shift in consumer preference towards small and low-price vehicles, despite the continuous growth in China, India and other emerging countries and the eff ects of government stimulus packages in developed countries. The following forth Toyotaʼs table sets consolidated vehicle unit sales by geographic Japan ·············································································································· North America ·························································································· Europe ··········································································································· Asia ·················································································································· Other* ············································································································ Overseas total···························································································· Total ················································································································ (Thousands of units) Year ended March 31, 2009 1,945 2,212 1,062 905 1,443 5,622 7,567 2008 2,188 2,958 1,284 956 1,527 6,725 8,913 2010 2,163 2,098 858 979 1,139 5,074 7,237 * “Other” consists of Central and South America, Oceania, Africa and the Middle East, etc. market based on location of customers for the past three fi scal years. 8,000 6,000 4,000 2,000 10,000 （Thousands of units） Consolidated Vehicle Sales During fi scal 2009, Toyotaʼs consolidated ve- hicle unit sales in Japan decreased due to weak mar- ket conditions as compared to the prior fi scal year. During fi scal 2010, sales in Japan in- creased as com- pared to the prior fi scal year refl ect- ing in- frequent troduction of new products and sales eff orts of domestic dealers on the sales of new products. In fi scal 2010, Toyota and Lexus brandsʼ market share excluding mini- vehicles was 48.2%, and Toyotaʼs market share (including Daihatsu and Hino brands) including mini-vehicles was 44.3%, and both market shares represented record highs. Overseas vehicle unit sales decreased during fi scal 2009 and 2010, each compared to the prior fi scal year. During fi scal 2009, overseas vehicle unit sales decreased, particularly in North America and Europe, where 70ʼ 80ʼ 60ʼʼ ʼ10 ʼ09 FY 0 the contraction of automotive markets was especially pronounced. During fi scal 2010, total overseas vehicle unit sales decreased, particularly in Europe, despite an increase in Asia. Toyotaʼs share of total vehicle unit sales in each market is infl uenced by the quality, safety, reliability, price, design, performance, economy and utility of Toyotaʼs vehicles compared with those off ered by other manufacturers. The timely introduction of new or redesigned vehicles is also an important factor in satisfying customer needs. Toyotaʼs ability to satisfy changing customer preferences can aff ect its revenues and earnings signifi cantly. The profi tability of Toyotaʼs automotive operations is aff ected by many factors. These factors include: (cid:12255)vehicle unit sales volumes, (cid:12255)the mix of vehicle models and options sold, (cid:12255)the level of parts and service sales, (cid:12255)the levels of price discounts and other sales incentives and marketing costs, (cid:12255)the cost of customer warranty claims and other customer satisfaction actions, (cid:12255)the cost of research and development and other fi xed costs, (cid:12255)the prices of raw materials, (cid:12255)the ability to control costs, TOYOTA ANNUAL REPORT 2010 TOYOTA ANNUAL REPORT 2010 36 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information in those attributed (cid:12255)the effi cient use of production capacity, and (cid:12255)changes in the value of the Japanese yen and other currencies in which Toyota does busi- ness. Changes laws, regulations, policies and other governmental actions can also materially impact the profi tability of Toyotaʼs automotive operations. These laws, regulations and policies include to environmental matters and vehicle safety, fuel economy and emissions that can add signifi cantly to the cost of vehicles. The European Union has enforced a directive that requires manufacturers to be fi nancially responsible for taking back end-of- life vehicles and to take measures to ensure that adequate used vehicle disposal facilities are established and those hazardous materials and recyclable parts are removed from vehicles prior to scrapping. Please see “Legislation Regarding End- of-Life Vehicles” “Information on the Company ̶ Business Overview ̶ Governmental Regulation, Environmental and Safety Standards” and note 23 to the consolidated fi nancial statements for a more detailed discussion of these laws, regulations and policies. Many governments also regulate local content, impose tariff s and other trade barriers, and enact price or exchange controls that can limit an automakerʼs operations and can make the repatriation of profi ts unpredictable. Changes in these laws, regulations, policies and other governmental actions may aff ect the production, licensing, distribution or sale of Toyotaʼs products, cost of products or applicable tax rates. Toyota is currently one of the defendants in purported national class actions alleging violations of the U.S. Sherman Antitrust Act. Toyota believes that its actions have been lawful. In order to avoid a protracted dispute, however, Toyota entered into a settlement agreement with the plaintiff s at the end of February 2006. The settlement agreement is pending the approval of the federal district court, and immediately upon approval the plaintiff s will, in accordance with the terms of the settlement agreement, withdraw all pending actions against Toyota in the federal district court as well as all state courts and all related actions will be closed. From time-to-time, Toyota issues vehicle recalls and takes other safety measures including safety campaigns in its vehicles. In November 2009, Toyota announced a safety campaign in North America for certain models of Toyota and Lexus vehicles related to fl oor mat entrapment of accelerator pedals, and later expanded it to include additional models. In January 2010, Toyota announced a recall in North America for certain models of Toyota vehicles related to sticking and slow-to-return accelerator pedals. Also in January 2010, Toyota recalled in Europe and China certain models of Toyota vehicles related to sticking accelerator pedals. In February 2010, Toyota announced a worldwide recall related to the software program that controls the antilock braking system (ABS) in certain vehicles models including the Prius. The recalls and other safety measures described above have led to a number of claims, lawsuits and government investigations against Toyota in the United States. For a more detailed description of these claims, lawsuits and government investigations, see note 23 to the consolidated fi nancial statements. The worldwide automotive industry is in a period of global competition which may continue for the foreseeable future, and in general the competitive environment in which Toyota operates is likely to intensify. Toyota believes it has the resources, strategies and technologies in place to compete eff ectively in the industry as an independent company for the foreseeable future. Total Assets by Financial Services Operations （¥ Billion） 16,000 12,000 8,000 4,000 0 FY 60ʼ 70ʼ 80ʼ ʼ09 ʼ10 Financial Services Operations The worldwide automobile fi nancial services industry has become highly competitive due to the contraction of automotive markets. As competition increases, margins on fi nancing transactions may decrease and market share may also decline as customers obtain fi nancing for Toyota vehicles from alternative sources. loans and leasing programs Toyotaʼs fi nancial services operations mainly include for customers and dealers. Toyota believes that its ability to provide fi nancing to its customers is an important value added service. Therefore, Toyota has expanded its network of fi nance subsidiaries in order to off er fi nancial services in many countries. Toyotaʼs competitors for retail fi nancing and retail leasing include commercial banks, credit unions and other fi nance companies. Meanwhile, commercial banks and other captive automobile fi nance companies also compete against Toyotaʼs wholesale fi nancing activities. Toyota reasonably estimated and recorded allowance for credit losses and residual value losses. This estimation includes the unfavorable impact of the recalls and other safety measures announced in fi scal 2010. Toyotaʼs fi nancial assets decreased during fi scal 2010 primarily due to the impact of fl uctuations in foreign currency translation rates. TOYOTA ANNUAL REPORT 2010 37 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section The following table provides information regarding Toyotaʼs fi nance receivables and operating leases as of March 31, 2009 and 2010. Yen in millions March 31, 2009 2010 Finance Receivables Retail························································································································································· Finance leases ····································································································································· Wholesale and other dealer loans···························································································· Deferred origination costs ············································································································ Unearned income ····························································································································· Allowance for credit losses Retail ················································································································································· Finance leases ······························································································································ Wholesale and other dealer loans ···················································································· Total fi nance receivables, net ······················································································ Less ‒ Current portion ···················································································································· Noncurrent fi nance receivables, net ··············································································· Operating Leases Vehicles ··················································································································································· Equipment ············································································································································ Less ‒ Accumulated depreciation ···························································································· Vehicles and equipment on operating leases, net ·················································· ¥ 6,655,404 1,108,408 2,322,721 10,086,533 104,521 (405,171) (157,359) (7,776) (73,797) (238,932) 9,546,951 (3,891,406) ¥ 5,655,545 ¥ 2,729,713 107,168 2,836,881 (795,767) ¥ 2,041,114 ¥ 6,810,144 1,232,508 2,403,239 10,445,891 109,747 (482,983) (148,503) (36,917) (47,059) (232,479) 9,840,176 (4,209,496) ¥ 5,630,680 ¥ 2,516,948 96,300 2,613,248 (791,169) ¥ 1,822,079 Toyotaʼs fi nance receivables are subject to collectability risks. These risks include consumer and dealer insolvencies and insuffi cient collateral values (less costs to sell) to realize the full carrying values of these receivables. See discussion in the Critical Accounting Estimates section regarding “Allowance for Doubtful Accounts and Credit Losses” and note 11 to the consolidated fi nancial statements regarding the allowance for doubtful accounts and credit losses. Toyota continues to originate leases to fi nance new Toyota vehicles. These leasing activities are subject to residual value risk. Residual value losses could be incurred when the lessee of a vehicle does not exercise the option to purchase the vehicle at the end of the lease term. See discussion in the Critical Accounting Estimates in Operating section regarding “Investment Leases” and note 2 to the consolidated fi nancial statements regarding the allowance for residual value losses. into Toyota primarily enters interest rate swap agreements and cross currency interest rate swap agreements to convert its fi xed-rate debt to variable-rate functional currency debt. A portion of the derivative instruments are entered into to hedge interest rate risk from an economic perspective and are not designated to specifi c assets or liabilities on Toyotaʼs consolidated balance sheet and accordingly, unrealized gains or losses related to derivatives that are not designated are recognized currently in operations. See discussion in the Critical Accounting Estimates section regarding “Derivatives and Other Contracts at Fair Value”, further discussion in the Market Risk Disclosures section and note 20 to the consolidated fi nancial statements. Funding costs can aff ect the profi tability of Toyotaʼs fi nancial services operations. Funding costs are aff ected by a number of factors, some of which are not in Toyotaʼs control. These factors include general economic conditions, prevailing interest rates and Toyotaʼs fi nancial strength. Funding costs decreased during fi scal 2009 and 2010, mainly as a result of lower interest rates. Toyota launched its credit card business in Japan at the beginning of fi scal 2002. As of March 31, 2009, Toyota had 7.1 million cardholders, an increase of 0.5 million cardholders compared with March 31, 2008. As of March 31, 2010, Toyota had 7.7 million cardholders, an increase of 0.6 million cardholders compared with March 31, 2009. The credit card receivables at March 31, 2009 decreased by ¥1.1 billion from March 31, 2008 to ¥224.6 billion. The credit card receivables at March 31, 2010 increased by ¥30.8 billion from March 31, 2009 to ¥255.4 billion. Other Business Operations Toyotaʼs other business operations consist of housing, including the manufacture and sale of prefabricated homes; information technology related businesses, information technology and telecommunications, intelligent transport systems, GAZOO and other. including Toyota does not expect its other business operations to materially contribute to Toyotaʼs consolidated results of operations. Currency Fluctuations Toyota is aff ected by fl uctuations in foreign currency exchange rates. In addition to the Japanese yen, Toyota is principally exposed to fl uctuations in the value of the U.S. dollar and the euro and, to a lesser extent, the Australian dollar, the Canadian dollar and the British pound. Toyotaʼs consolidated fi nancial statements, which are presented in Japanese yen, are aff ected by foreign currency exchange fl uctuations through both translation risk and transaction risk. Translation risk is the risk that Toyotaʼs consolidated fi nancial statements for a particular period or for a particular date will be aff ected by changes in the prevailing exchange rates of the currencies in those countries in which Toyota does business compared with the Japanese yen. Even though the fl uctuations of currency exchange rates to the Japanese yen can be substantial, and, therefore, signifi cantly impact comparisons with prior periods and among the various geographic markets, the translation risk is a reporting consideration and does not refl ect Toyotaʼs underlying results of operations. Toyota does not hedge against translation risk. Transaction risk is the risk that the currency structure of Toyotaʼs costs and liabilities will deviate from the currency structure of sales proceeds and assets. Transaction risk relates primarily to sales proceeds from Toyotaʼs non- domestic operations from vehicles produced in Japan. location of Toyota believes that the its production facilities in diff erent parts of the world has signifi cantly reduced the level of transaction risk. As part of its globalization strategy, Toyota has continued localize production by constructing production facilities in the major markets in which it sells its vehicles. In calendar 2008 and 2009, Toyota produced 64.1% and to TOYOTA ANNUAL REPORT 2010 38 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information 64.5% of Toyotaʼs non-domestic sales outside Japan, respectively. In North America, 57.4% and 60.0% of vehicles sold in calendar 2008 and 2009 respectively were produced locally. In Europe, 60.9% and 57.0% of vehicles sold in calendar 2008 and 2009 respectively were produced locally. Localizing production enables Toyota to locally 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 foreign currency transactions and other hedging instruments to address a portion of its transaction risk. This has reduced, but not eliminated, the eff ects of foreign currency exchange rate fl uctuations, which in some years can be signifi cant. See notes 20 and 21 to the consolidated fi nancial statements for additional information regarding the extent of Toyotaʼs use of derivative fi nancial instruments to hedge foreign currency exchange rate risks. into income attributable Generally, a weakening of the Japanese yen against other currencies has a positive eff ect on Toyotaʼs revenues, operating income and to Toyota Motor net Corporation. A strengthening of the Japanese yen against other currencies has the opposite eff ect. In fi scal 2009 and 2010, the Japanese yen was on average and at the end of the fi scal year stronger against the U.S. dollar and the euro in comparison to the prior fi scal year. See further discussion in the Market Risk Disclosures section regarding “Foreign Currency Exchange Rate Risk”. During fi scal 2009 and 2010, the average exchange rate of the Japanese yen strengthened against the major currencies including the U.S. dollar and the euro compared to the average exchange rate of the prior fi scal year. The operating results excluding the impact of currency fl uctuations described in the “Results of Operations ̶ Fiscal 2010 Compared with Fiscal 2009” and the “Results of Operations ̶ Fiscal 2009 Compared with Fiscal 2008,” show results of net revenues obtained by applying the Japanese yenʼs average exchange rate in the previous fi scal year to the local currency-denominated net revenues for fi scal 2009 and 2010, respectively, as if the value of the Japanese yen had remained constant for the comparable periods. Results excluding the impact of currency fl uctuations year-on-year are not on the same basis as Toyotaʼs consolidated fi nancial statements and do not conform 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 fl uctuations year-on-year provide additional useful information to investors regarding the operating performance on a local currency basis. non-fi nancial 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 Toyotaʼs net revenues in each geographic market based on the country location of the parent company or the subsidiaries that transacted the sale with the external customer for the past three fi scal years. Yen in millions Year ended March 31, 2008 2009 2010 Revenues by Market FY2010 Japan ·················································· ¥8,418,620 ¥7,471,916 ¥7,314,813 North America ······························ 9,248,950 6,097,676 5,583,228 Europe ··············································· 3,802,814 2,889,753 2,082,671 Asia ······················································ 2,790,987 2,450,412 2,431,648 Other* ················································ 2,027,869 1,619,813 1,538,613 * “Other” consists of Central and South America, Oceania and Africa. ダミー 38.6 % Japan North America 29.5 % 11.0 % Europe 12.8 % Asia All Other Markets 8.1 % Segmentation Toyotaʼs most signifi cant business segment is its automotive operations. Toyota carries out its automotive operations as a global competitor in the worldwide automotive market. Management the allocates performance 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. to, and assesses resources the The management of automotive operations is aligned on a functional basis with managers having oversight responsibility for the major operating functions within the segment. Management assesses fi nancial and Results of Operations ̶Fiscal 2010 Compared with Fiscal 2009 Yen in millions Year ended March 31, 2010 vs. 2009 change 2009 2010 Amount Percentage Net revenues: Japan ····························································· ¥ 12,186,737 ¥ 11,220,303 ¥ (966,434) North America ·········································· Europe ·························································· Asia ································································· Other* ··························································· Intersegment elimination/ 6,222,914 3,013,128 2,719,329 1,882,900 5,670,526 2,147,049 2,655,327 1,673,861 (552,388) (866,079) (64,002) (209,039) unallocated amount ························ (5,495,438) (4,416,093) 1,079,345 Total ····················································· ¥ 20,529,570 ¥ 18,950,973 ¥ (1,578,597) * “Other” consists of Central and South America, Oceania and Africa. ‒7.9% ‒8.9% ‒28.7% ‒2.4% ‒11.1% − ‒7.7% TOYOTA ANNUAL REPORT 2010 39 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Yen in millions Year ended March 31, 2010 vs. 2009 change 2009 2010 Amount Percentage in Europe compared to the prior calendar year due to the continuous market downturn. Aff ected by this downturn, Toyotaʼs vehicle unit sales decreased to 7,237 thousand vehicles, or by 4.4%, compared to the prior fi scal year. Operating income (loss): Japan ····························································· ¥ (237,531) ¥ (225,242) ¥ 12,289 North America ·········································· (390,192) Europe ·························································· (143,233) Asia ································································· Other* ··························································· 176,060 87,648 Intersegment elimination/ 85,490 (32,955) 203,527 115,574 unallocated amount ························ 46,237 1,122 Total ······················································ ¥ (461,011) ¥ 147,516 Operating margin ··········································· ‒2.2% 0.8% 475,682 110,278 27,467 27,926 (45,115) ¥ 608,527 3.0% Income (loss) before income taxes and equity in earnings of affi liated companies ··············· Net margin from income (loss) before income taxes and equity in earnings of affi liated companies ···································· Equity in earnings of affi liated companies ··· 42,724 45,408 ‒2.7% 1.5% 4.2% 2,684 (560,381) 291,468 851,849 − − − +15.6% +31.9% ‒97.6% − − +6.3% Net income (loss) attributable to Toyota Motor Corporation ···················· (436,937) 209,456 646,393 − Net margin attributable to Toyota Motor Corporation ···················· ‒2.1% 1.1% 3.2% * “Other” consists of Central and South America, Oceania and Africa. Net Revenues Toyota had net revenues for fi scal 2010 of ¥18,950.9 billion, a decrease of ¥1,578.6 billion, or 7.7%, compared with the prior year. This decrease principally refl ects the unfavorable impact of fl uctuations in foreign currency translation rates of ¥986.9 billion, the impact of decreased vehicle unit sales and changes in sales mix of approximately ¥570.0 billion, partially off set by the increased parts sales of ¥34.9 billion during fi scal 2010. Eliminating the diff erence in the Japanese yen value used for translation purposes, net revenues would have been approximately ¥19,937.8 billion during fi scal 2010, a 2.9% decrease compared with the prior year. The automotive market expanded by 10.0% in Japan compared to the prior fi scal year due to the government stimulus packages. However, other automotive markets contracted signifi cantly such as 22.0% in North America and 13.7% Net Revenues （¥ Billion） 30,000 24,000 18,000 12,000 6,000 0 FY 60ʼ 70ʼ 80ʼ ʼ09 ʼ10 Toyotaʼs net revenues by product category in each business with external customer is as follows: Yen in millions Year ended March 31, 2010 vs. 2009 change 2009 2010 Amount Percentage Vehicles ·································································· ¥ 15,635,490 ¥ 14,309,595 ¥ (1,325,895) Parts and components for overseas production ·· Parts and components for after service Other ······································································· 298,176 1,575,316 1,041,519 355,273 1,543,941 978,499 57,097 (31,375) (63,020) Total Automotive ········································ 18,550,501 17,187,308 (1,363,193) ‒8.5% +19.1% ‒2.0% ‒6.1% ‒7.3% All Other ································································ 623,219 537,421 (85,798) ‒13.8% Total sales of products ··································· 19,173,720 17,724,729 Financial services ·············································· 1,355,850 1,226,244 (1,448,991) (129,606) Total ···································································· ¥ 20,529,570 ¥ 18,950,973 ¥ (1,578,597) ‒7.6% ‒9.6% ‒7.7% Toyotaʼs net revenues include net revenues from sales of products, consisting of net revenues from automotive operations and all other operations, that decreased by 7.6% during fi scal 2010 compared with the prior fi scal year to ¥17,724.7 billion, and net revenues from fi nancial services operations that decreased by 9.6% during fi scal 2010 compared with the prior fi scal year to ¥1,226.2 billion. Eliminating the diff erence in the Japanese yen value used for translation purposes, net revenues from sales of products would have been ¥18,618.7 billion, a 2.9% decrease during fi scal 2010 compared with the prior fi scal year. The decrease in net revenues from sales of products is due primarily to a decrease in vehicle unit sales which resulted from the generally diffi cult market conditions in the automotive industry as a whole in fi scal 2010. Eliminating the diff erence in the Japanese yen value used for translation purposes, net from fi nancial services operations revenues would have been approximately ¥1,319.1 billion, a 2.7% decrease during fi scal 2010 compared with the prior fi scal year. The decrease in net revenues from fi nancial services operations resulted primarily from unfavorable impact of fl uctuations in foreign currency translation rates and decrease in rental income from vehicles and equipment on operating leases. TOYOTA ANNUAL REPORT 2010 40 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Number of fi nancing contracts by geographic region (at the end of the fi scal year 2009 and 2010) is as (cid:12255)North America follows: Number of fi nancing contracts in thousands Year ended March 31, 2010 vs. 2009 change Toyotaʼs consolidated vehicle unit sales Japan ······································································· North America ··················································· Europe ···································································· Asia ··········································································· Other* ····································································· 2009 1,660 4,403 748 387 440 Total ······························································· 7,638 * “Other” consists of Central and South America, Oceania and Africa. 2010 1,684 4,488 774 428 476 7,850 Amount Percentage 24 85 26 41 36 212 +1.4% +1.9% +3.5% +10.6% +8.2% +2.8% revenues Geographically, net (before the elimination of intersegment revenues) for fi scal 2010 decreased by 7.9% in Japan, 8.9% in North America, 28.7% in Europe, 2.4% in Asia and 11.1% in Other compared with the prior fi scal year. Eliminating the diff erence in the Japanese yen value used for translation purposes, net revenues in fi scal 2010 would have decreased by 7.9% in Japan, 1.2% in North America, 20.1% in Europe, 7.3% in Other and would have increased by 5.5% in Asia compared with the prior fi scal year. The following is a discussion of net revenues in each geographic market (before the elimination of intersegment revenues). (cid:12255)Japan Toyotaʼs consolidated vehicle unit sales Thousands of units Year ended March 31, 2010 vs. 2009 change 2009 1,945 2010 2,163 Amount 218 Percentage 11.2% Yen in millions Year ended March 31, 2010 2009 2010 vs. 2009 change Amount Percentage Net revenues: Sales of products······································ Financial services ····································· Total ························································· ¥12,067,494 119,243 ¥12,186,737 ¥11,095,044 125,259 ¥11,220,303 ¥(972,450) 6,016 ¥(966,434) ‒8.1% +5.0% ‒7.9% Supported by the government stimulus packages including the eco-car tax reduction and subsidy, Toyotaʼs domestic vehicle unit sales showed growth as compared to the prior fi scal year mainly within the environmentally-friendly and new vehicle markets, such as Prius and SAI. However, net revenues in Japan decreased refl ecting the decrease in the number of exported vehicles for the overseas markets. Thousands of units Year ended March 31, 2010 vs. 2009 change 2009 2,212 2010 2,098 Amount (114) Percentage ‒5.2% Yen in millions Year ended March 31, 2010 2009 2010 vs. 2009 change Amount Percentage Net revenues: Sales of products······································ Financial services ····································· Total ························································· ¥5,226,426 996,488 ¥6,222,914 ¥4,782,379 888,147 ¥5,670,526 ¥(444,047) (108,341) ¥(552,388) ‒8.5% ‒10.9% ‒8.9% The market is recovering gradually from the downturn stemming from the fi nancial crisis since the fall of 2008 and Toyotaʼs vehicle unit sales in the second half of fi scal 2010 increased year-on-year primarily due to the sales of new Sienna. However, net revenues in North America decreased primarily as a result of the substantial decline in vehicle unit sales caused by the downturn in the market during the fi rst half of fi scal 2010, fl uctuations in foreign currency translation rates and the eff ects of the recalls and other safety measures. (cid:12255)Europe Toyotaʼs consolidated vehicle unit sales Thousands of units Year ended March 31, 2010 vs. 2009 change 2009 1,062 2010 858 Amount (204) Percentage ‒19.2% Yen in millions Year ended March 31, 2010 2009 2010 vs. 2009 change Amount Percentage Net revenues: Sales of products······································ Financial services ····································· Total ························································· ¥2,911,234 101,894 ¥3,013,128 ¥2,065,768 81,281 ¥2,147,049 ¥(845,466) (20,613) ¥(866,079) ‒29.0% ‒20.2% ‒28.7% Although Toyotaʼs vehicle unit sales in some European countries increased compared with the prior fi scal year benefi ting from various government stimulus packages, net revenues in Europe overall decreased primarily due to the decrease in vehicle unit sales which resulted from the downturn in the market and fl uctuations in foreign currency translation rates. TOYOTA ANNUAL REPORT 2010 41 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information (cid:12255)Asia Operating Costs and Expenses Toyotaʼs consolidated vehicle unit sales Thousands of units Year ended March 31, 2010 vs. 2009 change 2009 905 2010 979 Amount 74 Percentage ＋8.3% Yen in millions Year ended March 31, 2010 2009 2010 vs. 2009 change Amount Percentage Net revenues: Sales of products······································ Financial services ····································· Total ························································· ¥2,676,939 42,390 ¥2,719,329 ¥2,612,595 42,732 ¥2,655,327 ¥(64,344) 342 ¥(64,002) ‒2.4% ＋0.8% ‒2.4% Although Toyotaʼs vehicle unit sales increased, particularly in Thailand and Indonesia, compared with the prior fi scal year due primarily to various government stimulus packages, net revenues in Asia decreased due primarily to the unfavorable impact of fl uctuations in foreign currency translation rates. Eliminating the diff erence in the Japanese yen value used for translation purposes of ¥212.9 billion, net revenues would have increased by ¥148.6 billion. (cid:12255)Other Toyotaʼs consolidated vehicle unit sales 1,443 1,139 Year ended March 31, 2010 2009 2010 vs. 2009 change Amount (304) Percentage ‒21.1% Thousands of units Yen in millions Year ended March 31, 2010 2009 2010 vs. 2009 change Amount Percentage Net revenues: Sales of products······································ Financial services ····································· Total ························································· ¥1,779,089 103,811 ¥1,882,900 ¥1,571,846 102,015 ¥1,673,861 ¥(207,243) (1,796) ¥(209,039) ‒11.6% ‒1.7% ‒11.1% Net revenues in Other decreased due to the decrease in Toyotaʼs vehicle unit sales compared to the prior fi scal year as a result of a downturn in the markets in Central and South America, Oceania, Africa, and all other regions. Yen in millions Year ended March 31, 2010 vs. 2009 change 2009 2010 Amount Percentage Operating costs and expenses Cost of products sold ··························· ¥17,468,416 ¥15,971,496 ¥(1,496,920) Cost of fi nancing operations ··········· 987,384 712,301 Selling, general and administrative · 2,534,781 2,119,660 (275,083) (415,121) Total ········································································ ¥20,990,581 ¥18,803,457 ¥(2,187,124) ‒8.6% ‒27.9% ‒16.4% ‒10.4% Yen in millions 2010 vs. 2009 change Changes in operating costs and expenses: Eff ect of decrease in vehicle unit sales and changes in sales mix ··························· Eff ect of fl uctuation in foreign currency translation rates ··········································· Eff ect of increase in parts sales ·································································································· Eff ect of decrease in research and development expenses ······································ Eff ect of cost reduction eff orts, decrease in fi xed costs and other eff orts ········· Total (110,000) (963,300) 11,200 (178,700) (946,324) (2,187,124) Operating costs and expenses decreased by ¥2,187.1 billion, or 10.4%, to ¥18,803.4 billion during fi scal 2010 compared with the prior fi scal year. This decrease resulted primarily from the ¥963.3 billion impact of fl uctuations in foreign currency translation rates, the ¥946.3 billion of cost reduction eff orts, decrease in fi xed costs and other eff orts, the ¥178.7 billion decrease in research and development expenses, and the approximate ¥110.0 billion impact on costs of products attributable to the decrease in vehicle unit sales and the changes in sales mix, partially off set by the ¥11.2 billion impact on increase in parts sales. The cost reduction eff orts, decrease in fi xed costs and other eff orts are partially off set by the ¥105.7 billion increase in costs resulting from a change in the estimation model of expenses related to future recalls and other safety measures. (cid:12255)Cost Reduction Eff orts During fi scal 2010, continued cost reduction eff orts reduced operating costs and expenses by approximately ¥520.0 billion. The cost reduction eff orts include decreases in the prices of steel, precious metals, non-ferrous alloys including aluminum, plastic parts and other production materials and parts. In fi scal 2010, the decline in raw materials prices and, continued cost reduction eff orts, by working closely with suppliers, contributed to the improvement in earnings. These cost reduction eff orts related to ongoing value engineering and value analysis activities, the use of common parts that result in a reduction of part types and other manufacturing initiatives designed to reduce the costs of vehicle production. TOYOTA ANNUAL REPORT 2010 42 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information in initiatives. The decrease (cid:12255)Cost of Products Sold Cost of products sold decreased by ¥1,496.9 billion, or 8.6%, to ¥15,971.5 billion during fi scal 2010 compared with the prior fi scal year. The decrease in cost of products sold for automotive operations is primarily attributed to the decrease in fi xed costs including the decrease in research and development expenses, the cost reduction eff orts, the decrease in vehicle unit sales and the changes in sales mix, and the impact of fluctuations foreign currency translation rates partially off set by increases in parts sales. The decrease in fixed costs was due mainly to a decline in labor costs and research and development expenses as a result of profit in improvement vehicle unit sales and the changes in sales mix were due to factors such as the substantial contraction of the automotive market caused by the financial crisis since the fall of 2008. The decrease in research and development expenses is attributable to reduced develop- ment costs real- ized as a result of Toyotaʼs more fo- cused investment decisions for the future such as in e n v i r o n m e n t a l technologies, and e f f e c t i v e man- agement over re- search and devel- opment expenses spending. Cost of Products Sold （%） 100 （¥ Billion） 12,000 16,000 20,000 4,000 8,000 20 40 60 80 0 0 FY 60ʼ 70ʼ 80ʼ ʼ09 ʼ10 % of sales of products (Right scale) TOYOTA ANNUAL REPORT 2010 (cid:12255)Cost of Financing Operations Changes in cost of fi nancing operations: Eff ect of fl uctuation in foreign Yen in millions 2010 vs. 2009 change currency translation rates ················ ¥ (83,500) (70,000) Eff ect of changes in funding costs ·· Eff ect of increase in valuation gains on interest rate swaps stated at fair value ······························· (64,500) Eff ect of decrease in provision for residual value losses ··························· Other ································································ (50,000) (7,083) Total ······································································· ¥ (275,083) Cost of fi nancing operations decreased by ¥275.1 billion, or 27.9%, to ¥712.3 billion during fi scal 2010 compared with the prior year. The decrease resulted primarily from the ¥83.5 billion impact of fl uctuations in foreign currency translation rates, the ¥70.0 billion favorable impact of changes in funding costs, the ¥64.5 billion recognition of valuation gains on interest rate swaps stated at fair value, and the ¥50.0 billion decrease in provision for residual value losses. The favorable impact of changes in funding costs is attributable to a decline in market interest rates. The decrease in provision for residual value losses is primarily attributable to the recovery of the used vehicles markets particularly in the United States and other eff ects, partially off set by the impact from the recalls and other safety measures. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased by ¥415.1 billion, or 16.4%, to ¥2,119.6 billion during fi scal 2010 compared with the prior fi scal year. This decrease mainly refl ects the ¥173.8 billion decrease for the fi nancial services operations and the ¥84.9 billion decrease of mar- R&D Expenses 6 9 750 500 1,000 （¥ Billion） （%） 12 expense. keting The decrease in the fi nancial ser- vices operations is primarily due to the ¥140.0 billion in pro- decrease vision for credit losses and net charge-off s, which is attributable to the rise in the ra- tio of credit losses as a result of the economic down- turn mainly in the United States in the prior fi scal year, partially off set by the impact from the recalls and other safety measures. The decrease in marketing expense is attributable to reduced marketing costs realized as a result of the profi t improvement initiatives. % of sales of products (Right scale) 250 ʼ10 70ʼ 80ʼ 60ʼ ʼ09 FY 0 0 3 Operating Income and Loss Changes in operating income and loss: Eff ect of decrease in vehicle unit sales and changes in sales mix and other operational factors ······· Eff ect of increase in parts sales ·········· Eff ect of fl uctuation in foreign Yen in millions 2010 vs. 2009 change ¥ (370,000) 23,700 currency translation rates ················ (23,600) Eff ect of decrease in research and development expenses ·········· 178,700 Eff ect of cost reduction eff orts, decrease in fi xed costs and other eff orts ············································ Total ················································································ 799,727 ¥ 608,527 Toyotaʼs operating income increased by ¥608.5 billion to an operating income of ¥147.5 billion during fi scal 2010 compared with the prior year. This operating income was favorably impacted by the eff ects of a ¥799.7 billion cost reduction eff orts, decrease in fi xed costs and other eff orts, the ¥178.7 billion decrease in research and development expenses, and the ¥23.7 billion increase in parts sales, partially off set by the ¥380.0 billion decrease in vehicle unit sales and the changes in sales mix. The cost reduction eff orts, decrease in fi xed costs and other eff orts are partially off set by the ¥105.7 billion increase in costs resulting from a change in the estimation model of expenses related to future recalls and other safety measures. During fi scal 2010, operating income (before the elimination of intersegment profi ts), increased by ¥475.6 billion in North America, increased by ¥27.5 billion, or 15.6%, in Asia, and increased by ¥27.9 billion, or 31.9% in Other compared with the prior fi scal year. During fi scal 2010, operat- ing loss (before the elimination of intersegment profi ts) decreased by ¥12.3 billion in Japan and decreased by ¥110.3 billion in Europe compared with the prior fi s- cal year. Operating Income (Loss) The following is a discussion of oper- ating income and loss in each geo- graphic market. （¥ Billion） 2,500 （%） 20 2,000 1,500 1,000 500 0 -500 16 12 8 4 0 -4 FY 60ʼ 70ʼ 80ʼ ʼ09 ʼ10 % of net revenues (Right scale) 43 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section (cid:12255)Japan Yen in millions 2010 vs. 2009 change Changes in operating income and loss: Eff ect of decrease in production volume and vehicle unit sales in the export markets and other operational factors ································ Eff ect of cost reduction eff orts, decrease in fi xed costs and other eff orts ··························································· Total ········································································· ¥ (325,000) 337,289 ¥ 12,289 The decrease in operating losses in Japan was mainly due to the cost reduction eff orts, decrease in fi xed costs and other eff orts in the automotive operations segment, partially off set by the ¥330.0 billion impact of decreases in both production volume and vehicle unit sales in the export markets. The decreases in both production volume and vehicle unit sales in the export markets are attributable to the diffi cult market conditions particularly in North America and Europe. (cid:12255)North America Changes in operating income and loss: Eff ect of decrease in production volume and vehicle unit sales and other operational factors ······· Eff ect of fl uctuation in foreign Yen in millions 2010 vs. 2009 change ¥(30,000) currency translation rates ················ (4,100) Eff ect of cost reduction eff orts, decrease in fi xed costs and other eff orts ························································· Total ······································································· 509,782 ¥475,682 The increase in operating income in North America was due mainly to the ¥200.0 billion decreases in the provision for credit losses, net charge-off s and provision for residual value losses of sales fi nance subsidiaries in the United States, which are included in “Eff ect of cost reduction eff orts, decrease in fi xed costs and other eff orts”, partially off set by the ¥40.0 billion impact of decreases in both production volume and vehicle unit sales and the ¥4.1 billion impact of the fl uctuations in foreign currency translation rates. The decreases in both production volume and vehicle unit sales in North America are attributable to the substantial decline in vehicle unit sales of commercial vehicles and passenger vehicles due to the downturn in the market in the fi rst half of fi scal year 2010. (cid:12255)Europe Yen in millions 2010 vs. 2009 change Changes in operating income and loss: Eff ect of decrease in production volume and vehicle unit sales and other operational factors ······ Eff ect of fl uctuation in foreign currency translation rates ··············· Eff ect of cost reduction eff orts, decrease in fi xed costs and other eff orts ························································ Total ······································································ ¥(60,000) 4,900 165,378 ¥110,278 The decrease in operating loss in Europe was mainly due to the ¥155.3 billion impact of cost reduction eff orts, decrease in fi xed costs and other eff orts in the automotive operations segment and the ¥4.9 billion impact of fl uctuations in foreign currency translation rates, partially off set by the ¥60.0 billion reduction of both production volume and vehicle unit sales. The decreases in both production volume and vehicle unit sales in Europe was attributable to the decline in vehicle unit sales in the overall European market compared to the prior fi scal year despite sales growth in some of the countries that benefi ted from government stimulus packages. (cid:12255)Asia Changes in operating income and loss: Eff ect of increase in production volume and vehicle unit sales and other operational factors ······· Eff ect of fl uctuation in foreign Yen in millions 2010 vs. 2009 change ¥20,000 currency translation rates ················ (16,200) Eff ect of cost reduction eff orts, decrease in fi xed costs and other eff orts ························································· Total ······································································· 23,667 ¥27,467 The increase in operating income in Asia was mainly due to the ¥20.0 billion impact of increase in production volume and vehicle unit sales and the ¥18.6 billion impact of cost reduction eff orts, decrease in fi xed costs and other eff orts in the automotive operations segment, partially off set by the ¥16.2 billion impact of fl uctuation in foreign currency translation rates. The increase in production volume and vehicle unit sales in Asia was primarily attributable to the recovery of Asian automotive markets, particularly in Thailand and Indonesia, benefi ting from the government stimulus packages. Other Income and Expenses Interest and dividend income decreased by ¥60.2 billion, or 43.5%, to ¥78.2 billion during fi scal 2010 compared with the prior fi scal year mainly due to a decrease in interest income refl ecting decreases in market interest rates. Interest expense decreased by ¥13.5 billion, or 28.7%, to ¥33.4 billion during fi scal 2010 compared with the prior fi scal year. Foreign exchange gains, net increased by ¥70.0 billion to ¥68.2 billion during fi scal 2010 compared with the prior fi scal year. Foreign exchange gains and losses include the diff erences between the value of foreign currency denominated sales translated at prevailing exchange rates and the value of the sales amounts settled during the year, including those settled using forward foreign currency exchange contracts. Other income, net increased by ¥220.0 billion to ¥30.9 billion during fi scal 2010 compared with the prior fi scal year. This increase was mainly due to the recognition of impairment losses on available-for sale securities in the prior fi scal year. Income Taxes The provision for income taxes increased by ¥149.1 billion to ¥92.6 billion during fi scal 2010 compared with the prior year primarily due to the increase in income before income taxes. The eff ective tax rate was 31.8%, which was lower than the statutory tax rate in Japan. This was primarily due to the increase in income before income taxes of overseas subsidiaries whose statutory tax rates were lower than the statutory tax rate in Japan. Net Income and Loss attributable to the Noncontrolling Interest and Equity in Earnings of Affi liated Companies Net income attributable to the noncontrolling interest increased by ¥59.0 billion to ¥34.8 billion during fi scal 2010 compared with the prior year. This increase was mainly due to an increase in net income attributable to the shareholders of consolidated subsidiaries. Equity in earnings of affi liated companies TOYOTA ANNUAL REPORT 2010 44 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information during fi scal 2010 increased by ¥2.7 billion, or 6.3%, to ¥45.4 billion compared with the prior fi scal year. This increase was due to an increase in net income attributable to the shareholders of affi liated companies. 2010 compared with losses of ¥381.3 billion in the prior fi scal year. The increase in unrealized holding gains on securities was mainly due to the recognition of impairment losses on available-for sale securities in the prior fi scal year. Net Income and Loss attributable to Toyota Motor Corporation Net income attributable to Toyota Motor Corporation increased by ¥646.4 billion to ¥209.4 billion during fi scal 2010 compared with the prior fi scal year. income Other Comprehensive Income and Loss Other comprehensive increased by ¥1,127.4 billion to ¥260.9 billion for fi scal 2010 compared with the prior fi scal year. This increase resulted primarily from unrealized holding gains on securities in fi scal 2010 of ¥176.4 billion compared with losses of ¥293.1 billion in the prior fi scal year, and from favorable foreign currency translation adjustments of ¥9.8 billion in fi scal Net Income (Loss), and ROE （¥ Billoin） 2,000 （%） 20 1,500 1,000 500 0 -500 FY 60ʼ 70ʼ 80ʼ ʼ09 ʼ10 ROE (Right scale) 15 10 5 0 -5 Segment Information The following is a discussion of results of operations for each of Toyotaʼs operating segments. The amounts presented are prior to intersegment elimination. Yen in millions Year ended March 31, 2010 vs. 2009 change 2009 2010 Amount Percentage Automotive: Financial Services: All Other: Intersegment elimination/unallocated amount: Net revenues ·························· ¥ 18,564,723 ¥ 17,197,428 ¥ (1,367,295) ‒7.4% Operating income (loss) ··· (394,876) (86,370) 308,506 ‒ Net revenues ·························· ¥ 1,377,548 ¥ 1,245,407 ¥ (132,141) ‒9.6% Operating income (loss) ··· (71,947) 246,927 318,874 ‒ Net revenues ·························· ¥ 1,184,947 ¥ 947,615 ¥ (237,332) ‒20.0% Operating income (loss) ··· 9,913 (8,860) (18,773) Net revenues ·························· ¥ (597,648) ¥ (439,477) ¥ 158,171 Operating income (loss) ··· (4,101) (4,181) (80) ‒ ‒ ‒ (cid:12255)Automotive Operations Segment The automotive operations segment is Toyotaʼs largest operating segment by net revenues. Net revenues for the automotive segment decreased during fi scal 2010 by ¥1,367.3 billion, or 7.4%, compared with the prior year to ¥17,197.4 billion. The decrease was primarily due to fl uctuations in foreign currency translation rates of ¥886.5 billion and decreased vehicle unit sales and the changes in sales mix of approximately ¥570.0 billion, partially off set by increased parts sales of ¥34.9 billion. Operating loss from the automotive operations decreased by ¥308.5 billion during fi scal 2010 compared with the prior year to an operating loss of ¥86.3 billion. This decrease in operating loss was primarily due to cost reduction eff orts, decrease in fi xed costs of ¥990.0 billion, and increase in parts sales, partially off set by a ¥380.0 billion decrease in vehicle unit sales and changes in sales mix. The decrease in vehicle unit sales and changes in sales mix was due primarily to a decrease in vehicle unit sales which resulted from the generally diffi cult market conditions in the automotive industry during fi scal 2010. The decrease in fi xed costs was due mainly to the decline in labor costs and research and development expenses as a result of profi t improvement initiatives, partially off set by ¥105.7 billion increase in costs resulting from a change in the estimation model of expenses related to future recalls and other safety measures. (cid:12255)Financial Services Operations Segment Net revenues for the fi nancial services operations decreased during fi scal 2010 by ¥132.1 billion, or 9.6%, compared to the prior year to ¥1,245.4 billion. This decrease was primarily due to the unfavorable impact of fl uctuations in foreign currency translation rates of ¥93.3 billion. Eliminating the diff erence in the Japanese yen value used for translation purposes, net revenues for its fi nancial services operations would have been approximately ¥1,338.7 billion during fi scal 2010, a 2.8% decrease compared with the prior fi scal year. The decrease in net revenues eliminating the diff erence in the Japanese yen value used for translation purposes resulted primarily from a decrease in rental income from vehicles and equipment on operating leases. income Operating from fi nancial services operations increased by ¥318.9 billion to ¥246.9 billion during fi scal 2010 compared with the prior year. This increase was primarily due to the ¥140.0 billion decrease in provision for credit losses, net charge-off s, the ¥64.5 billion of the recognition of valuation gains on interest rate swaps stated at fair value, and the ¥50.0 billion decrease in provision for residual value losses. The decrease in provision for credit losses, net charge-off s is primarily attributable to the increase in provision for credit losses and net charge-off s in the United States primarily due to the rise in the ratio of credit losses as a result of the economic downturn in the prior fi scal year, partially off set by the impact from the recalls and other safety measures. The decrease in provision for residual value losses is primarily attributable to the recovery in the used vehicle market, partially off set by the impact from the recalls and other safety measures. TOYOTA ANNUAL REPORT 2010 45 　 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Ratio of credit loss experience in the United States is as follows: Results of Operations ̶ Fiscal 2009 Compared with Fiscal 2008 Net charge-off s as a percentage of average gross earning assets: Finance receivables ··············································································································· Operating lease ······················································································································· Total ···················································································································································· 1.54% 0.86% 1.37% 1.15% 0.63% 1.03% Year ended March 31, 2009 2010 (cid:12255)All Other Operations Segment Net revenues for Toyotaʼs other operations segment decreased by ¥237.3 billion, or 20.0%, to ¥947.6 billion during fi scal 2010 compared with the prior year. income Operating from Toyotaʼs other operations segment decreased by ¥18.8 billion, to operating loss of ¥8.9 billion during fi scal 2010 compared with the prior year. Yen in millions Year ended March 31, 2009 2008 2009 vs. 2008 change Amount Percentage Net revenues: Japan ············································································· ¥15,315,812 9,423,258 North America ·························································· 3,993,434 Europe ·········································································· 3,120,826 Asia ················································································· 2,294,137 Other* ··········································································· Intersegment elimination/ unallocated amount ············································· (7,858,227) ¥12,186,737 6,222,914 3,013,128 2,719,329 1,882,900 ¥(3,129,075) (3,200,344) (980,306) (401,497) (411,237) (5,495,438) 2,362,789 ‒20.4% ‒34.0% ‒24.5% ‒12.9% ‒17.9% − Total ·········································································· ¥26,289,240 ¥20,529,570 ¥(5,759,670) ‒21.9% Operating income (loss): Japan ············································································· North America ·························································· Europe ·········································································· Asia ················································································· Other* ··········································································· Intersegment elimination/ unallocated amount ············································· Total ·········································································· Operating margin ···························································· Income (loss) before income taxes, minority interest and equity in earnings of affi liated companies·································································· Net margin from Income (loss) before income taxes, minority interest and equity in earnings of affi liated companies ············································ Equity in earnings of affi liated companies ········ Net income (loss) ······························································ Net margin ··········································································· ¥1,440,286 305,352 141,571 256,356 143,978 ¥(237,531) (390,192) (143,233) 176,060 87,648 ¥(1,677,817) (695,544) (284,804) (80,296) (56,330) (17,168) 46,237 63,405 ¥2,270,375 8.6% ¥(461,011) ‒2.2% ¥(2,731,386) ‒10.8% 2,437,222 (560,381) (2,997,603) 9.3% 270,114 1,717,879 6.5% ‒2.7% 42,724 (436,937) ‒2.1% ‒12.0% (227,390) (2,154,816) ‒8.6% * “Other” consists of Central and South America, Oceania and Africa. − − − ‒31.3% ‒39.1% − − − − ‒84.2% − Net Revenues Toyota had net revenues for fi scal 2009 of ¥20,529.5 billion, a decrease of ¥5,759.7 billion, or 21.9%, compared with the prior year. This impact of decrease principally refl ects the decreased vehicle unit sales and changes in sales mix of ¥3,400.0 billion, the unfavorable impact of fl uctuations in foreign currency translation rates of ¥2,031.2 billion, and decreased parts sales of ¥128.6 billion during fi scal 2009. Eliminating the diff erence in the Japanese yen value used for translation purposes, net revenues would have been approximately ¥22,560.7 billion during fi scal 2009, a 14.2% decrease compared with the prior fi scal year. As a result of the downturn in the global economy stemming from the fi nancial crisis since the fall of 2008, the automotive market contracted by 15.6% in Japan compared to the prior fi scal year, and by 15.8% in North America and 8.2% in Europe compared to the TOYOTA ANNUAL REPORT 2010 46 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section prior calendar year, respectively. Aff ected by this downturn, Toyotaʼs vehicle unit sales decreased to 7,567 thousand vehicles, or by 15.1%, compared to the prior fi scal year. The decrease in net revenues was also due to the eff ect of foreign currency exchange rate fl uctuations and changes in the market demand resulting from a shift in consumer preference towards small vehicles and low-price vehicles. Toyotaʼs net revenues by product category in each business to external customer is as follows: Yen in millions Year ended March 31, 2009 vs. 2008 change 2008 2009 Amount Percentage ¥20,723,588 ¥15,635,490 ¥(5,088,098) ‒24.6% Vehicles ······································································· Parts and components for overseas production ······································· Parts and components for after service ···· Other ············································································ 342,244 1,785,684 1,308,738 298,176 1,575,316 1,041,519 (44,068) (210,368) (267,219) Total Automotive ·········································· 24,160,254 18,550,501 (5,609,753) All Other ····································································· 660,256 623,219 (37,037) Total sales of products ········································ 24,820,510 19,173,720 (5,646,790) Financial services ··················································· 1,468,730 1,355,850 (112,880) Total ····································································· ¥26,289,240 ¥20,529,570 ¥(5,759,670) ‒12.9% ‒11.8% ‒20.4% ‒23.2% ‒5.6% ‒22.8% ‒7.7% ‒21.9% Number of fi nancing contracts by geographic region (at the end of the fi scal year 2008 and 2009) is as follows: Number of fi nancing contracts in thousands Year ended March 31, 2009 vs. 2008 change Japan ······································································· North America ··················································· Europe ···································································· Asia ··········································································· Other* ····································································· 2008 1,614 4,241 709 357 413 Total ·································································· 7,334 * “Other” consists of Central and South America, Oceania and Africa. 2009 1,660 4,403 748 387 440 7,638 Amount Percentage 46 162 39 30 27 304 ＋2.9% ＋3.8% ＋5.5% ＋8.4% ＋6.5% ＋4.1% revenues Geographically, net (before the elimination of intersegment revenues) for fi scal 2009 decreased by 20.4% in Japan, 34.0% in North America, 24.5% in Europe, 12.9% in Asia and 17.9% in Other compared with the prior fi scal year. Eliminating the diff erence in the Japanese yen value used for translation purposes, net revenues in fi scal 2009 would have decreased by 20.4% in Japan, 25.0% in North America, 14.1% in Europe, 1.1% in Other and 0.5% in Asia compared with the prior fi scal year. The following is a discussion of net revenues in each geographic market (before the elimination of intersegment revenues). Toyotaʼs net revenues include net revenues from sales of products, consisting of net revenues from automotive operations and all other operations, which decreased by 22.8% during fi scal 2009 compared with the prior fi scal year to ¥19,173.7 billion, and net revenues from fi nancial services operations, which decreased by 7.7% during fi scal 2009 compared with the prior fi scal year to ¥1,355.8 billion. Eliminating the diff erence in the Japanese yen value used for translation purposes, net revenues from sales of products would have been approximately ¥21,011.3 billion, a 15.3% decrease during fi scal 2009 compared with the prior fi scal year. The decrease in net revenues from sales of products is primarily attributable to a substantial contraction of the automotive market caused by a rapid deterioration of the world economy following the fi nancial crisis since the fall of 2008, as well as changes in market demand resulting from a shift in consumer preference towards small vehicles and low-price vehicles. Eliminating the diff erence in the Japanese yen value used for translation purposes, net revenues from fi nancial services operations would have been approximately ¥1,549.4 billion, a 5.5% increase during fi scal 2009 compared with the prior year. The increase in net revenues from fi nancial services operations is primarily attributable to the increase in volume of fi nancings as a result of an increase in market share primarily of the fi nance subsidiary in North America. (cid:12255)Japan Toyotaʼs consolidated vehicle unit sales · Thousands of units Year ended March 31, 2009 vs. 2008 change 2008 2,188 2009 1,945 Amount Percentage (243) ‒11.1% Yen in millions Year ended March 31, 2009 vs. 2008 change 2008 2009 Amount Percentage Net revenues: Sales of products ······································ ¥15,183,262 ¥12,067,494 ¥(3,115,768) Financial services ····································· 132,550 119,243 (13,307) Total ························································· ¥15,315,812 ¥12,186,737 ¥(3,129,075) ‒20.5% ‒10.0% ‒20.4% TOYOTA ANNUAL REPORT 2010 47 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Although Toyota enjoyed strong sales of new car models such as the Alphard and the Vellfi re amid the downturn in the real economy and increased domestic competition, net revenues in Japan decreased primarily due to lower vehicle unit sales compared to the prior fi scal year as a result of diffi cult market conditions. Net revenues in Japan decreased also due to shift in consumer preference towards compact and subcompact cars infl uenced by decreased consumer spending and heightened environmental awareness. (cid:12255)Europe Toyotaʼs consolidated vehicle unit sales · (cid:12255)North America Toyotaʼs consolidated vehicle unit sales · Thousands of units Net revenues: Year ended March 31, 2009 vs. 2008 change 2008 2,958 2009 2,212 Amount Percentage (746) ‒25.2% Yen in millions Year ended March 31, 2009 vs. 2008 change 2008 2009 Amount Percentage Net revenues: Sales of products ······································ ¥8,339,887 ¥5,226,426 ¥(3,113,461) Financial services ····································· 1,083,371 996,488 (86,883) Total ························································· ¥9,423,258 ¥6,222,914 ¥(3,200,344) ‒37.3% ‒8.0% ‒34.0% Net revenues in North America decreased primarily due to the substantial decrease in vehicle unit sales as a result of the downturn in the market stemming from the fi nancial crisis since the fall of 2008. In particular, the decline in vehicle unit sales is attributable to the decline in vehicle unit sales of commercial vehicles as a result of the surge in prices of crude oil in the fi rst half of fi scal 2009, a shift in consumer preference towards small vehicles and fuel-effi cient vehicles, and a rapid decline in vehicle unit sales of passenger vehicles as a result of the fi nancial crisis in the second half of fi scal 2009. Although net revenues from fi nancing operations decreased, net revenues from fi nancing operations increased by ¥54.3 billion excluding the ¥141.1 billion impact of fl uctuation in foreign currency exchange rate, which is attributable to the increase in the volume of fi nancings as a result of an increase in market share primarily of the fi nance subsidiary in North America. Thousands of units Year ended March 31, 2009 vs. 2008 change 2008 1,284 2009 1,062 Amount Percentage (222) ‒17.3% Yen in millions Year ended March 31, 2009 vs. 2008 change 2008 2009 Amount Percentage Sales of products ······································ ¥3,878,677 ¥2,911,234 ¥(967,443) Financial services ····································· 114,757 101,894 (12,863) Total ························································· ¥3,993,434 ¥3,013,128 ¥(980,306) ‒24.9% ‒11.2% ‒24.5% Although Toyota enjoyed strong sales of compact cars and environmentally-friendly cars such as the Aygo and the Prius, net revenues in Europe decreased due to lower vehicle unit sales compared to the prior fi scal year. The decrease in net revenues was also due to the fi scal year falling between periods of full model changes. (cid:12255)Asia Toyotaʼs consolidated vehicle unit sales · Thousands of units Year ended March 31, 2009 vs. 2008 change 2008 956 2009 905 Amount Percentage (51) ‒5.4% Yen in millions Year ended March 31, 2009 vs. 2008 change 2008 2009 Amount Percentage Net revenues: Sales of products ······································ ¥3,082,832 ¥2,676,939 ¥(405,893) Financial services ····································· 37,994 42,390 4,396 Total ························································· ¥3,120,826 ¥2,719,329 ¥(401,497) ‒13.2% +11.6% ‒12.9% Although the sales of models such as the Avanza and the Innova increased, net revenues in Asia decreased due to a decrease in vehicle unit sales compared to the prior fi scal year as a result of the deterioration of the world economy stemming from the subprime mortgage crisis in the fall of 2008. TOYOTA ANNUAL REPORT 2010 48 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section (cid:12255)Other Toyotaʼs consolidated vehicle unit sales · Thousands of units Year ended March 31, 2009 vs. 2008 change 2008 1,527 2009 1,443 Amount Percentage (84) ‒5.5% Yen in millions Year ended March 31, 2009 vs. 2008 change 2008 2009 Amount Percentage Net revenues: Sales of products ········································· ¥2,186,817 ¥1,779,089 ¥(407,728) Financial services ········································· 107,320 103,811 (3,509) Total ······························································· ¥2,294,137 ¥1,882,900 ¥(411,237) ‒18.6% ‒3.3% ‒17.9% Net revenues in Other decreased due to the decrease in vehicle unit sales compared to the prior fi scal year as a result of a downturn in the markets. Operating Costs and Expenses Yen in millions Year ended March 31, 2009 vs. 2008 change 2008 2009 Amount Percentage Operating costs and expenses Cost of products sold ¥20,452,338 ¥17,468,416 ¥(2,983,922) Cost of fi nancing operations 1,068,015 987,384 (80,631) Selling, general and administrative expenses ····················· Total ·························································· 2,498,512 ¥24,018,865 2,534,781 ¥20,990,581 36,269 ¥(3,028,284) ‒14.6% ‒7.5% +1.5% ‒12.6% Yen in millions 2009 vs. 2008 change Changes in operating costs and expenses: Eff ect of decrease in vehicle unit sales and changes in sales mix ································· ¥(2,100,000) Eff ect of fl uctuation in foreign currency translation rates ················································· (2,062,100) Eff ect of decrease in parts sales ······································································································· Eff ect of decrease in research and development expenses ············································ Eff ect of increase in cost reduction, expenses and other eff ects ·································· (64,400) (54,800) 1,253,016 Total ··························································································································································· ¥(3,028,284) translation rates, the impact of the decrease in parts sales, and the decrease in research and development expenses, partially off set by increases in expenses. The impact of decrease in vehicle unit sales and the changes in sales mix refl ected such factors as the substantial contraction of the automotive market caused by a rapid deterioration of the world economy following the fi nancial crisis since the fall of 2008, as well as changes in the market structure resulting from a shift in consumer preference towards small vehicles and low-price vehicles. The decrease in research and development expenses is attributable to reduced development costs realized as a result of eff orts to improve earnings by improving development effi ciency. This decrease in research and development expenses was achieved while maintaining a focus on the development of environmentally conscious technologies including hybrid and fuel-cell technology, and the developments in advanced technologies relating to collision safety and vehicle stability controls to further build up competitive strength in the future. The is attributable to the increase ineffi ciency from decreased operational activity, increase in inventory reserve for the lower of cost or market, and the incurrence of product-quality related expenses in the fi rst half of fi scal 2009. in expenses Operating costs and expenses decreased by ¥3,028.3 billion, or 12.6%, to ¥20,990.5 billion during fi scal 2009 compared with the prior fi scal year. This decrease resulted primarily from the approximate ¥2,100 billion impact on costs of products attributable to the decrease in vehicle unit sales and the changes in sales mix, the ¥2,062.1 billion impact of fl uctuations in foreign currency translation rates, ¥64.4 billion decreased costs corresponding to the decrease in parts sales, and the ¥54.8 billion decrease in research and development expenses, partially off set by the ¥1,253.0 billion increase in cost reduction, expenses and other eff ects. (cid:12255) Cost Reduction Eff orts Cost reduction eff orts were off set by increases in the prices of steel, precious metals, non-ferrous alloys including aluminum, plastic parts and other production materials and parts. Although the prices of raw materials such as steel remained high through fi scal 2009 as a result of market conditions, cost reduction eff orts, by working closely with suppliers, absorbed the impact of the market price increase. These cost reduction eff orts related to ongoing value engineering and value analysis activities, the use of common parts that result in a reduction of part types and other manufacturing initiatives designed to reduce the costs of vehicle production. (cid:12255)Cost of Products Sold Cost of products sold decreased by ¥2,984.0 billion, or 14.6%, to ¥17,468.4 billion during fi scal 2009 compared with the prior fi scal year. The decrease in cost of products sold for automotive operations is primarily attributed to the decrease in vehicle unit sales and the changes in sales mix, the impact of fl uctuations in foreign currency TOYOTA ANNUAL REPORT 2010 49 　 　 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information (cid:12255)Cost of Financing Operations Yen in millions 2009 vs. 2008 change Changes in cost of fi nancing operations: Eff ect of fl uctuation in foreign currency translation rates ·················· ¥ (206,400) Eff ect of increase in provision for residual value losses ····························· Eff ect of increase in valuation losses on interest rate swaps stated at fair value · Other ·································································· Total ········································································· 70,000 12,200 43,569 ¥ (80,631) Cost of fi nancing operations decreased by ¥80.6 billion, or 7.5%, to ¥987.4 billion during fi scal 2009 compared with the prior fi scal year. The decrease resulted primarily from the ¥206.4 billion impact of fl uctuations in foreign currency translation rates, partially off set by the ¥70.0 billion increase in provision for residual value losses and the ¥12.2 billion increase in valuation losses on interest rate swaps stated at fair value. The increase in provision for residual value losses is primarily attributable to the increase in provision for residual value losses of operating lease vehicles resulting from the decrease in the prices of used vehicles, particularly of large vehicles with low fuel economy due to the economic downturn. The increase in valuation losses on interest rate swaps stated at fair value is attributable to the valuation losses on fl oating to fi xed interest rate swaps that are not designated as hedges due to the decline in market interest rates. Selling, General and Administrative Expenses Selling, general and administrative expenses increased by ¥36.2 billion, or 1.5%, to ¥2,534.7 billion during fi scal 2009 compared with the prior fi scal year. This increase mainly refl ects the ¥119.4 billion increase for the fi nancial services operations, partially off set by the ¥95.2 billion decrease of marketing expense which is attributable to reduced marketing costs realized as a result of eff orts to improve earnings. The increase in the fi nancial services operations is primarily due to the ¥170.0 billion increase in provision for credit losses and net charge-off s, which is attributable to the rise in the ratio of credit losses as a result of the economic downturn mainly in the United States. Operating Income and Loss Yen in millions 2009 vs. 2008 change Changes in operating income and loss: Eff ect of decrease in vehicle unit sales and changes in sales mix and other operational factors ············································· ¥ (1,480,000) (17,300) Eff ect of decrease in parts sales ··················· Eff ect of fl uctuation in foreign currency translation rates ······································ Eff ect of decrease in research and development expenses ······················ Eff ect of increase in cost reduction, 30,900 54,800 expenses and other eff ects ·············· (1,319,786) Total ········································································· ¥ (2,731,386) Toyotaʼs operating income decreased by ¥2,731.3 billion to an operating loss of ¥461.0 billion during fi scal 2009 compared with the prior fi scal year. This decrease was unfavorably aff ected by the ¥1,300.0 billion decrease in vehicle unit sales and the changes in sales mix, the ¥1,319.7 billion increase in cost reduction, expenses and other eff ects, and the ¥17.3 billion decrease in parts sales, partially off set by the ¥54.8 billion decrease in research and development expenses. During fi scal 2009, operating income (before the elimination of intersegment profi ts) for signifi cant geographic regions decreased by ¥1,677.8 billion in Japan, decreased by ¥695.5 billion in North America, decreased by ¥284.8 billion in Europe, decreased by ¥80.3 billion, or 31.3%, in Asia, and decreased by ¥56.3 billion, or 39.1% in Other compared with the prior fi scal year. The following is a discussion of operating income and loss in each geographic market. (cid:12255)Japan Yen in millions 2009 vs. 2008 change Changes in operating income and loss: Eff ect of decrease in production volume and vehicle unit sales in the export markets and other operational factors ·················· ¥ (730,000) Eff ect of increase in cost reduction, expenses and other eff ects ············· (947,817) Total ········································································ ¥ (1,677,817) impact of decreases The decrease in Japan was mainly due to the ¥700.0 billion in both production volume and vehicle unit sales in the export markets, partially off set by the decrease in research and development expenses. The decreases in both production volume and vehicle unit sales in the export markets are attributable to the diffi cult market conditions caused by the downturn in the real economy. (cid:12255)North America Yen in millions 2009 vs. 2008 change Changes in operating income and loss: Eff ect of decrease in production volume and vehicle unit sales and other operational factors ······································· Eff ect of fl uctuation in foreign currency translation rates ················· Eff ect of increase in cost reduction, expenses and other eff ects ············· Total ········································································ ¥(580,000) 52,700 (168,244) ¥(695,544) The decrease in North America was mainly due to the ¥400.0 billion impact of decreases in both production volume and vehicle unit sales, the increases in the provision for credit losses, net charge-off s and provision for residual value losses in sales fi nance subsidiaries in the United States, which are included in “Eff ect of increase in cost reduction, expenses and other eff ects”, partially off set by the ¥52.7 billion impact of the fl uctuations in foreign currency translation rates. The decreases in both production volume and vehicle unit sales in North America are attributable to the rapid decline in vehicle unit sales of commercial vehicles and passenger vehicles due to the downturn in the market stemming from the fi nancial crisis in the fall of 2008. (cid:12255)Europe Yen in millions 2009 vs. 2008 change Changes in operating income and loss: Eff ect of decrease in production volume and vehicle unit sales and other operational factors ··················· ¥(190,000) Eff ect of fl uctuation in foreign currency translation rates ················· Eff ect of increase in cost reduction, expenses and other eff ects ·············· Total ········································································· 18,100 (112,904) ¥(284,804) The decrease in Europe was mainly due to the ¥180.0 billion impact of decreases in both production volume and vehicle unit sales, partially off set by the ¥18.1 billion impact of fl uctuations in foreign currency translation rates. The decreases in both production volume and vehicle unit sales in Europe was attributable to the signifi cant decline in vehicle unit sales in western Europe compared to the prior fi scal year as a result of the rapid market contraction due to the fi nancial crisis in the fall of 2008. The decreases are also attributable to the fi scal year TOYOTA ANNUAL REPORT 2010 50 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section falling between periods of full model changes. (cid:12255)Asia Yen in millions 2009 vs. 2008 change Changes in operating income and loss: Eff ect of decrease in production volume and vehicle unit sales and other operational factors ········································ Eff ect of fl uctuation in foreign currency translation rates ················· Eff ect of increase in cost reduction, expenses and other eff ects ············· Total ········································································ ¥ ‒ (24,400) (55,896) ¥ (80,296) The decrease in Asia was mainly due to the ¥24.4 billion impact of the fl uctuations in foreign currency translation rates. The decrease in production volume and vehicle unit sales in Asia was primarily attributable to the sales decline in the market compared to the prior fi scal year following the fi nancial crisis in the majority of Asian countries including Thailand. (cid:12255)Other The decrease in Other was primarily due to the decrease in vehicle unit sales. Other Income and Expenses Interest and dividend income decreased by ¥27.3 billion, or 16.4%, to ¥138.4 billion during fi scal 2009 compared with the prior fi scal year mainly due to a decrease in interest income from marketable securities. Interest expense increased by ¥0.8 billion, or 1.7%, to ¥46.9 billion during fi scal 2009 compared with the prior fi scal year. Foreign exchange gains, net decreased by ¥11.0 billion to a loss of ¥1.8 billion during fi scal 2009 compared with the prior fi scal year. include Foreign exchange gains and losses the diff erences between the value of foreign currency denominated sales translated at prevailing exchange rates and the value of the sales amounts settled during the fi scal year, including those settled using forward foreign currency exchange contracts. Other income, net decreased by ¥227.2 billion to a loss of ¥189.1 billion during fi scal 2009 compared with the prior fi scal year. This decrease was mainly due to the recognition of impairment losses on available-for sale securities. Income Taxes The provision for income taxes decreased by ¥968.0 billion to a tax benefi t of ¥56.5 billion during fi scal 2009 compared with the prior fi scal year primarily due to the decrease in income before income taxes. The eff ective tax rate was 10.1%, which was lower than its statutory tax rate in Japan primarily due to a recognition of valuation allowance for deferred tax assets at domestic and overseas subsidiaries. Net Income and Loss attributable to the Noncontrolling Interest and Equity in Earnings of Affi liated Companies loss attributable to the Net income and interest decreased by ¥102.2 noncontrolling billion to a loss of ¥24.2 billion during fi scal 2009 compared with the prior fi scal year. This decrease was mainly due to a decrease in net income attributable to the shareholders of consolidated subsidiaries. Equity in earnings of affi liated companies during fi scal 2009 decreased by ¥227.4 billion, or 84.2%, to ¥42.7 billion compared with the prior fi scal year. This decrease was due to a decrease in net income attributable to the shareholders of affi liated companies. Net Income and Loss attributable to Toyota Motor Corporation Net income attributable to Toyota Motor Corporation decreased by ¥2,154.8 billion to a loss of ¥437.0 billion during fi scal 2009 compared with the prior fi scal year. Other Comprehensive Income and Loss Other comprehensive losses decreased by ¥76.0 billion to losses of ¥866.5 billion for fi scal 2009 compared with the prior fi scal year. This decrease from losses resulted primarily favorable in foreign currency translation adjustments in fi scal 2009 to losses of ¥381.3 billion compared with losses of ¥461.1 billion in the prior fi scal year, and a decrease in unrealized holding losses on securities in fi scal 2009 to ¥293.1 billion compared with ¥347.8 billion in the prior fi scal year. The decrease in unrealized holding losses on securities was mainly due to the recognition of impairment losses on available-for sale securities. Segment Information The following is a discussion of results of operations for each of Toyotaʼs operating segments. The amounts presented are prior to intersegment elimination. Yen in millions Year ended March 31, 2009 vs. 2008 change 2008 2009 Amount Percentage Automotive: Financial Services: All Other: Intersegment elimination/unallocated amount: Net revenues ························· ¥ 24,177,306 ¥ 18,564,723 ¥ (5,612,583) ‒23.2% Operating income (loss) ·· 2,171,905 (394,876) (2,566,781) ‒ Net revenues ························· ¥ 1,498,354 ¥ 1,377,548 ¥ (120,806) ‒8.1% Operating income (loss) ·· 86,494 (71,947) (158,441) Net revenues ························· ¥ 1,346,955 ¥ 1,184,947 ¥ (162,008) Operating income (loss) ·· 33,080 9,913 (23,167) Net revenues ························· ¥ (733,375) ¥ (597,648) ¥ 135,727 Operating income (loss) ·· (21,104) (4,101) 17,003 ‒ ‒12.0% ‒70.0% ‒ ‒ (cid:12255)Automotive Operations Segment The automotive operations segment is Toyotaʼs largest operating segment by net revenues. Net revenues for the automotive segment decreased during fi scal 2009 by ¥5,612.6 billion, or 23.2%, compared with the prior fi scal year to ¥18,564.7 billion. The decrease was primarily due to decreased vehicle unit sales and the changes in sales mix of approximately ¥3,400.0 billion, fl uctuations in foreign currency translation rates of ¥1,833.8 billion and decreased parts sales during fi scal 2009. from income Operating the automotive operations decreased by ¥2,566.7 billion during fi scal 2009 compared with the prior year to an operating loss of ¥394.8 billion. This decrease TOYOTA ANNUAL REPORT 2010 51 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information in market share primarily of the fi nance subsidiary in North America. Ratio of credit loss experience in the United States is as follows: Net charge-off s as a percentage of average gross earning assets: Finance receivables ··································································································· Operating lease ··········································································································· Total Year ended March 31, 2008 1.08% 0.40% 0.91% 2009 1.54% 0.86% 1.37% (cid:12255)All Other Operations Segment Net revenues for Toyotaʼs other operations segment decreased by ¥162.0 billion, or 12.0%, to ¥1,184.9 billion during fi scal 2009 compared with the prior fi scal year. income Operating from Toyotaʼs other operations segment decreased by ¥23.1 billion, or 70.0%, to ¥9.9 billion during fi scal 2009 compared with the prior fi scal year. income Operating from fi nancial services operations decreased by ¥158.5 billion to an operating loss of ¥72.0 billion during fi scal 2009 compared with the prior fi scal year. This decrease was primarily due to the ¥170.0 billion increase in provision for credit losses, net charge-off s and the ¥70.0 billion increase in provision for residual value losses, and the ¥12.2 billion increase in valuation losses on interest rate swaps stated at fair value in sales fi nance subsidiaries primarily in the United States. The increase in provision for credit losses, net charge-off s is primarily attributable to the increase in provision for credit losses and net charge-off s in the United States due to the rise in the ratio of credit losses as a result of the economic downturn. The increase in provision for residual value losses is primarily attributable to the decrease in the prices of used vehicles, particularly of large vehicles with low fuel economy, as a result of the economic downturn. The increase in valuation losses on interest rate swaps stated at fair value is attributable to the valuation losses on fl oating to fi xed interest rate swaps that are not designated as hedges due to the decline in market interest rates. was primarily due to the decrease in vehicle unit sales and changes in sales mix of ¥1,300.0 billion, the increase in expenses of ¥491.3 billion, and the decrease in parts sales, partially off set by the decrease in research and development expenses. The decrease in vehicle unit sales and changes in sales mix refl ected such factors as a substantial contraction of the automotive market caused by a rapid deterioration of the world economy following the fi nancial crisis since the fall of 2008, as well as changes in the market structure resulting from a shift in consumer preference towards small vehicles and low-price vehicles. The increase in expenses is attributable to the ineffi ciency from decreased operational activity, increase in inventory reserve for the lower of cost or market, and the incurrence of product-quality related expenses in the fi rst half of fi scal 2009. (cid:12255)Financial Services Operations Segment Net revenues for the fi nancial services operations decreased during fi scal 2009 by ¥120.8 billion, or 8.1%, compared to the prior fi scal year to ¥1,377.5 billion. This decrease was primarily due to the unfavorable impact of fl uctuations in foreign currency translation rates of ¥195.0 billion, which was partially off set by a higher volume of fi nancing of ¥95.0 billion. Eliminating the diff erence in the Japanese yen value used for translation purposes, net revenues for its fi nancial services operations would have been approximately ¥1,572.5 billion during fi scal 2009, a 5.0% increase compared with the prior fi scal year. The increase in net revenues from fi nancial services operations, eliminating the diff erence in the Japanese yen value used for translation purposes, is primarily attributable to the increase in volume of fi nancings as a result of an increase TOYOTA ANNUAL REPORT 2010 52 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Outlook While Toyota expects that an economic recovery trend in China will prevail across the Asian markets and developed countries will see a gradual economic recovery in fi scal 2011, Toyota also believes there is a risk of a downturn in the world economy during fi scal 2011 resulting from credit contraction in fi nancial markets, unemployment, increases in raw material prices, and other factors. to Toyota expects the automotive market to long-term the medium- expand over particularly resource-rich and emerging in countries. Currently, the global competition in the automotive market has intensifi ed, as shown in the fi erce competition in the small and low- price vehicles markets, and the advancement of introduction of new new technologies and products in response to growing environmental awareness. For purposes of this outlook is assuming an average discussion, Toyota exchange rate of ¥90 to the U.S. dollar and ¥125 to the euro. With the foregoing external factors in mind, Toyota expects that net revenues for fi scal 2011 will increase compared with fi scal 2010 as a result of an increase in vehicle unit sales. With respect to operating income, factors increasing operating include cost reduction eff orts, a decrease in depreciation and other eff orts to decrease expenses. Toyota does not expect a signifi cant increase in expenses related to recalls and other safety measures, compared with fi scal 2010. On the other hand, factors decreasing operating income include the assumed exchange rate of a stronger Japanese yen against the U.S. dollar in fi scal 2011 compared to the prior fi scal year as well as increases in income selling expenses and incentives caused by strengthened sales promotion activities; which off set the factors increasing operating income. As a result, Toyota expects that operating income will increase in fi scal 2011 compared with fi scal 2010. Also, Toyota expects income before income in earnings of affi liated taxes and equity income attributable to companies and net Toyota Motor Corporation will increase in fi scal 2011. Exchange rate fl uctuations can materially aff ect Toyotaʼs operating results. In particular, a strengthening of the Japanese yen against the U.S. dollar can have a material adverse eff ect on Toyotaʼs operating results. Please see “Operating and Financial Review and Prospects ̶ Operating Results ̶ Overview ̶ Currency Fluctuations.” for further discussion. The foregoing statements are forward-looking statements based upon Toyotaʼs managementʼs assumptions and beliefs regarding exchange rates, market demand for Toyotaʼs products, economic conditions and others. Please see “Cautionary Statement Concerning Forward- Looking Statements”. Toyotaʼs actual results of operations could vary signifi cantly from those described above as a result of unanticipated changes in the factors described above or other factors, including those described in “Risk Factors”. Liquidity and capital resources funded Historically, Toyota has its capital expenditures and research and development activities primarily through cash generated by operations. In fi scal 2010, as in the prior fi scal year, Toyota funded cash partially through additional loans and issuance of notes, considering the future business climate as well as to ensure a sound fi nancial base. In fi scal 2011, Toyota expects to suffi ciently fund its capital expenditures and research and development activities primarily through cash and cash equivalents on hand, and cash generated by operations. Toyota will use its funds for the development of environment technologies, maintenance and replacement of manufacturing facilities, and the introduction of new products. See “Information on the Company ̶ Business Overview ̶ Capital Expenditures and Divestitures” for information regarding Toyotaʼs material capital expenditures and divestitures for fi scal 2008, 2009 and 2010, and information concerning Toyotaʼs principal capital expenditures and divestitures currently in progress. Toyota for customers and dealers, including loans and leasing programs, from both cash generated by operations and borrowings by its sales fi nance subsidiaries. Toyota seeks to expand its ability to raise funds locally in markets throughout the world by expanding its network of fi nance subsidiaries. its fi nancing programs funds Net cash provided by operating activities was ¥2,558.5 billion for fi scal 2010, compared with ¥1,476.9 billion for the prior fi scal year. The increase in net cash provided by operating activities resulted primarily from a decrease in cash payment to suppliers attributable to the decrease in cost of products sold in the automotive operations, and cash payments for income taxes, partially off set by a decrease in cash collection received from sale of products due to a decrease in net revenue for the automotive operations. Net cash used in investing activities was ¥2,850.1 billion for fi scal 2010, compared with ¥1,230.2 billion for the prior fi scal year. The increase in net cash used in investing activities resulted primarily from an increase in purchases of marketable securities and security investments. Net cash provided or used by fi nancing activities was a ¥277.9 billion decrease for fi scal 2010, compared with ¥698.8 billion increase for the prior fi scal year. The decrease in net cash provided by fi nancing activities resulted primarily from a decrease of short-term borrowings, partially off set by a decrease in dividends paid. Total capital expenditures for property, plant and equipment, excluding vehicles and equipment on operating leases, were ¥604.5 billion during fi scal 2010, a decrease of 55.7% over the ¥1,364.5 billion in total capital expenditures during the prior fi scal year. The decrease in capital expenditures resulted primarily from a decrease of investments in Japan and North America. Total expenditures for vehicles and equipment on operating leases were ¥833.0 billion during fi scal 2010, a decrease of 13.3% over the ¥960.3 billion in expenditures from the prior fi scal year. The decrease in expenditures for vehicles and equipment on operating leases resulted primarily from a decrease in investments in the fi nancial TOYOTA ANNUAL REPORT 2010 53 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information services operations. Toyota expects investments in property, plant and equipment, excluding vehicles leases, to be and equipment on operating approximately ¥740.0 billion during fi scal 2011. Toyotaʼs expected investments include ¥440.0 billion in Japan, ¥120.0 billion in North America, ¥40.0 billion in Europe, ¥90.0 billion in Asia and ¥50.0 billion in Other. Based on current available information, Toyota does not expect environmental matters to have a material impact on its fi nancial position, results of operations, liquidity or cash fl ows during fi scal 2011. However, there exists uncertainty with respect to Toyotaʼs obligations under current and future environment regulations as described in “Information on the Company ̶ Business Overview ̶ Governmental Regulations, Environmental and Safety Standards”. Cash and cash equivalents were ¥1,865.7 billion as of March 31, 2010. Most of Toyotaʼs cash and cash equivalents are held in Japanese yen and in U.S. dollars. In addition, time deposits were ¥392.7 billion and marketable securities were ¥1,793.1 billion as of March 31, 2010. Liquid assets, which Toyota defi nes as cash and cash equivalents, time deposits, marketable debt securities and its investment in monetary trust funds, increased during fi scal 2010 by ¥1,069.1 billion, or 25.3%, to ¥5,298.2 billion. Trade accounts and notes receivable, net increased during fi scal 2010 by ¥493.5 billion, Net Cash Provided by Operating Activities and Free Cash Flow* Capital Expenditures for Property, Plant and Equip- ment* and Depreciation Cash and Cash Equivalents at End of Year （¥ Billion） 4,000 （¥ Billion） 1,600 （¥ Billion） 2,500 3,000 2,000 1,000 0 1,200 800 400 0 2,000 1,500 1,000 500 0 FY 60ʼ 70ʼ 80ʼ ʼ09 ʼ10 FY 60ʼ 70ʼ 80ʼ ʼ09 ʼ10 FY 60ʼ 70ʼ 80ʼ ʼ09 ʼ10 Net cash provided by operating activities Free cash flow * (Net cash provided by operating activities)−(Capital expenditures for property, plant and equipment, excluding vehicles and equipment on operating leases) Capital expenditures Depreciation * Excluding vehicles and equipment on operating leases or 35.4%, to ¥1,886.2 billion. This increase was primarily due to the increase in the volume of sales in the second half of fi scal 2010. Inventories decreased during fi scal 2010 by ¥37.0 billion, or 2.5%, to ¥1,422.3 billion. Total fi nance receivables, net increased during fi scal 2010 by ¥293.2 billion, or 3.1%, to ¥9,840.1 billion. The increase in fi nance receivables, net is mainly due to increase in retail receivables, partially off set by fl uctuations in foreign currency translation rates. As of March 31, 2010, fi nance receivables were geographically distributed as follows: in North America 61.9%, in Japan 12.8%, in Europe 10.3%, in Asia 4.7% and in Other 10.3%. Although Toyota maintains programs to sell fi nance receivables through qualifying special purpose entities, no sales of fi nance receivables were made during fi scal 2010. Marketable securities and other securities investments, including those included in current assets, increased during fi scal 2010 by ¥1,451.2 billion, or 55.9%, primarily refl ecting purchase of marketable securities and security investments, and an increase in the fair values of these securities and investments. Property, plant and equipment decreased during fi scal 2010 by ¥690.7 billion, or 9.3%, primarily refl ecting the impacts of depreciation changes during the year and fl uctuations in foreign currency translation rates, partially off set by the capital expenditures. Accounts and notes payable increased during fi scal 2010 by ¥657.0 billion, or 50.6%. This increase was primarily due to the increase in the volume of transactions in the second half of fi scal 2010. Accrued expenses increased during fi scal 2010 by ¥195.2 billion, or 12.7%, refl ecting the increase in expenses related to the recalls and other safety mea- sures. Income taxes payable increased during fi scal 2010 by ¥102.0 billion, or 199.0%, primar- ily as a result of an increase in income before income taxes. Liquid Assets* （¥ Billion） 5,000 4,000 3,000 2,000 1,000 0 FY ʼ09 70ʼ 80ʼ 60ʼ ʼ10 * Cash and cash equivalents, time deposits, marketable dept securities and investment in monetary trust funds Toyotaʼs total bor- rowings decreased during fi scal 2010 by ¥105.2 billion, or 0.8%. Toyotaʼs short-term borrow- ings consist of loans with a weighted-average interest rate of 1.55% and commercial paper with a weighted-average interest rate of 0.44%. Short- term borrowings decreased during fi scal 2010 by ¥338.0 billion, or 9.3%, to ¥3,279.6 billion. Toyotaʼs long-term debt consists of unsecured and secured loans, medium-term notes, unsecured notes and long-term capital lease obligations with interest rates ranging from 0.00% to 29.25%, and maturity dates ranging from 2010 to 2047. The current portion of long-term debt decreased during fi scal 2010 by ¥481.2 billion, or 17.8%, to ¥2,218.3 billion and the non-current portion increased by ¥714.0 billion, or 11.3%, to ¥7,015.4 billion. The decrease in total borrowings primarily resulted from decrease in medium-term notes and short-term borrowings, partially off set by increase in long-term borrowings. As of March 31, 2010, approximately 36% of long-term debt TOYOTA ANNUAL REPORT 2010 54 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information was denominated in Japanese yen, 21% in U.S. dollars, 13% in euros and 30% in other currencies. Toyota hedges fi xed rate exposure by entering into interest rate swaps. There are no material seasonal variations in Toyotaʼs borrowings requirements. Toyotaʼs As of March 31, 2010, Toyotaʼs total interest bearing debt was 120.8% of Toyota Motor Corporation shareholdersʼ equity, compared to 125.4% as of March 31, 2009. long-term debt is rated “AA” by Standard & Poorʼs Ratings Group, “Aa2” by Moodyʼs Investors Services and “AAA” by Rating and Investment Information, Inc., as of May 31, 2010. A credit rating is not a recommendation to buy, sell or hold securities. A credit rating may be subject to withdrawal or revision at any time. Each rating should be evaluated separately of any other rating. Toyotaʼs unfunded pension liabilities decreased during fi scal 2010 by ¥106.1 billion, or 16.2%, to ¥547.6 billion. The unfunded pension liabilities relate primarily to the parent company and its overseas subsidiaries. The unfunded amounts will be funded through future cash contributions by Toyota or in some cases will be funded on the retirement date of each covered employee. The unfunded pension liabilities decreased in fi scal 2010 compared to the prior year primarily due to an increase in the fair value of plan assets. See note 19 to the consolidated fi nancial statements for further discussion. to adhere Toyotaʼs treasury policy is to maintain controls on all exposures, to stringent counterparty credit standards, and to actively monitor marketplace exposures. Toyota remains centralized, and is pursuing global effi ciency of its fi nancial services operations through Toyota Financial Services Corporation. The key element of Toyotaʼs fi nancial strategy is maintaining a strong fi nancial position that will allow Toyota to fund its research and initiatives, capital expenditures development and fi nancing operations effi ciently even if earnings experience short-term fl uctuations. it maintains suffi cient Toyota believes that liquidity for its present requirements and that by maintaining its high credit ratings, it will continue to be able to access funds from external sources in large amounts and at relatively low costs. Toyotaʼs ability to maintain its high credit ratings is subject to a number of factors, some of which are not within Toyotaʼs control. These factors include general economic conditions in Japan and the other major markets in which Toyota does business, as well as Toyotaʼs successful implementation of its business strategy. Shareholdersʼ Equity and Equity Ratio （¥ Billion） 15,000 （%） 100 12,000 9,000 6,000 3,000 0 FY 60ʼ 70ʼ 80ʼ ʼ09 ʼ10 Equity ratio (Right scale) 80 60 40 20 0 Off -balance sheet arrangements Toyota uses its securitization program as part of its funding through qualifying special purpose entities for its fi nancial services operations. See note 7 to the consolidated fi nancial statements Lending commitments Credit Facilities with Credit Card Holders Toyotaʼs fi nancial services operation issues credit cards to customers. As customary for credit card businesses, Toyota maintains credit facilities with holders of credit cards issued by Toyota. These facilities are used upon each holderʼs requests up to the limits established on an individual holderʼs basis. Although loans made to customers through this facility are not secured, for the purposes of minimizing credit risks and of appropriately establishing credit limits for each individual credit card holder, Toyota employs its own risk management policy which includes an analysis of information provided by fi nancial institutions in alliance with Toyota. Toyota periodically reviews and revises, as appropriate, these credit limits. Outstanding credit facilities with credit card holders were ¥130.3 billion as of March 31, 2010. Credit Facilities with Dealers Toyotaʼs fi nancial services operation maintains credit facilities with dealers. These credit facilities may be used for business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. These loans are typically collateralized with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate. Toyota obtains a personal guarantee the dealer or corporate guarantee from the dealership when deemed from regarding the impact of the securitization program on the consolidated fi nancial statements. loans are typically prudent. Although the collateralized or guaranteed, the value of the underlying collateral or guarantees may not be suffi cient to cover Toyotaʼs exposure under such agreements. Toyota prices the credit facilities according to the risks assumed in entering into the credit facility. Toyotaʼs fi nancial services operation also provides fi nancing to various multi-franchise dealer organizations, referred to as dealer groups, often as part of a lending consortium, for wholesale inventory fi nancing, business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. Toyotaʼs outstanding credit facilities with dealers totaled ¥1,586.8 billion as of March 31, 2010. its dealers Guarantees Toyota enters into certain guarantee contracts with to guarantee customersʼ payments of their installment payables that arise from installment contracts between customers and Toyota dealers, as and when requested by Toyota dealers. Guarantee periods are set to match the maturity of installment payments, and as of March 31, 2010, ranged from one month to 35 years. 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. TOYOTA ANNUAL REPORT 2010 55 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information future The maximum potential amount of payments as of March 31, 2010 is ¥1,604.8 billion. Liabilities for these guarantees of ¥5.9 billion have been provided as of March 31, 2010. Under these guarantee contracts, Toyota is entitled to recover any amounts paid by it from the customers whose obligations it guaranteed. Contractual obligations and commitments lease obligations, operating information regarding debt obligations, For lease capital obligations and other obligations, including amounts maturing in each of the next fi ve years, see notes 13, 22 and 23 to the consolidated fi nancial statements. In addition, as part of Toyotaʼs normal business practices, Toyota enters into long-term arrangements with suppliers for purchases of certain raw materials, components and services. These arrangements may contain fi xed/minimum quantity purchase requirements. to Toyota enters facilitate an adequate supply of these materials and services. into such arrangements Total amounts committed Yen in millions Amount of Commitment Expiration Per Period Less than 1 year 1 to 3 years 3 to 5 years 5 years and after ￥1,604,893 ￥460,460 ￥729,509 ￥311,760 ￥103,164 Commercial Commitments (note 23): Maximum potential exposure to guarantees given in the ordinary course of business Total Commercial Commitments ········· ￥1,604,893 ￥460,460 ￥729,509 ￥311,760 ￥103,164 Related party transactions Toyota does not have any signifi cant related party transactions other than transactions with in the ordinary course affi liated companies of business. See note 12 to the consolidated fi nancial statements for further discussion. The following tables summarize Toyotaʼs contractual obligations and commercial commitments as of March 31, 2010: Legislation regarding end-of-life vehicles Yen in millions Payments due by period Total Less than 1 year 1 to 3 years 3 to 5 years 5 years and after Contractual Obligations: Short-term borrowings (note 13) Loans ····························································· ￥ Commercial paper ································· Long-term debt* (note13) ······················ 9,191,490 Capital lease obligations (note 13) ····· 42,243 Non-cancelable operating lease 804,066 ￥ 804,066 ￥ ̶ ￥ ̶ ￥ 2,475,607 ̶ ̶ ̶ ̶ 2,475,607 2,194,235 24,089 4,232,077 1,464,523 1,300,655 4,224 2,415 11,515 obligations (note 22) ···························· 51,953 9,900 14,629 9,302 18,122 Commitments for the purchase of property, plant and other assets (note 23) ······················ 74,529 37,026 20,879 1,622 15,002 Total ······························································· ￥ 12,639,888 ￥ 5,544,923 ￥ 4,271,809 ￥ 1,477,862 ￥ 1,345,294 * “Long-term debt” represents future principal payments. Toyota is unable to make reasonable estimates of the period of cash settlement with respect to liabilities recognized for uncertain tax benefi ts, and accordingly such liabilities are excluded from the table above. See note 16 to the consolidated fi nancial statements for further discussion. Toyota expects to contribute ¥111,112 million to its pension plans in fi scal 2011. In October 2000, the European Union enforced a directive that requires member states to the promulgate following: implementing regulations • manufacturers shall bear all or a signifi cant part of the costs 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, this requirement will also be applicable to vehicles put on the market before July 1, 2002; • manufacturers may not use certain hazardous materials in vehicles sold after July 2003; • vehicles type-approved and put on the market after December 15, 2008 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 • end-of-life vehicles must meet actual re-use of 80% and re-use as material or energy of 85%, respectively, of vehicle weight by 2006, rising to 85% and 95%, respectively, by 2015. See note 23 to the consolidated fi nancial statements for further discussion. Recent accounting pronouncements in the United States In June 2009, the Financial Accounting Standards issued updated guidance of Board (“FASB”) accounting for and disclosure of transfers and servicing. This guidance eliminates the concept of a qualifying special purpose entity, changes the requirements for derecognizing fi nancial TOYOTA ANNUAL REPORT 2010 56 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section assets, and requires additional disclosures about transfers of fi nancial assets. This guidance is eff ective for fi scal year beginning after November 15, 2009, and for interim period within the fi scal year. Management is evaluating the impact of adopting this guidance on Toyotaʼs consolidated fi nancial statements. In June 2009, FASB issued updated guidance of accounting for and disclosure of consolidation. This guidance changes how a company determines when a variable interest entity should be consolidated. This guidance is eff ective for fi scal year beginning after November 15, 2009, and for interim period within the fi scal year. Management is evaluating the impact of adopting this guidance on Toyotaʼs consolidated fi nancial statements. Critical accounting estimates The consolidated fi nancial statements of Toyota are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these fi nancial statements requires the use of estimates, judgments and assumptions that aff ect the reported amounts of assets and liabilities at the date of the fi nancial statements and the reported amounts of revenues and expenses during the periods presented. Toyota believes that of its signifi cant accounting policies, the following may involve a higher degree of judgments, estimates and assumptions: Product Warranty Toyota generally warrants its products against certain manufacturing and other defects. Product warranties are provided for specifi c periods of time and/or usage of the product and vary depending upon the nature of the product, the geographic location of the sale and other factors. All product warranties are consistent with commercial practices. Toyota includes a provision for estimated product warranty costs as a component of cost of sales at the time the related sale is recognized. The accrued warranty costs represent managementʼs best estimate at the time of sale of the total costs that Toyota will incur to repair or replace product parts that fail while still under warranty. The amount of accrued estimated warranty costs is primarily based on historical experience of product failures as well as current information on repair costs. The amount of warranty costs accrued also contains an estimate of warranty claim recoveries to be received from suppliers. The foregoing evaluations are inherently uncertain, as they require material estimates and some productsʼ warranties extend for several years. Consequently, actual warranty costs may diff er from the estimated amounts and could require additional warranty provisions. If these factors require a signifi cant increase in Toyotaʼs accrued estimated warranty costs, it would negatively aff ect future operating results of the automotive operations. Toyota accrues for costs of recalls and other safety measures based on managementʼs estimates when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Prior to the fourth quarter of this fi scal year, amounts were accrued based on individual occurrences of recalls and other safety measures. During the fourth quarter of this consolidated fi scal year, as a result of signifi cant changes in facts and circumstances, Toyota has employed an estimation model, to accrue at the time of vehicle sale, an amount that represents managementʼs best estimate of expenses related to future recalls and other safety measures. The estimation model for recalls and other safety measures takes into account Toyotaʼs historical experience and individual occurrences of recalls and other safety measures. This change resulted from Toyotaʼs most recent experience with recalls and other safety measures, changes in the operating processes such as the establishment of the Special Committee for Global Quality to address quality-related matters, as well as the broadening of the number of vehicles subject to recalls and other safety measures. Consequently, actual costs of recalls and other safety measures may diff er from the estimated amounts. Allowance for Doubtful Accounts and Credit Losses (cid:12255)Natures of estimates and assumptions Sales fi nancing and fi nance lease receivables consist of retail installment sales contracts secured by passenger cars and commercial vehicles. Collectability risks include consumer and dealer insolvencies and insuffi cient collateral values (less costs to sell) to realize the full carrying values of these receivables. As a matter of policy, Toyota maintains an allowance for doubtful accounts and credit losses representing managementʼs estimate of the amount of asset impairment in the portfolios of fi nance, trade and other receivables. Toyota determines the allowance for doubtful accounts and credit losses based on a systematic, ongoing review and evaluation performed as part of the credit- risk evaluation process, historical loss experience, the size and composition of the portfolios, current economic events and conditions, the estimated fair value, adequacy of collateral and other pertinent factors. This evaluation is inherently judgmental and requires material estimates, including the amounts and timing of future cash fl ows expected to be received, which may be susceptible to signifi cant change. Although management considers the allowance for doubtful accounts and credit losses to be adequate based on information currently available, additional provisions may be necessary due to (i) changes in management estimates and assumptions about asset impairments, (ii) information that indicates changes in expected future cash fl ows, or (iii) changes in economic and other events and conditions. To the extent that sales incentives remain an integral part of sales promotion with the eff ect of reducing new vehicle prices, resale prices of used vehicles and, correspondingly, the collateral value of Toyotaʼs sales fi nancing and fi nance lease receivables could experience further downward pressure. If these factors require a signifi cant increase in Toyotaʼs allowance for doubtful accounts and credit losses, it could negatively aff ect future operating results of the fi nancial services operations. The level of credit losses, which has a greater impact on Toyotaʼs results of operations, is infl uenced primarily by two factors: frequency of occurrence and severity of loss. For evaluation purposes, exposures to credit loss are segmented into the two primary categories of “consumer” and “dealer”. Toyotaʼs consumer portfolio consists of smaller balances that are homogenous retail fi nance receivables and lease earning assets. The dealer portfolio consists of wholesale and other dealer fi nancing receivables. The overall TOYOTA ANNUAL REPORT 2010 57 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section allowance for credit losses is evaluated at least quarterly, considering a variety of assumptions and factors to determine whether reserves are considered adequate to cover probable losses. results of operations, (cid:12255)Sensitivity analysis The level of credit losses, which could signifi cantly impact Toyotaʼs is infl uenced primarily by two factors: frequency of occurrence and severity of loss. The overall allowance for credit losses is evaluated at least quarterly, considering a variety of assumptions and factors to determine whether reserves are considered adequate to cover probable losses. The following table illustrates the eff ect of an assumed change in expected severity of loss, which Toyota believes is one of the key critical estimates for determining the allowance for credit losses, assuming all other assumptions are held consistent. The table below represents the impact on the allowance for credit losses in Toyotaʼs fi nancial services operations as any change impacts most signifi cantly on the fi nancial services operations. Yen in millions Eff ect on the allowance for credit losses as of March 31, 2010 10 percent increase in expected severity of loss ·· ¥14,421 Investment in Operating Leases (cid:12255)Natures of estimates and assumptions Vehicles on operating leases, where Toyota is the lessor, are valued at cost and depreciated over their estimated useful lives using the straight- line method to their estimated residual values. Toyota utilizes industry published information and its own historical experience to determine estimated residual values for these vehicles. Toyota evaluates the recoverability of the leased vehicles for carrying values of its impairment when there are indications of declines in residual values, and if impaired, Toyota recognizes an allowance for its residual values. In addition, to the extent that sales integral part of sales incentives remain an promotion with the eff ect of reducing new vehicle prices, resale prices of used vehicles and, correspondingly, the fair value of Toyotaʼs leased vehicles could be subject to downward pressure. If resale prices of used vehicles decline, future operating results of the fi nancial services operations are likely to be adversely aff ected by incremental charges to reduce estimated residual values. Throughout the life of the lease, management performs periodic evaluations of estimated end-of-term market values to in the determine whether estimates used determination of the contractual residual value are still considered reasonable. Factors aff ecting the estimated residual value at lease maturity include, but are not limited to, new vehicle incentive programs, new vehicle pricing, used vehicle supply, projected vehicle return rates, and projected loss severity. The vehicle return rate represents the number of leased vehicles returned at contract maturity and sold by Toyota during the period as a percentage of the number of lease contracts that, as of their origination dates, were scheduled to mature in the same period. A higher rate of vehicle returns exposes Toyota to higher potential losses incurred at lease termination. Severity of loss is the extent to which the end-of-term market value of a lease is less than its carrying value at lease end. (cid:12255)Sensitivity analysis The following table illustrates the eff ect of an assumed change in the vehicle return rate, which Toyota believes is one of the critical estimates, in determining the residual value losses, holding all other assumptions constant. The following table represents the impact on the residual value losses in Toyotaʼs fi nancial services operations as those changes have a signifi cant impact on fi nancing operations. Yen in millions Eff ect on the residual value losses over the remaining terms of the operating leases on and after April 1, 2010 1 percent increase in vehicle return rate ········· ￥2,047 Impairment of Long-Lived Assets Toyota periodically reviews the carrying value of its long-lived assets held and used and assets to be disposed of, including intangible assets, when events and circumstances warrant such a review. This review is performed using estimates of future cash fl ows. If the carrying value of a long- lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Management believes that the estimates of future cash fl ows and fair values are reasonable. However, changes in estimates of such cash fl ows and fair values would aff ect the evaluations and negatively aff ect future operating results of the automotive operations. Pension Costs and Obligations (cid:12255)Natures of estimates and assumptions Pension costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, benefi ts earned, interest costs, expected rate of return on plan assets, mortality rates and other factors. Actual results that diff er from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense in future periods. While management believes that the assumptions used are appropriate, diff erences in actual experience or changes in assumptions may aff ect Toyotaʼs pension costs and obligations. The two most critical assumptions impacting the calculation of pension costs and obligations are the discount rates and the expected rates of returns on plan assets. Toyota determines the discount rates mainly based on the rates of high quality fi xed income bonds or fi xed income governmental bonds currently available and expected to be available during the period to maturity of the defi ned benefi t pension plans. Toyota determines the expected rates of return for pension assets after considering several applicable factors including, the composition of plan assets held, assumed risks of asset management, historical results of the returns on plan assets, Toyotaʼs principal policy for plan asset management, and forecasted market conditions. A weighted-average discount rate of 2.8% and a weighted-average expected rate of return on plan assets of 3.6% are the results of assumptions used for the various pension plans in calculating Toyotaʼs consolidated pension costs for fi scal 2010. Also, a weighted-average discount rate of 2.8% is the result of assumption used for the various pension plans in calculating Toyotaʼs consolidated pension obligations for fi scal 2010. TOYOTA ANNUAL REPORT 2010 58 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section (cid:12255)Sensitivity analysis The following table illustrates the eff ects of assumed changes in weighted-average discount rate and the weighted-average expected rate of return on plan assets, which Toyota believes are critical estimates in determining pension costs and obligations, assuming all other assumptions are consistent. Yen in millions Eff ect on pre-tax income for the year ended March 31, 2011 Eff ect on PBO as of March 31, 2010 Discount rates 0.5% decrease ···································································· ￥ (10,057) 0.5% increase ····································································· 9,603 ￥ 127,971 (118,378) Expected rate of return on plan assets 0.5% decrease ···································································· 0.5% increase ····································································· ￥ (5,895) 5,895 Derivatives and Other Contracts at Fair Value Toyota uses derivatives in the normal course of business to manage its exposure to foreign currency exchange rates and interest rates. The accounting is complex and continues to evolve. In addition, there are signifi cant judgments and estimates involved in the estimating of fair value in the absence of quoted market values. These estimates are based upon valuation methodologies deemed appropriate under the circumstances. However, the use of diff erent assumptions may have a material eff ect on the estimated fair value amounts. Marketable Securities and Investments in Affi liated Companies Toyotaʼs accounting policy is to record a write- down of such investments to net realizable value when a decline in fair value below the carrying value is other-than-temporary. 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 fi nancial condition and prospects of the company and Toyotaʼs ability and intent to retain its investment in the company for a period of time suffi cient to allow for any anticipated recovery in fair value. Deferred Tax Assets Toyota estimates whether future taxable income is suffi cient at a particular tax-paying component and records valuation allowances to reduce deferred tax assets when it is more likely than not that a tax benefi t will not be realized in the future periods. Actual taxable income may diff er from the estimated amounts due to various assumptions used to estimate future taxable income. is recorded due to lower actual taxable income than estimated amounts it would negatively aff ect future operating results. If additional valuation allowance Market risk disclosures Toyota is exposed to market risk from changes in foreign currency exchange rates, interest rates, certain commodity and equity security prices. In order to manage the risk arising from changes in foreign currency exchange rates and interest rates, Toyota enters into a variety of derivative fi nancial instruments. A description of Toyotaʼs accounting policies for derivative instruments is included in note 2 to the consolidated fi nancial statements and further disclosure is provided in notes 20 and 21 to the consolidated fi nancial statements. Toyota monitors and manages these fi nancial exposures as an integral part of its overall risk management program, which recognizes the unpredictability of fi nancial markets and seeks to reduce the potentially adverse eff ects on Toyotaʼs operating results. included The fi nancial in the instruments market risk analysis consist of all of Toyotaʼs cash and cash equivalents, marketable securities, fi nance receivables, securities investments, long- term and short-term debt and all derivative instruments. Toyotaʼs portfolio of fi nancial derivative fi nancial instruments consists of forward foreign currency exchange contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements and interest rate options. Anticipated transactions in foreign currencies that are denominated covered by Toyotaʼs derivative hedging are not included in the market risk analysis. Although operating leases are not required to be included, Toyota has in determining interest rate risk. included these instruments Foreign Currency Exchange Rate Risk Toyota has foreign currency exposures related to buying, selling and fi nancing in currencies other than the local currencies in which it operates. Toyota is exposed to foreign currency risk related to future earnings or assets and liabilities that are exposed due to operating cash fl ows and various fi nancial instruments that are denominated in foreign currencies. Toyotaʼs most signifi cant foreign currency exposures relate to the U.S. dollar and the euro. Toyota uses a value-at-risk analysis (“VAR”) to evaluate its exposure to changes in foreign currency exchange rates. The VAR of the combined foreign exchange position represents a potential loss in pre-tax earnings that was estimated to be ¥114.1 billion as of March 31, 2009 and ¥148.9 billion as of March 31, 2010. Based on Toyotaʼs overall currency exposure (including derivative positions), the risk during the year ended March 31, 2010 to pre-tax cash fl ow from currency movements was on average ¥135.5 billion, with a high of ¥148.9 billion and a low of ¥123.8 billion. The VAR was estimated by using a Monte Carlo Simulation Method and assumed 95% confi dence level on the realization date and a 10-day holding period. in Interest Rate Risk Toyota is subject to market risk from exposures to changes its interest rates based on investing and cash management fi nancing, activities. Toyota enters into various fi nancial instrument transactions to maintain the desired level of exposure to the risk of interest rate TOYOTA ANNUAL REPORT 2010 59 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information commodity price risk by holding minimum stock levels. Equity Price Risk Toyota holds investments in various available- for-sale equity securities that are subject to price risk. The fair value of available-for-sale equity securities was ¥798.2 billion as of March 31, 2009 and ¥852.7 billion as of March 31, 2010. The potential change in the fair value of these investments, assuming a 10% change in prices, would be approximately ¥79.8 billion as of March 31, 2009 and ¥85.3 billion as of March 31, 2010. fl uctuations and to minimize interest expense. The potential decrease in fair value resulting from a hypothetical 100 basis point upward shift in interest rates would be approximately ¥55.8 billion as of March 31, 2009 and ¥ 67.8 billion as of March 31, 2010. There are certain shortcomings inherent to the sensitivity analyses presented. The model assumes that interest rate changes are instantaneous parallel shifts in the yield curve. However, in reality, changes are rarely instantaneous. Although certain assets and liabilities may have similar maturities or periods to repricing, they may not react correspondingly to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fl uctuate with changes in market interest rates, while interest rates on other types of assets may lag behind changes in market rates. Finance receivables are less susceptible to prepayments when interest rates change and, as a result, Toyotaʼs model does not address prepayment risk for automotive related fi nance receivables. However, in the event of a change in interest rates, actual loan prepayments may deviate signifi cantly from the assumptions used in the model. Commodity Price Risk Commodity price risk is the possibility of higher or lower costs due to changes in the prices of commodities, such as non-ferrous alloys (e.g., aluminum), precious metals (e.g., palladium, platinum and rhodium) and ferrous alloys, which Toyota uses in the production of motor vehicles. Toyota does not use derivative instruments to hedge the price risk associated with the purchase of those commodities and controls its TOYOTA ANNUAL REPORT 2010 60 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Consolidated Balance Sheets Toyota Motor Corporation March 31, 2009 and 2010 ASSETS Current assets Cash and cash equivalents ············································································ Time deposits ······································································································· Marketable securities ······················································································· Trade accounts and notes receivable, less allowance for doubtful accounts of ¥15,034 million in 2009 and ¥13,735 million ($148 million) in 2010·············································· Finance receivables, net ················································································· Other receivables ······························································································· Inventories ············································································································· Deferred income taxes ···················································································· Prepaid expenses and other current assets ········································· Total current assets ······················································································ Yen in millions 2009 2010 U.S. dollars in millions 2010 ¥ 2,444,280 ¥ 1,865,746 392,724 1,793,165 45,178 495,326 $20,053 4,221 19,273 1,392,749 3,891,406 332,722 1,459,394 605,331 632,543 11,298,929 1,886,273 4,209,496 360,379 1,422,373 632,164 511,284 13,073,604 20,274 45,244 3,873 15,288 6,795 5,495 140,516 Noncurrent fi nance receivables, net ··························································· 5,655,545 5,630,680 60,519 Investments and other assets Marketable securities and other securities investments ··············· Affi liated companies ························································································ Employees receivables ···················································································· Other ························································································································· Total investments and other assets ····················································· 2,102,874 1,826,375 69,523 707,110 4,705,882 2,256,279 1,879,320 67,506 730,997 4,934,102 24,251 20,199 725 7,857 53,032 Property, plant and equipment Land ··························································································································· Buildings ················································································································· Machinery and equipment ··········································································· Vehicles and equipment on operating leases ···································· Construction in progress ················································································ Total property, plant and equipment, at cost ································ Less̶Accumulated depreciation ···························································· Total property, plant and equipment, net ······································· 1,257,409 3,633,954 9,201,093 2,836,881 263,602 17,192,939 1,261,349 3,693,972 9,298,967 2,613,248 226,212 17,093,748 13,557 39,703 99,946 28,087 2,432 183,725 (9,791,258) 7,401,681 (10,382,847) 6,710,901 (111,596) 72,129 LIABILITIES AND SHAREHOLDERSʼ EQUITY Current liabilities Yen in millions 2009 2010 U.S. dollars in millions 2010 Short-term borrowings ··················································································· ¥ 3,617,672 ¥3,279,673 $35,250 Current portion of long-term debt ··························································· 2,699,512 2,218,324 Accounts payable ······························································································ 1,299,455 1,956,505 Other payables ···································································································· 670,634 572,450 Accrued expenses ······························································································ 1,540,681 1,735,930 Income taxes payable ······················································································ Other current liabilities ···················································································· 51,298 710,041 153,387 769,945 23,843 21,029 6,153 18,658 1,648 8,275 Total current liabilities ··········································································· 10,589,293 10,686,214 114,856 Long-term liabilities Long-term debt··································································································· 6,301,469 7,015,409 75,402 Accrued pension and severance costs ··················································· Deferred income taxes ···················································································· Other long-term liabilities ············································································· 634,612 642,293 293,633 678,677 813,221 225,323 7,294 8,741 2,422 Total long-term liabilities ····································································· 7,872,007 8,732,630 93,859 Shareholdersʼ equity Toyota Motor Corporation shareholders' equity Common stock, no par value, authorized: 10,000,000,000 shares in 2009 and 2010; issued: 3,447,997,492 shares in 2009 and 2010 ····························· Additional paid-in capital ·············································································· 397,050 501,211 397,050 501,331 4,268 5,388 Retained earnings ······························································································ 11,531,622 11,568,602 124,340 Accumulated other comprehensive income (loss)·························· (1,107,781) (846,835) (9,102) Treasury stock, at cost, 312,115,017 shares in 2009 and 312,002,149 shares in 2010 ······································································ Total Toyota Motor Corponration shareholdersʼ equity ······ (1,260,895) 10,061,207 (1,260,425) 10,359,723 (13,547) 111,347 Noncontrolling interest ······················································································· 539,530 570,720 6,134 Total shareholdersʼ equity ··································································· 10,600,737 10,930,443 117,481 Commitments and contingencies Total assets ······································································································· ¥29,062,037 ¥30,349,287 $326,196 Total liabilities and shareholdersʼ equity··································· ¥29,062,037 ¥30,349,287 $326,196 The accompanying notes are an integral part of these consolidated fi nancial statements. TOYOTA ANNUAL REPORT 2010 61 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Consolidated Statements of Income Financial Section Toyota Motor Corporation For the years ended March 31, 2008, 2009 and 2010 Net revenues Sales of products ·········································································································································· Financing operations ································································································································· Costs and expenses Cost of products sold ································································································································· Cost of fi nancing operations ·················································································································· Selling, general and administrative ···································································································· 2008 ¥ 24,820,510 1,468,730 26,289,240 20,452,338 1,068,015 2,498,512 24,018,865 Yen in millions 2009 ¥ 19,173,720 1,355,850 20,529,570 17,468,416 987,384 2,534,781 20,990,581 2010 ¥ 17,724,729 1,226,244 18,950,973 15,971,496 712,301 2,119,660 18,803,457 Operating income (loss) ······························································································································· 2,270,375 (461,011) 147,516 Other income (expense) Interest and dividend income ··············································································································· Interest expense ··········································································································································· Foreign exchange gain (loss), net ······································································································· Other income (loss), net ··························································································································· Income (loss) before income taxes and equity in earnings of affi liated companies ··················································································· Provision for income taxes ························································································································· Equity in earnings of affi liated companies ························································································ Net income (loss) ·············································································································································· Less: Net (income) loss attributable to the noncontrolling interest··································· 165,676 (46,113) 9,172 38,112 166,847 2,437,222 911,495 270,114 1,795,841 (77,962) 138,467 (46,882) (1,815) (189,140) (99,370) (560,381) (56,442) 42,724 (461,215) 24,278 78,224 (33,409) 68,251 30,886 143,952 291,468 92,664 45,408 244,212 (34,756) U.S. dollars in millions 2010 $ 190,507 13,180 203,687 171,663 7,656 22,782 202,101 1,586 841 (359) 733 332 1,547 3,133 996 488 2,625 (374) Net income (loss) attributable to Toyota Motor Corporation ················································ ¥ 1,717,879 ¥ (436,937) ¥ 209,456 $ 2,251 Net income (loss) attributable to Toyota Motor Corporation per share ̶Basic ······························································································································································· ̶Diluted ·························································································································································· Cash dividends per share ··························································································································· The accompanying notes are an integral part of these consolidated fi nancial statements. ¥ 540.65 ¥ 540.44 ¥ 140.00 Yen ¥ (139.13) ¥ (139.13) ¥ 100.00 ¥ 66.79 ¥ 66.79 ¥ 45.00 U.S. dollars $ 0.72 $ 0.72 $ 0.48 TOYOTA ANNUAL REPORT 2010 62 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Consolidated Statements of Shareholders’ Equity Financial Section Toyota Motor Corporation For the years ended March 31, 2008, 2009 and 2010 Balances at March 31, 2007 ······················································································································· Equity transaction with noncontrolling interests and other ···················································· Issuance during the year ······························································································································ Comprehensive income Net income ····················································································································································· Other comprehensive income (loss) Foreign currency translation adjustments ··············································································· Unrealized losses on securities, net of reclassifi cation adjustments ·························· Pension liability adjustments ··········································································································· Total comprehensive income ··············································································································· Dividends paid to Toyota Motor Corporation shareholders ····················································· Dividends paid to noncontrolling interests ······················································································· Purchase and reissuance of common stock ······················································································ Retirement of common stock ··················································································································· Balances at March 31, 2008 ······················································································································· Equity transaction with noncontrolling interests and other ··················································· Issuance during the year ······························································································································ Comprehensive loss Net loss ····························································································································································· Other comprehensive income (loss) Foreign currency translation adjustments ··············································································· Unrealized losses on securities, net of reclassifi cation adjustments ·························· Pension liability adjustments ··········································································································· Total comprehensive loss ······················································································································· Dividends paid to Toyota Motor Corporation shareholders ····················································· Dividends paid to noncontrolling interests ······················································································· Purchase and reissuance of common stock ······················································································ Balances at March 31, 2009 ······················································································································· Equity transaction with noncontrolling interests and other ···················································· Issuance during the year ······························································································································ Comprehensive income Net income ····················································································································································· Other comprehensive income Foreign currency translation adjustments ··············································································· Unrealized gains on securities, net of reclassifi cation adjustments ···························· Pension liability adjustments ··········································································································· Total comprehensive income ··············································································································· Dividends paid to Toyota Motor Corporation shareholders ····················································· Dividends paid to noncontrolling interests ······················································································· Purchase and reissuance of common stock ······················································································ Balances at March 31, 2010 ······················································································································· TOYOTA ANNUAL REPORT 2010 Common stock Additional paid-in capital Retained earnings Yen in millions Accumulated other comprehensive income (loss) Treasury stock, at cost Total Toyota Motor Corporation shareholdersʼ equity ¥397,050 ¥497,593 ¥11,764,713 ¥701,390 ¥(1,524,654) ¥11,836,092 3,475 3,475 Noncontrolling interest ¥628,244 10,330 Total shareholdersʼ equity ¥12,464,336 10,330 3,475 1,717,879 1,717,879 77,962 1,795,841 (461,189) (347,829) (133,577) (430,860) (643,182) 12,408,550 (241,205) (314,464) 646,681 (1,192,437) (461,189) (347,829) (133,577) 775,284 (430,860) (314,464) ̶ 11,869,527 3,642 (20,128) (13,734) (7,068) 37,032 (18,939) 656,667 (30,645) (481,317) (361,563) (140,645) 812,316 (430,860) (18,939) (314,464) ̶ 12,526,194 (30,645) 3,642 (436,937) (436,937) (24,278) (461,215) (381,303) (293,101) (192,172) (439,991) 11,531,622 (1,107,781) (68,458) (1,260,895) (381,303) (293,101) (192,172) (1,303,513) (439,991) (68,458) 10,061,207 (2,116) 2,236 (18,865) (13,590) (8,874) (65,607) (20,885) 539,530 (2,748) (400,168) (306,691) (201,046) (1,369,120) (439,991) (20,885) (68,458) 10,600,737 (4,864) 2,236 209,456 209,456 34,756 244,212 397,050 (3,499) 497,569 3,642 397,050 501,211 (2,116) 2,236 9,894 176,407 74,645 (172,476) 9,894 176,407 74,645 470,402 (172,476) ¥397,050 ¥501,331 ¥11,568,602 ¥(846,835) 470 ¥(1,260,425) 470 ¥10,359,723 5,721 4,095 98 44,670 (10,732) ¥570,720 15,615 180,502 74,743 515,072 (172,476) (10,732) 470 ¥10,930,443 63 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Consolidated Statements of Shareholders’ Equity Financial Section Toyota Motor Corporation For the years ended March 31, 2008, 2009 and 2010 Balances at March 31, 2009 ······················································································································· Equity transaction with noncontrolling interests and other ···················································· Issuance during the year ······························································································································ Comprehensive income Net income ····················································································································································· Other comprehensive income Foreign currency translation adjustments ··············································································· Unrealized gains on securities, net of reclassifi cation adjustments ···························· Pension liability adjustments ··········································································································· Total comprehensive income ··············································································································· Dividends paid to Toyota Motor Corporation shareholders ····················································· Dividends paid to noncontrolling interests ······················································································· Purchase and reissuance of common stock ······················································································ Balances at March 31, 2010 ······················································································································· The accompanying notes are an integral part of these consolidated fi nancial statements. U.S. dollars in millions Accumulated other comprehensive income (loss) Treasury stock, at cost Retained earnings $123,943 $ (11,907) $(13,552) Common stock $4,268 Additional paid-in capital $5,387 (23) 24 2,251 (1,854) 107 1,896 802 Total Toyota Motor Corporation shareholdersʼ equity $108,139 (23) 24 2,251 107 1,896 802 5,056 (1,854) 5 5 Noncontrolling interest $5,798 (29) Total shareholdersʼ equity $113,937 (52) 24 374 61 44 1 480 (115) 2,625 168 1,940 803 5,536 (1,854) (115) 5 $4,268 $5,388 $124,340 $ (9,102) $(13,547) $111,347 $6,134 $117,481 TOYOTA ANNUAL REPORT 2010 64 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Consolidated Statements of Cash Flows Financial Section Toyota Motor Corporation For the years ended March 31, 2008, 2009 and 2010 Cash fl ows from operating activities Cash fl ows from investing activities Yen in millions U.S. dollars in millions 2008 2009 2010 2010 Yen in millions U.S. dollars in millions 2008 2009 2010 2010 Net income (loss)········································································· ¥ 1,795,841 ¥ (461,215) ¥ 244,212 Adjustments to reconcile net income (loss) to net cash provided by operating activities $ 2,625 Additions to fi nance receivables ······································ ¥ (8,647,717) ¥ (8,612,111) ¥ (7,806,201) $ (83,902) Collection of fi nance receivables ······································ 7,223,573 8,143,804 7,509,578 80,714 1,491,135 1,495,170 1,414,569 15,204 Depreciation ········································································ Provision for doubtful accounts and credit losses ························································································ Pension and severance costs, less payments ····· Losses on disposal of fi xed assets····························· Unrealized losses on available-for-sale securi- ties, net ···················································································· Deferred income taxes ··················································· Equity in earnings of affi liated companies ·········· Changes in operating assets and liabilities, and other (Increase) decrease in accounts and notes receivable ···································································· (Increase) decrease in inventories ······················· 122,790 (54,341) 45,437 257,433 (20,958) 68,682 100,775 1,254 46,937 11,346 81,458 220,920 (194,990) 2,486 25,537 (270,114) (42,724) (45,408) (206,793) (149,984) 791,481 192,379 (576,711) 56,059 (Increase) decrease in other current assets ···· (82,737) 9,923 97,494 Increase (decrease) in accounts payable ········· Increase income taxes ···················································································· Increase (decrease) in other current liabilities ··· in accrued (decrease) Other ··················································································· 62,241 (837,402) 649,214 (118,030) 206,911 46,464 (251,868) (41,819) 291,893 102,207 213,341 226,564 1,083 13 505 27 274 (488) (6,199) 603 1,048 6,978 1,098 2,293 2,435 Net cash provided by operating activities · ¥ 2,981,624 ¥ 1,476,905 ¥ 2,558,530 $ 27,499 Proceeds from sale of fi nance receivables ·················· Additions to fi xed assets excluding equipment leased to others ····································································· Additions to equipment leased to others ···················· Proceeds from sales of fi xed assets excluding equipment leased to others ···················· Proceeds from sales of equipment leased to others ·························································································· Purchases of marketable securities and security investments ············································································· Proceeds from sales of marketable securities and security investments ················································· Proceeds upon maturity of marketable securities and security investments ··························· Payment for additional investments in affi liated companies,net of cash acquired ·································· Changes in investments and other assets, and other ·················································································· 109,124 11,290 8,390 90 (1,480,570) (1,364,582) (604,536) (1,279,405) (960,315) (833,065) (6,498) (8,954) 67,551 47,386 52,473 564 375,881 528,749 465,092 4,999 (1,151,640) (636,030) (2,412,182) (25,926) 165,495 800,422 77,025 828 821,915 675,455 1,031,716 11,089 (4,406) (45) (1,020) (11) (74,687) 135,757 (337,454) (3,627) Net cash used in investing activities ····················· ¥ (3,874,886) ¥ (1,230,220) ¥ (2,850,184) $ (30,634) Cash fl ows from fi nancing activities Proceeds from issuance of long-term debt ················ ¥ 3,349,812 ¥ 3,506,990 ¥ 3,178,310 $ 34,161 Payments of long-term debt ·············································· (2,310,008) (2,704,078) (2,938,202) (31,580) Increase (decrease) in short-term borrowings ·········· 408,912 406,507 (335,363) Dividends paid ············································································ (430,860) (439,991) (172,476) Purchase of common stock, and other ························· Net cash provided by (used in) fi nancing activities ············································································ Eff ect of exchange rate changes on cash and cash equivalents ··········································································· Net increase (decrease) in cash and cash equivalents (311,667) (70,587) (10,251) 706,189 698,841 (277,982) (2,988) (84,759) (271,832) (129,793) 815,733 (8,898) (578,534) Cash and cash equivalents at beginning of year ·········· 1,900,379 1,628,547 2,444,280 (3,605) (1,854) (110) (95) (6,218) 26,271 Cash and cash equivalents at end of year ························ ¥ 1,628,547 ¥ 2,444,280 ¥ 1,865,746 $ 20,053 The accompanying notes are an integral part of these consolidated fi nancial statements. TOYOTA ANNUAL REPORT 2010 65 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section 1 Nature of operations: is primarily engaged Toyota in the design, manufacture, and sale of sedans, minivans, compact cars, sport-utility vehicles, trucks and related parts and accessories throughout the world. In addition, Toyota provides fi nancing, vehicle and equipment leasing and certain other fi nancial services primarily to its dealers and their customers to support the sales of vehicles and other products manufactured by Toyota. 2 Summary of signifi cant accounting policies: The parent company and its subsidiaries in Japan maintain their records and prepare their fi nancial 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 reclassifi cations have been incorporated in the accompanying consolidated fi nancial statements to conform to U.S. GAAP. Signifi cant accounting policies after refl ecting adjustments for the above are as follows: Basis of consolidation and accounting for investments in affi liated companies The consolidated fi nancial statements include the accounts of the parent company and those its majority-owned subsidiary companies. of All signifi cant intercompany transactions and accounts have been eliminated. Investments in affi liated companies in which Toyota it exercises signifi cant does not control, are stated at cost plus equity in undistributed earnings. Consolidated net in current income earnings of such companies, after elimination of unrealized intercompany profi ts. Investments in such companies are reduced to net realizable value if a decline in market value is determined includes Toyotaʼs equity infl uence, but which Investments other-than-temporary. in non- public companies in which Toyota does not exercise signifi cant infl uence (generally less than a 20% ownership interest) are stated at cost. The accounts of variable interest entities as defi ned by U.S. GAAP are included in the consolidated fi nancial statements, if applicable. Estimates The preparation of Toyotaʼs consolidated fi nancial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that aff ect the amounts reported in the consolidated fi nancial statements and accompanying notes. Actual results could diff er from those estimates. The more signifi cant estimates include: product warranties, allowance for doubtful accounts and credit losses, residual values for leased assets, impairment of long-lived assets, pension costs and obligations, fair value of derivative fi nancial instruments, other-than- temporary losses on marketable securities and valuation allowance for deferred tax assets. Translation of foreign currencies All asset and foreign subsidiaries and affi liates are translated into Japanese yen at appropriate year-end current liability accounts of exchange rates and all income and expense accounts of those subsidiaries are translated at the average exchange rates for each period. The foreign currency translation adjustments are included as a component of accumulated other comprehensive income. Foreign currency receivables and payables are translated at appropriate year-end current exchange rates and the resulting transaction in operations gains or currently. losses are recorded 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. Toyotaʼs sales incentive programs principally consist of cash payments to dealers calculated based on vehicle volume or a model sold by a dealer during 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. Revenues from the sales of vehicles under which Toyota conditionally guarantees the minimum resale value are recognized on a pro rata basis from the date of sale to the fi rst exercise date of the guarantee in a manner similar to operating lease accounting. The underlying vehicles of these transactions are recorded as assets and are depreciated in accordance with Toyotaʼs depreciation policy. Revenues from retail fi nancing contracts and fi nance leases are recognized using the eff ective yield method. Revenues from operating leases are recognized on a straight-line basis over the lease term. Other costs Advertising and sales promotion costs are expensed as incurred. Advertising costs were ¥484,508 million, ¥389,242 million and ¥304,375 million ($3,271 million) for the years ended March 31, 2008, 2009 and 2010, respectively. Toyota generally warrants its products against certain manufacturing and other defects. Provisions for product warranties are provided for specifi c periods of time and/or usage of the product and vary depending upon the nature of the product, the geographic location of the sale and other factors. Toyota records 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 of warranty claim recoveries to be received from suppliers. In addition to product warranties above, Toyota accrues for costs of recalls and other safety measures based on managementʼs estimates when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Prior to the fourth quarter of this fi scal year, amounts were accrued based on individual occurrences of recalls and other safety measures. During the fourth quarter of this consolidated fi scal year, as a result of signifi cant changes in facts and circumstances, Toyota has employed an estimation model, to accrue at the time of vehicle sale, an amount that represents TOYOTA ANNUAL REPORT 2010 66 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information managementʼs best estimate of expenses related to future recalls and other safety measures. The estimation model for recalls and other safety measures takes into account Toyotaʼs historical experience and individual occurrences of recalls and other safety measures. This change resulted from Toyotaʼs most recent experience with recalls and other safety measures changes in the operating processes such as the establishment of the Special Committee for Global Quality to address quality-related matters, as well as the broadening of the number of vehicles subject to recalls and other safety measures. This change has resulted in a decrease in each of operating income and income before income taxes and equity in earnings of affi liated companies by ¥105,698 million ($1,136 million) in the fourth quarter of this consolidated fi scal year. Research and development costs are expensed as incurred. Research and development costs were ¥958,882 million, ¥904,075 million and the ¥725,345 million years ended March 31, 2008, 2009 and 2010, respectively. ($7,796 million) for Cash and cash equivalents Cash and cash equivalents include all highly liquid investments with original maturities of three months or less, that are readily convertible to known amounts of cash and are so near maturity that they present insignifi cant 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 unrealized gains or losses included as a component of accumulated other in value In determining in market value. comprehensive income in shareholdersʼ equity, net of applicable taxes. Individual securities classifi ed as available-for-sale are reduced to net realizable value for other-than-temporary declines if a decline 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 fi nancial condition and prospects of the company and Toyotaʼs ability and intent to retain its investment in the company for a period of time suffi cient to allow for any anticipated recovery in market value. Realized gains and losses, which are determined on the average-cost method, are refl ected 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 fl ows. Fair value is determined principally through the use of the latest fi nancial information. Finance receivables Finance receivables are recorded at the present value of the related future cash fl ows including residual values for fi nance leases. Incremental direct costs incurred in connection with the acquisition of fi nance receivables are capitalized and amortized so as to approximate a level rate of return over the term of the related contracts. Wholesale and other dealer loan receivables are placed on nonaccrual status when full payment of principal or interest is in doubt or principal or interest is 90 days or more contractually past due, whichever occurs fi rst. Retail and fi nance lease receivables are not placed on nonaccrual status. Rather, these receivables are charged off when payments due are no longer expected to be received or the account is 120 days contractually delinquent, whichever occurs fi rst. Interest income on nonaccrual receivables is recognized only to the extent it is received in cash. Accounts are restored to accrual status only when principal and interest payments are brought current and future payments are reasonably assured. Finance receivables on nonaccrual status were ¥34,586 million and ¥26,599 million ($286 million) and fi nance receivables past due over 90 days and still accruing were ¥43,370 million and ¥38,150 million ($410 million) as of March 31, 2009 and 2010, respectively. Allowance for credit losses Allowance for credit losses is established to cover probable losses on receivables resulting from the inability of customers to make required payments. Provision for credit losses is included in selling, general and administrative expenses. The allowance for credit losses is based on a systematic, ongoing review and evaluation performed as part of the credit-risk evaluation process, historical loss experience, the size and composition of the portfolios, current economic events and conditions, the estimated fair value and adequacy of collateral and other pertinent factors. In the allowance for credit losses, general reserves are collectively calculated by applying reserve rates to each homogenous portfolio. This reserve rate is based on historical loss experience, current economic events and conditions and other pertinent factors. Specifi c reserves on identifi ed receivables are determined by the present value of expected future cash fl ows or the fair value of collateral when it is probable that such receivables will be unable to be fully collected. 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. is exposed to risk of Allowance for residual value losses Toyota loss on the disposition of off -lease vehicles to the extent that sales proceeds are not suffi cient 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 information on used historical and market 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. TOYOTA ANNUAL REPORT 2010 67 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information 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 diff erence between the net book value and the proceeds from sale. Inventories Inventories are valued at cost, not in excess of market, cost being determined on the “average- cost” basis, except for the cost of fi nished products carried by certain subsidiary companies which is determined on the “specifi c identifi cation” basis or “last-in, fi rst-out” (“LIFO”) basis. Inventories valued on the LIFO basis totaled ¥150,110 million and ¥199,275 million ($2,142 million) at March 31, 2009 and 2010, respectively. Had the “fi rst-in, fi rst-out” basis been used for those companies using the LIFO basis, inventories would have been ¥58,980 million and ¥64,099 million ($689 million) higher than reported at March 31, 2009 and 2010, 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 estimated useful lives of the respective assets according to general class, type of construction and use. The estimated useful lives range from 2 to 65 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 a straight-line method over the lease term, generally from 2 to 5 years, to the estimated residual value. Incremental direct costs incurred in connection with the acquisition of operating lease contracts are capitalized and amortized on a straight-line method over the lease term. its long-lived assets Long-lived assets for reviews Toyota impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset group exceeds the estimated undiscounted cash fl ows 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 carrying value of the asset group over its fair value. Fair value is determined mainly using a discounted cash fl ow valuation method. Goodwill and intangible assets Goodwill is not material to Toyotaʼs consolidated balance sheets. Intangible assets consist mainly of software. Intangible assets with a defi nite life are amortized on a straight-line basis with estimated useful lives mainly of 5 years. Intangible assets with an indefi nite life are tested for impairment whenever events or circumstances indicate that a 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 fl ows used in determining the fair value of the asset. The amount of the impairment loss to be recorded is generally determined by the diff erence between the fair value of the asset using a discounted cash fl ow valuation method and the current book value. Employee benefi t obligations Toyota has both defi ned benefi t and defi ned contribution plans for employeesʼ retirement benefi ts. Retirement benefi t obligations are measured by actuarial calculations in accordance with U.S. GAAP. The overfunded or underfunded status of the defi ned benefi t postretirement plans is recognized on the consolidated balance sheets as prepaid pension and severance costs or accrued pension and severance costs, and the funded status change is recognized in the year in which it occurs through other comprehensive income. 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 Toyotaʼs commitment to a plan of action. The cost of each environmental liability is estimated by using current technology available and various engineering, fi nancial and legal specialists within Toyota based on current law. Such liabilities do not refl ect any off set for possible recoveries from insurance companies and are not discounted. There were no material changes for all periods presented. in these liabilities Income taxes The provision for income taxes is computed based on the pretax income included in the consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary diff erences 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 benefi t will not be realized. Derivative fi nancial instruments Toyota employs derivative fi nancial instruments, including forward foreign currency exchange contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements and interest rate options to manage its exposure to fl uctuations 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 in current earnings recorded each period or income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. The ineff ective portion of all hedges is recognized currently in operations. through other comprehensive Net income attributable to Toyota Motor Corporation per share Basic net income attributable to Toyota Motor Corporation per common share is calculated by TOYOTA ANNUAL REPORT 2010 68 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section dividing net income attributable to Toyota Motor Corporation by the weighted-average number of shares outstanding during the reported period. The calculation of diluted net income attributable to Toyota Motor Corporation per common share is similar to the calculation of basic net income attributable to Toyota Motor Corporation per 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 based on the grant-date fair value of the award. Other comprehensive income Other comprehensive income refers to revenues, expenses, gains and losses that, under U.S. GAAP are included in comprehensive income, but are excluded from net income as these amounts are recorded directly as an adjustment to shareholdersʼ equity. Toyotaʼs other comprehensive income is primarily comprised of unrealized gains/losses on marketable securities designated as available-for-sale, foreign currency translation adjustments and adjustments attributed to pension liabilities or minimum pension liabilities associated with Toyotaʼs defi ned benefi t pension plans. Accounting changes In December 2007, FASB issued updated guidance of accounting for and disclosure of business combinations. This guidance establishes principles and requirements for how the acquirer recognizes and measures the identifi able assets acquired, the liabilities assumed, any noncontrolling interest, and the goodwill acquired in a business combination or a gain from a bargain purchase. Also, this guidance provides several new disclosure requirements that enable users of the fi nancial statements to evaluate the nature and fi nancial eff ects of the business combination. Toyota adopted this guidance from the business combinations on and after the beginning of fi scal year begun on or after December 15, 2008. The adoption of this guidance did not have a material impact on Toyotaʼs consolidated fi nancial statements. In December 2007, FASB issued updated guidance of accounting for and disclosure of consolidation. This guidance establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Toyota adopted this guidance from the fi scal year begun on or after December 15, 2008. As a result, noncontrolling interest, formerly reported as minority interest, is reported as shareholdersʼ equity in the consolidated balance sheets, and the amount of net income attributable to the parent and to the noncontrolling interest are identifi ed and presented in the consolidated statements of income. Since the presentation and disclosure requirements have been applied retrospectively for all periods presented in the consolidated fi nancial statements in which this guidance is applied, certain prior year amounts have been reclassifi ed to conform to this guidance. The adoption of this guidance did not have a material impact on Toyotaʼs consolidated fi nancial statements. In December 2008, FASB issued updated guidance of accounting for and disclosure requires of compensation. This guidance additional disclosures about postretirement benefi t plan assets including investment policies and strategies, classes of plan assets, fair value measurements of plan assets, and signifi cant concentrations of risk. Toyota adopted this guidance from the fi scal year ended after December 15, 2009. The adoption of this guidance did not have a material impact on Toyotaʼs consolidated fi nancial statements. requirements In April 2009, FASB issued updated guidance of accounting for and disclosure of investments. This guidance revises the recognition and presentation for other-than- temporary impairments of debt securities, and contains additional disclosure requirements related to debt and equity securities. Toyota adopted this guidance from the fi scal year ended after June 15, 2009. The adoption of this guidance did not have a material impact on Toyotaʼs consolidated fi nancial statements. In May 2009, FASB issued updated guidance of accounting for and disclosure of subsequent events. This guidance is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before fi nancial statements are issued. Toyota adopted this guidance from the fi scal year ended after June 15, 2009. The adoption of this guidance did not have a material impact on Toyotaʼs consolidated fi nancial statements. Recent pronouncements to be adopted in future periods In June 2009, FASB issued updated guidance of accounting for and disclosure of transfers and servicing. This guidance eliminates the concept of a qualifying special-purpose entity, changes the requirements for derecognizing fi nancial assets, and requires additional disclosures about transfers of fi nancial assets. This guidance is eff ective for fi scal year beginning after November 15, 2009, and for interim period within the fi scal year. Management is evaluating the impact of adopting this guidance on Toyotaʼs consolidated fi nancial statements. In June 2009, FASB issued updated guidance of accounting for and disclosure of consolidation. This guidance changes how a company determines when a variable interest entity should be consolidated. This guidance is eff ective for fi scal year beginning after November 15, 2009, and for interim period within the fi scal year. Management is evaluating the impact of adopting this guidance on Toyotaʼs consolidated fi nancial statements. Reclassifi cations Certain prior year amounts have been reclassifi ed to conform to the presentations as of and for the year ended March 31, 2010. TOYOTA ANNUAL REPORT 2010 69 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information 3 U.S. dollar amounts: 6 Marketable securities and other securities investments: U.S. dollar amounts presented in the consolidated fi nancial statements and related notes are included solely for the convenience of the reader and are unaudited. 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 ¥93.04 = U.S. $1, the approximate current exchange rate at March 31, 2010, was used for the translation of the accompanying consolidated fi nancial amounts of Toyota as of and for the year ended March 31, 2010. 4 Supplemental cash fl ow information: Cash payments for income taxes were ¥921,798 million, ¥563,368 million and ¥(207,278) million ($(2,228) million) for the years ended March 31, 2008, 2009 and 2010, respectively. Interest payments during the years ended March 31, 2008, 2009 and 2010 were ¥686,215 million, ¥614,017 million and ¥445,049 million ($4,783 million), respectively. Capital lease obligations of ¥7,401 million, ¥28,953 million and ¥3,400 million ($37 million) were incurred for the years ended March 31, 2008, 2009 and 2010, respectively. Toyota corrected the consolidated statements of cash fl ows for the year ended March 31, 2009 as a result of changes to information gathered 5 Acquisitions and dispositions: from certain subsidiary. This resulted in increases to both “Additions to fi nance receivables” and “Collection of fi nance receivables” within cash fl ows from investing activities for the year ended March 31, 2009. “Additions to fi nance receivables” increased by ¥911,652 million to ¥(8,612,111) million. “Collection of fi nance receivables” also increased by ¥911,652 million to ¥8,143,804 million. These adjustments do not have an impact on “Net cash used in investing activities” in the consolidated statement of cash fl ows for the year ended March 31, 2009, and do not have a material impact on Toyotaʼs consolidated fi nancial statements. During the years ended March 31, 2008, 2009 and 2010, Toyota made several acquisitions and dispositions, however the assets and liabilities transferred were not material. The aggregate cost, gross unrealized gains and losses and fair value of marketable securities and other securities investments are as follows: Yen in millions March 31, 2010 Gross unrealized gains Gross unrealized losses Cost Fair value Available-for-sale Debt securities ··········································································· ￥ 1,704,904 736,966 Equity securities ········································································ Total ···························································································· ￥ 2,441,870 ￥ 42,326 172,992 ￥ 215,318 ￥ 65,379 ￥ 1,681,851 798,260 ￥ 177,077 ￥ 2,480,111 111,698 Securities not practicable to determine fair value Debt securities ··········································································· ￥ Equity securities ········································································ 26,104 91,985 Total ···························································································· ￥ 118,089 Available-for-sale Yen in millions March 31, 2010 Gross unrealized gains Gross unrealized losses Cost Fair value Government bonds ································································· ￥ 2,695,248 ￥ 24,228 ￥ 64,647 ￥ 2,654,829 852,775 Common stocks ········································································ 421,363 Other ······························································································· Total ···························································································· ￥ 3,654,550 ￥ 411,486 ￥ 137,069 ￥ 3,928,967 555,526 403,776 369,670 17,588 72,421 1 Securities not practicable to determine fair value Common stocks ········································································ ￥ Other ······························································································· 95,304 25,173 Total ···························································································· ￥ 120,477 Available-for-sale Government bonds ································································· Common stocks ········································································ Other ······························································································· Total ···························································································· Securities not practicable to determine fair value Common stocks ········································································ Other ······························································································· Total ···························································································· Cost $ 28,968 5,971 4,340 $ 39,279 $ 1,024 271 $ 1,295 U.S. dollars in millions March 31, 2010 Gross unrealized gains Gross unrealized losses Fair value $ 261 3,973 189 $ 4,423 $ 695 778 0 $ 1,473 $ 28,534 9,166 4,529 $ 42,229 TOYOTA ANNUAL REPORT 2010 70 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information individual company fair values were not readily cost, as their determinable. Management employs a systematic methodology to assess the recoverability of such investments by reviewing the fi nancial viability of the underlying companies and the prevailing market conditions in which these companies operate to determine if Toyotaʼs investment in each impaired and whether the impairment is other-than-temporary. Toyota periodically performs this impairment test for signifi cant investments recorded at cost. If the impairment is determined to be other- than-temporary, the carrying value of the investment is written-down by the impaired amount and the losses are recognized currently in operations. is As of March 31, 2010, government bonds include 76% of Japanese government bonds, and 24% of U.S. and European government bonds. As of March 31, 2010, listed stocks on the Japanese stock markets represent 88% of common stocks which are included in available-for-sale. “Other” includes primarily commercial paper. Unrealized losses continuing over a 12 month period or more in the aggregate were not material at March 31, 2009 and 2010. As of March 31, 2009 and 2010, maturities of government bonds and other included in available-for-sale are mainly from 1 to 10 years. Proceeds from sales of available-for-sale securities were ¥165,495 million, ¥800,422 million and ¥77,025 million ($828 million) for the years ended March 31, 2008, 2009 and 2010, respectively. On those sales, gross realized gains were ¥18,766 million, ¥35,694 million and ¥3,186 million ($34 million) and gross realized losses were ¥21 million, ¥1,856 million and ¥7 million ($0 million), respectively. During the years ended March 31, 2008, 2009 and 2010, Toyota recognized impairment losses on available-for-sale securities of ¥11,346 million, ¥220,920 million and ¥2,486 million ($27 million), respectively, which are included in “Other income (loss), net” in the accompanying consolidated statements of income. Impairment losses the year ended March 31, 2009 primarily include a loss for an other-than-temporary impairment on a certain investment for which Toyota previously recorded an exchange gain. recognized during long-term In the ordinary course of business, Toyota maintains securities, included in “Marketable securities and other securities investments” and issued by a number of non-public companies which are recorded at investment 7 Finance receivables: Finance receivables consist of the following: Retail···························································································································· Finance leases ········································································································ Wholesale and other dealer loans······························································· Deferred origination costs ··············································································· Unearned income ································································································ Allowance for credit losses Retail ························································································································ Finance leases ···································································································· Wholesale and other dealer loans ··························································· Total fi nance receivables, net ································································ Less ‒ Current portion ······················································································· Noncurrent fi nance receivables, net ·················································· Yen in millions March 31, 2009 ¥ 6,655,404 1,108,408 2,322,721 10,086,533 104,521 (405,171) (157,359) (7,776) (73,797) (238,932) 9,546,951 (3,891,406) ¥ 5,655,545 2010 ¥ 6,810,144 1,232,508 2,403,239 10,445,891 109,747 (482,983) (148,503) (36,917) (47,059) (232,479) 9,840,176 (4,209,496) ¥ 5,630,680 U.S. dollars in millions March 31, 2010 $ 73,196 13,247 25,830 112,273 1,180 (5,191) (1,596) (397) (506) (2,499) 105,763 (45,244) $ 60,519 Retail receivables Toyota acquires new and used vehicle installment contracts primarily from dealers. Contract period of these primarily range from 2 years to 7 years. Installment contracts acquired must fi rst meet specifi ed credit standards. Thereafter, Toyota retains responsibility for contract collection and administration. Toyota acquires security interests in the vehicles fi nanced and can generally repossess vehicles if customers fail to meet their contractual obligations. Almost all retail receivables are non-recourse, which relieves the dealers from fi nancial responsibility in the event of repossession. Finance lease receivables Toyota acquires new vehicle lease contracts originated primarily through dealers. Contract period of these primarily range from 2 years to 5 years. Lease contracts acquired must fi rst meet specifi ed credit standards after which Toyota assumes ownership of the leased vehicle. Toyota is responsible for contract collection and administration during the lease period. Toyota is generally permitted to take possession of the vehicle upon a default by the lessee. The residual value is estimated at the time the vehicle is fi rst leased. Vehicles returned to Toyota at the end of their leases are sold by auction. Wholesale and other dealer loan receivables to Toyota provides wholesale fi nancing qualifi ed dealers to fi nance inventories. Toyota acquires security interests in vehicles fi nanced at wholesale. In cases where additional security interests would be required, Toyota takes dealership assets or personal assets, or both, as additional security. If a dealer defaults, Toyota has the right to liquidate any assets acquired and seek legal remedies. Toyota also makes term loans to dealers for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements. These loans are typically secured with liens on real estate, TOYOTA ANNUAL REPORT 2010 71 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information other dealership assets and/or personal assets of the dealers. Finance receivables were geographically distributed as follows: in North America 63.6%, in Japan 14.1%, in Europe 11.0%, in Asia 3.8% and in Other 7.5% as of March 31, 2009, and in North America 61.9%, in Japan 12.8%, in Europe 10.3%, in Asia 4.7% and in Other 10.3% as of March 31, 2010. recourse to Toyota beyond the contractual cash fl ows of the securitized receivables, retained subordinated interests, any cash reserve funds and any amounts available or funded under the revolving liquidity notes. Toyotaʼs exposure to these retained interests exists until the associated securities are paid in full. Investors do not have recourse to other assets held by Toyota for failure of obligors on the receivables to pay when due or otherwise. The contractual maturities of retail receivables, the future minimum lease payments on fi nance leases For the years ended March 31, 2009 and 2010, no retail or fi nance lease receivables were securitized and wholesale and other dealer loans at March 31, 2010 are summarized as follows: using QSPEs. Retail Years ending March 31, 2011 ·················································· ¥2,050,246 2012 ·················································· 1,748,411 2013 ·················································· 1,367,386 865,988 2014 ·················································· 460,657 2015 ·················································· 317,456 Thereafter ······································ ¥6,810,144 Yen in millions U.S. dollars in millions Finance leases ¥360,722 248,471 184,678 70,352 30,815 8,163 ¥903,201 Wholesale and other dealer loans ¥1,915,452 120,470 100,886 116,020 43,053 107,358 ¥2,403,239 Retail $22,036 18,792 14,697 9,308 4,951 3,412 $73,196 Finance leases $3,877 2,671 1,985 756 331 88 $9,708 Wholesale and other dealer loans $20,587 1,295 1,084 1,247 463 1,154 $25,830 Finance leases consist of the following: Minimum lease payments ······················································································ Estimated unguaranteed residual values ······················································· Deferred origination costs ······················································································ Less ‒ Unearned income ························································································ Less ‒ Allowance for credit losses ······································································ Yen in millions March 31, 2009 ¥ 871,250 237,158 1,108,408 6,085 (102,826) (7,776) 2010 ¥ 903,201 329,307 1,232,508 6,423 (121,664) (36,917) U.S. dollars in millions March 31, 2010 $ 9,708 3,539 13,247 69 (1,307) (397) Finance leases, net ··························································································· ¥1,003,891 ¥1,080,350 $11,612 Toyota maintains a program to sell retail and fi nance lease receivables. Under the program, Toyota achieves sale accounting treatment under U.S. GAAP in securitization transactions structured as qualifying special-purpose entities (“QSPE”s). Toyota recognizes a gain or loss on the sale of the fi nance receivables upon the transfer of the receivables to the securitization trusts structured as a QSPE. Toyota retains servicing rights and earns a contractual servicing fee of 1% per annum on the total monthly receivables. outstanding principal balance of the related securitized In a subordinated interest-only strips, capacity, Toyota retains subordinated securities, and cash reserve funds in these securitizations, and these retained interests are held as restricted assets subject to limited recourse provisions and provide credit enhancement to the senior securities in Toyotaʼs securitization transactions. The retained interests are not available to satisfy any obligations of Toyota. Investors in the securitizations have no The following table summarizes certain cash fl ows received from and paid to the securitization trusts for the years ended March 31, 2008, 2009 and 2010. Yen in millions For the years ended March 31, U.S. dollars in millions For the year ended March 31, 2010 Proceeds from new securitizations, net of purchased and retained securities ······························································ Servicing fees received ····························································· Excess interest received from interest only strips ······· Repurchases of receivables····················································· Servicing advances ······································································ Reimbursement of servicing and maturity advances ·· 2008 ¥91,385 1,682 1,865 (4,681) (114) 114 2009 ¥ ̶ 777 356 (48) ̶ ̶ 2010 ¥ ̶ $ ̶ 393 422 (18,465) ̶ ̶ 4 5 (198) ̶ ̶ Toyota sold fi nance receivables under the program and recognized pretax gains resulting from these sales of ¥1,688 million for the year ended March 31, 2008, after providing an allowance for estimated credit losses. The gain on sale recorded depends on the carrying amount of the assets at the time of the sale. The carrying amount is allocated between the assets sold and the retained interests based on their relative fair values at the date of the sale. The key economic assumptions initially and subsequently measuring the fair value of retained interests include the market interest rate environment, severity and rate of credit losses, and the prepayment speed of the receivables. All key economic assumptions used in the valuation of the retained interests are reviewed periodically and are revised as considered necessary. At March 31, 2009 and 2010, Toyotaʼs retained interests relating to these securitizations include interest in trusts, interest-only strips, and other receivables, amounting to ¥19,581 million and ¥12,883 million ($138 million), respectively. Toyota recorded no impairments on retained interests for the years ended March 31, 2008, 2009 and 2010. Impairments are calculated, if any, by discounting cash fl ows using managementʼs estimates and other key economic assumptions. Expected cumulative static pool losses over the life of the securitizations are calculated by taking actual life to date losses plus projected losses and dividing the sum by the original balance of each TOYOTA ANNUAL REPORT 2010 72 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information pool of assets. Expected cumulative static pool credit losses for fi nance receivables securitized using QSPEs for the years ended March 31, 2008, 2009 and 2010 were 0.26%, 0.26% and 0.45%, respectively. The key economic assumptions and the sensitivity of the current fair value of the retained interest to an immediate 10 and 20 percent adverse change in those economic assumptions are presented below. The table below summarizes information about impaired fi nance receivables. Yen in millions March 31, 2009 2010 U.S. dollars in millions March 31, 2010 Wholesale and other dealer loans Yen in millions U.S. dollars in millions March 31, 2010 March 31, 2010 Impaired fi nance receivables with an allowance ······································ Impaired fi nance receivables without an allowance ······························ Total ······························································································································· ¥49,635 3,438 ¥53,073 ¥37,273 1,582 ¥38,855 $401 17 $418 Prepayment speed assumption (annual rate) ·················································································· Impact on fair value of 10% adverse change ················································································ Impact on fair value of 20% adverse change ················································································ Residual cash fl ows discount rate (annual rate) ·············································································· Impact on fair value of 10% adverse change ················································································ Impact on fair value of 20% adverse change ················································································ Expected credit losses (annual rate) ······································································································ Impact on fair value of 10% adverse change ················································································ Impact on fair value of 20% adverse change ················································································ 6.0% ¥ (304) (586) 3.2% ¥ (536) (1,040) 0.05% ¥ (5) (10) $ (3) (6) $ (6) (11) $ (0) (0) These hypothetical scenarios do not refl ect expected market conditions and should not be used as a prediction of future performance. As the fi gures indicate, changes in the fair value may not be linear. Also, in this table, the eff ect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. Actual changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. Actual cash fl ows may diff er from the above analysis. Outstanding receivable balances and delinquency amounts for managed retail and lease receivables, which include both receivables owned and securitized using QSPEs, as of March 31, 2009 and 2010 are as follows: for credit Allowance for losses recorded impaired fi nance receivables were ¥13,071 million and ¥14,000 million ($150 million) as of March 31, 2009 and 2010, respectively. Average impaired fi nance receivables were ¥45,444 million and ¥42,581 million ($458 million) for the years ended March 31, 2009 and 2010, respectively. 8 Other receivables: Other receivables relate to arrangements with certain component manufacturers whereby Toyota procures inventory for these component manufactures and is reimbursed for the related purchases. 9 Inventories: Inventories consist of the following: Principal amount outstanding ············································································· Delinquent amounts over 60 days or more ·················································· Comprised of: Yen in millions March 31, 2009 2010 ¥7,481,016 83,613 ¥7,632,909 62,353 U.S. dollars in millions March 31, 2010 $82,039 670 Finished goods ················································································································ Raw materials ··················································································································· Work in process ··············································································································· Supplies and other ········································································································ Receivables owned ································································································ Receivables securitized using QSPEs ···························································· ¥7,358,641 122,375 ¥7,559,669 73,240 $81,252 787 Credit losses, net of recoveries attributed to managed retail and lease receivables for the years ended March 31, 2008, 2009 and 2010 totaled ¥93,036 million, ¥124,939 million and ¥74,240 million ($798 million), respectively. Yen in millions March 31, 2009 2010 ¥ 875,930 257,899 251,670 73,895 ¥1,459,394 ¥ 885,005 265,493 199,267 72,608 ¥1,422,373 U.S. dollars in millions March 31, 2010 $ 9,512 2,854 2,142 780 $15,288 TOYOTA ANNUAL REPORT 2010 73 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information 10 Vehicles and equipment on operating leases: 11 Allowance for doubtful accounts and credit losses: Vehicles and equipment on operating leases consist of the following: An analysis of activity within the allowance for doubtful accounts relating to trade accounts and notes receivable for the years ended March 31, 2008, 2009 and 2010 is as follows: Vehicles ································································································································· Equipment ·························································································································· Less ‒ Accumulated depreciation ·········································································· Yen in millions March 31, 2009 2010 ¥2,729,713 107,168 2,836,881 (795,767) ¥2,516,948 96,300 2,613,248 (791,169) Vehicles and equipment on operating leases, net ···································· ¥2,041,114 ¥1,822,079 U.S. dollars in millions March 31, 2010 $27,052 1,035 28,087 (8,503) $19,584 Rental income from vehicles and equipment on operating leases was ¥588,262 million, ¥560,251 million and ¥496,729 million ($5,339 million) for the years ended March 31, 2008, 2009 and 2010, respectively. Future minimum rentals from vehicles and equipment on operating leases are due in installments as follows: Years ending March 31, 2011 ········································································································································································· 2012 ········································································································································································· 2013 ········································································································································································· 2014 ········································································································································································· 2015 ········································································································································································· Thereafter ····························································································································································· Total minimum future rentals ··············································································································· Yen in millions ¥417,146 256,211 117,943 29,851 8,476 6,114 ¥835,741 U.S. dollars in millions $4,483 2,754 1,268 321 91 66 $8,983 The future minimum rentals as shown above should not be considered indicative of future cash collections. Yen in millions For the years ended March 31, 2009 2008 2010 U.S. dollars in millions For the year ended March 31, 2010 Allowance for doubtful accounts at beginning of year ···························································································· Provision for doubtful accounts, net of reversal ··········· Write-off s ··························································································· Other ···································································································· Allowance for doubtful accounts at end of year ······ ¥58,066 357 (3,348) (3,012) ¥52,063 ¥52,063 (1,663) (1,695) (699) ¥48,006 ¥48,006 1,905 (1,357) (1,848) ¥46,706 $516 20 (14) (20) $502 The other amount includes the impact of consolidation and deconsolidation of certain entities due to changes in ownership interest and currency translation adjustments for the years ended March 31, 2008, 2009 and 2010. A portion of the allowance for doubtful accounts balance at March 31, 2009 and 2010 totaling ¥32,972 million and ¥32,971 million ($354 million), respectively, is attributed to certain non-current receivable balances which are reported as other assets in the consolidated balance sheets. An analysis of the allowance for credit losses relating to fi nance receivables and vehicles and equipment on operating leases for the years ended March 31, 2008, 2009 and 2010 is as follows: Yen in millions For the years ended March 31, 2008 2009 2010 Allowance for credit losses at beginning of year ······· Provision for credit losses ······················································· Charge-off s, net of recoveries ·············································· Other ·································································································· Allowance for credit losses at end of year ················· ¥112,116 122,433 (88,902) (27,941) ¥117,706 ¥ 117,706 259,096 (116,793) (21,077) ¥ 238,932 ¥ 238,932 98,870 (102,196) (3,127) ¥ 232,479 U.S. dollars in millions For the year ended March 31, 2010 $ 2,568 1,063 (1,098) (34) $ 2,499 The other amount primarily includes the impact of currency translation adjustments for the years ended March 31, 2008, 2009 and 2010. TOYOTA ANNUAL REPORT 2010 74 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section 12 Affi liated companies and variable interest entities: Investments in and transactions with affi liated companies - Summarized fi nancial information for affi liated co mpanies accounted for by the equity method is shown below: Current assets ··················································································································· Noncurrent assets ·········································································································· Total assets················································································································· ¥ 6,400,685 9,438,905 ¥ 15,839,590 ¥ 8,034,546 9,300,307 ¥ 17,334,853 Yen in millions March 31, 2009 2010 Current liabilities ············································································································· Long-term liabilities and noncontrolling interest ········································ Affi liated companies accounted shareholdersʼ equity ····································································································· Total liabilities and shareholdersʼ equity ······················································· for by the equity method Toyotaʼs share of affi liated companies accounted for by the equity method shareholdersʼ equity ·············································································· ¥ 4,216,956 5,740,150 ¥ 5,056,178 5,981,054 5,882,484 ¥ 15,839,590 6,297,621 ¥ 17,334,853 67,687 $ 186,316 ¥ 1,810,106 ¥ 1,867,440 $ 20,071 Number of affi liated companies accounted for by the equity method at end of period ················································································································· 56 56 Yen in millions U.S. dollars in millions March 31, 2010 $ 86,356 99,960 $ 186,316 $ 54,344 64,285 U.S. dollars in millions For the year ended March 31, 2010 $ 221,406 Net revenues ·················································································· Gross profi t ······················································································ Net income attributable to affi liated companies accounted for by the equity method ···························· investment Entities comprising a signifi cant portion of Toyotaʼs in affi liated companies include Denso Corporation; Toyota Industries Corporation; Aisin Seiki Co., Ltd.; Aioi Insurance Co., Ltd.; and Toyota Tsusho Corporation. Aioi Insurance Co., Ltd. ceased to be an affi liated company accounted for by the equity method of Toyota Motor Corporation as of April 1, 2010, due to the business integration through a share-for-share exchange. Certain affi liated companies accounted for For the years ended March 31, 2009 ¥ 23,149,968 2008 ¥ 26,511,831 2010 ¥ 20,599,586 ¥ 3,081,366 ¥ 2,034,617 ¥ 2,269,109 $ 24,389 ¥ 870,528 ¥ 13,838 ¥ 317,017 $ 3,407 by the equity method with carrying amounts of ¥1,417,896 million and ¥1,439,090 million ($15,467 million) at March 31, 2009 and 2010, respectively, were quoted on various established markets at an aggregate value of ¥1,127,976 million and ¥1,711,957 million ($18,400 million), respectively. For the year ended March 31, 2010, Toyota recognized an impairment loss on a certain investment in affi liated company accounted for by the equity method of ¥63,575 million ($683 million), which is included in U.S. dollars in millions March 31, 2010 $2,947 6,425 U.S. dollars in millions For the year ended March 31, 2010 $17,201 42,387 “Equity in earnings of affi liated companies” in the accompanying consolidated statements of income. Toyota evaluated its investments in affi liated companies, considering the length of time and the extent to which the quoted market prices have been less than the carrying amounts, the fi nancial condition and near-term prospects of the affi liated companies and Toyotaʼs ability and intent to retain those investments in the companies for a period of time. Account balances and transactions with affi liated companies are presented below: Trade accounts and notes receivable, and other receivables ················ Accounts payable and other payables ······························································· Yen in millions March 31, 2009 ¥159,821 363,954 2010 ¥274,189 597,796 Yen in millions Net revenues ·················································································· Purchases·························································································· Dividends from affi liated companies accounted for by the equity method for the years ended March 31, 2008, 2009 and 2010 were ¥76,351 million, ¥114,409 million and ¥82,149 million ($883 million), respectively. Toyota does not have any signifi cant related party transactions other than transactions with affi liated companies in the ordinary course of business. that entities, special-purpose Variable Interest Entities Toyota enters into securitization transactions using are interest entities (“VIEs”). considered variable Although the fi nance receivables related to securitization transactions have been legally sold to the VIEs, Toyota holds variable interests in certain VIEs that are expected to absorb a majority of the VIEsʼ expected losses, receive a For the years ended March 31, 2009 ¥1,585,814 3,918,717 2010 ¥1,600,365 3,943,648 2008 ¥1,693,969 4,525,049 majority of the VIEsʼ expected residual returns, or both. As a result, Toyota is considered the primary benefi ciary of certain VIEs and therefore consolidates certain VIEs except for QSPEs. The consolidated securitization VIEs have ¥366,886 million ($3,943 million) in retail fi nance receivables, ¥20,581 million ($221 million) in restricted cash and ¥363,369 million ($3,906 million) in secured debt. Risks to which Toyota is exposed including credit, interest rate, and/or prepayment risks are not incremental compared with the situation before Toyota enters into securitization transactions. Certain joint ventures in which Toyota has invested are VIEs for which Toyota is not the primary benefi ciary. However, neither the aggregate size of these joint ventures nor Toyotaʼs involvements in these entities are material to Toyotaʼs consolidated fi nancial statements. TOYOTA ANNUAL REPORT 2010 75 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section 13 Short-term borrowings and long-term debt: Short-term borrowings at March 31, 2009 and 2010 consist of the following: Loans, principally from banks, with a weighted-average interest at March 31, 2009 and March 31, 2010 of 2.44% and of 1.55% per annum, respectively ································································································· Commercial paper with a weighted-average interest at March 31, 2009 and March 31, 2010 of 1.52% and of 0.44% per annum, respectively ··················································································································· Yen in millions March 31, 2009 2010 U.S. dollars in millions March 31, 2010 ¥1,115,122 ¥ 804,066 $ 8,642 2,502,550 ¥3,617,672 2,475,607 ¥3,279,673 26,608 $35,250 As of March 31, 2010, Toyota has unused short- term lines of credit amounting to ¥2,306,265 million ($24,788 million) of which ¥504,339 million ($5,421 million) related to commercial paper programs. Under these programs, Toyota is authorized to obtain short-term fi nancing at prevailing interest rates for periods not in excess of 360 days. Long-term debt at March 31, 2009 and 2010 comprises the following: Unsecured loans, representing obligations principally to banks, due 2009 to 2028 in 2009 and due 2010 to 2029 in 2010 with interest ranging from 0.17% to 31.50% per annum in 2009 and from 0.00% to 29.25% per annum in 2010 ············································································· Secured loans, representing obligations principally to banks due 2009 to 2019 in 2009 and fi nance receivables securitization due 2010 to 2019 in 2010 with interest ranging from 0.68% to 5.35% per annum in 2009 and from 0.49% to 6.65% per annum in 2010 Medium-term notes of consolidated subsidiaries, due 2009 to 2047 in 2009 and due 2010 to 2047 in 2010 with interest ranging from 0.19% to 17.47% per annum in 2009 and from 0.04% to 15.25% per annum in 2010············································································································· Unsecured notes of parent company, due 2010 to 2018 in 2009 and due 2010 to 2019 in 2010 with interest ranging from 1.33% to 3.00% per annum in 2009 and from 1.07% to 3.00% per annum in 2010 ··································································································································· Unsecured notes of consolidated subsidiaries, due 2009 to 2031 in 2009 and due 2010 to 2031 in 2010 with interest ranging from 0.59% to 19.42% per annum in 2009 and from 0.25% to 17.03% per annum in 2010············································································································· Long‒term capital lease obligations, due 2009 to 2028 in 2009 and due 2010 to 2028 in 2010 with interest ranging from 0.21% to 15.47% per annum in 2009 and from 0.43% to 14.40% per annum in 2010······························································································································ Less ‒ Current portion due within one year ···················································· Yen in millions March 31, 2009 2010 U.S. dollars in millions March 31, 2010 ¥ 1,536,413 ¥ 2,942,012 $ 31,621 11,227 381,307 4,098 5,335,159 3,814,439 40,998 450,000 580,000 6,234 1,616,816 1,473,732 15,840 51,366 9,000,981 (2,699,512) ¥ 6,301,469 42,243 9,233,733 (2,218,324) ¥ 7,015,409 454 99,245 (23,843) $ 75,402 As of March 31, 2010, approximately 36%, 21%, 13% and 30% of long-term debt are denominated in Japanese yen, U.S. dollars, euros, and other currencies, respectively. As of March 31, 2010, property, plant and equipment with a book value of ¥82,866 million ($891 million) and in addition, other assets aggregating ¥388,439 million ($4,175 million) were pledged as collateral mainly for certain debt obligations of subsidiaries. These other assets principally consist of securitized fi nance receivables. The aggregate amounts of annual maturities of long-term debt during the next fi ve years are as follows: Years ending March 31, 2011 ········································································································································································ 2012 ········································································································································································ 2013 ········································································································································································ 2014 ········································································································································································ 2015 ········································································································································································ Yen in millions ¥2,218,324 2,148,481 2,087,820 740,848 726,090 U.S. dollars in millions $23,843 23,092 22,440 7,963 7,804 Standard agreements with certain banks in Japan include provisions that collateral (including sums on deposit with such banks) or guarantees will be furnished upon the banksʼ request and that any collateral furnished, pursuant to such agreements or otherwise, will be applicable to all present or future indebtedness to such banks. During the year ended March 31, 2010, Toyota has not received any signifi cant such requests from these banks. As of March 31, 2010, Toyota has unused long- term lines of credit amounting to ¥5,667,638 million ($60,916 million). 14 Product warranties: Toyota provides product warranties for certain defects mainly resulting from manufacturing based on warranty contracts with its customers at the time of sale of products. Toyota accrues estimated warranty costs to be incurred in the future in accordance with the warranty contracts. The net change in the accrual for the product warranties for the years ended March 31, 2008, 2009 and 2010, which is included in “Accrued expenses” in the accompanying consolidated balance sheets, consist of the following: TOYOTA ANNUAL REPORT 2010 76 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section Yen in millions For the years ended March 31, 2008 2009 2010 Liabilities for product warranties at beginning of year · Payments made during year ·················································· Provision for warranties ···························································· Changes relating to pre-existing warranties ················· Other ··································································································· Liabilities for product warranties at end of year ·········· ¥ 412,452 (324,110) 392,349 (14,155) (20,152) ¥ 446,384 ¥ 446,384 (337,863) 366,604 (17,869) (27,999) ¥ 429,257 ¥ 429,257 (336,180) 301,209 (21,606) 6,306 ¥ 378,986 U.S. dollars in millions For the year ended March 31, 2010 $ 4,613 (3,613) 3,237 (232) 68 $ 4,073 The other amount primarily includes the impact of currency translation adjustments and the impact of consolidation and deconsolidation of certain entities due to changes in ownership interest. In addition to product warranties above, Toyota initiates recalls and other safety measures to repair or to replace parts which might be expected to fail from products safety perspectives or customer satisfaction standpoints. Toyota accrues costs of these activities based on managementʼs estimates. And during the fourth quarter of this consolidated fi scal year, Toyota has 15 Other payables: employed an estimation model, to accrue at the time of vehicle sale, an amount that represents managementʼs best estimate of expenses related to future recalls and other safety measures. The estimation model for recalls and other safety measures takes into account Toyotaʼs historical experience and individual occurrences of recalls and other safety measures. These costs are not included in the reconciliation above. See note 2 to the consolidated fi nancial statements for additional information. Other payables are mainly related to purchases of property, plant and equipment and non-manufacturing purchases. 16 Income taxes: The components of income (loss) before income taxes comprise the following: Yen in millions For the years ended March 31, 2009 2008 2010 U.S. dollars in millions For the year ended March 31, 2010 Income (loss) before income taxes: Parent company and domestic subsidiaries ················ Foreign subsidiaries ··································································· ¥1,522,619 914,603 ¥2,437,222 ¥(224,965) (335,416) ¥(560,381) ¥ (114,569) 406,037 ¥ 291,468 $ (1,231) 4,364 $ 3,133 The provision for income taxes consists of the following: Yen in millions For the years ended March 31, 2009 2008 2010 Current income tax expense: Parent company and domestic subsidiaries ············· Foreign subsidiaries ································································ Total current ············································································ ¥491,185 338,852 830,037 Deferred income tax expense (benefi t): Parent company and domestic subsidiaries ············· Foreign subsidiaries ································································ Total deferred ········································································· Total provision ······································································· 119,333 (37,875) 81,458 ¥911,495 ¥ 65,684 72,864 138,548 (26,472) (168,518) (194,990) ¥ (56,442) ¥ 65,971 1,156 67,127 (126,716) 152,253 25,537 ¥ 92,664 U.S. dollars in millions For the year ended March 31, 2010 $ 709 13 722 (1,362) 1,636 274 $ 996 Toyota is subject to a number of diff erent income taxes which, in the aggregate, indicate a statutory rate in Japan of approximately 40.2% for the years ended March 31, 2008, 2009 and 2010. Such rate was also used to calculate the tax eff ects of temporary diff erences, which are expected to be realized in the future years. Reconciliation of the diff erences between the statutory tax rate and the eff ective income tax rate is as follows: Statutory tax rate ·············································································································· Increase (reduction) in taxes resulting from: Non-deductible expenses ······················································································· Deferred tax liabilities on undistributed earnings of foreign subsidiaries ································································································ Deferred tax liabilities on undistributed earnings of affi liates accounted for by the equity method ···························································· Valuation allowance ··································································································· Tax credits ························································································································ The diff erence between the statutory tax rate in Japan and that of foreign subsidiaries ···························································································· Other ··································································································································· Eff ective income tax rate ····························································································· For the years ended March 31, 2009 40.2% 2008 40.2% 2010 40.2% 0.6 0.9 3.1 (0.4) (4.4) (3.1) 0.5 37.4% (5.0) (2.5) (2.5) (25.4) 10.0 1.6 (6.3) 10.1% 1.9 4.4 (0.6) 11.2 (11.8) (12.9) (0.6) 31.8% TOYOTA ANNUAL REPORT 2010 77 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Signifi cant components of deferred tax assets and liabilities are as follows: The deferred tax assets and liabilities that comprise the net deferred tax asset (liability) are included in Yen in millions March 31, 2009 2010 U.S. dollars in millions March 31, 2010 the consolidated balance sheets as follows: Deferred tax assets Accrued pension and severance costs ···················································· Warranty reserves and accrued expenses ············································· Other accrued employeesʼ compensation ············································ Operating loss carryforwards for tax purposes ··································· Inventory adjustments ····················································································· Property, plant and equipment and other assets ······························ Other ·························································································································· Gross deferred tax assets ············································································· Less ‒ Valuation allowance ············································································ Total deferred tax assets ·············································································· Deferred tax liabilities Unrealized gains on securities······································································ Undistributed earnings of foreign subsidiaries ··································· Undistributed earnings of affi liates accounted for by the equity method ··················································································· Basis diff erence of acquired assets ···························································· Lease transactions ······························································································ Gain on securities contribution to employee retirement benefi t trust ········································································································ Other ·························································································································· Gross deferred tax liabilities ······································································· Net deferred tax asset (liability) ¥ 288,849 227,757 99,867 290,044 64,439 208,983 413,728 1,593,667 (208,627) 1,385,040 (100,698) (13,971) (536,876) (38,356) (472,817) ¥ 210,268 277,696 106,404 146,114 58,561 188,745 488,880 1,476,668 (239,269) 1,237,399 (147,494) (12,797) (575,929) (38,977) (457,316) (66,523) (57,113) (1,286,354) ¥ 98,686 (66,523) (6,141) (1,305,177) ¥ (67,778) $ 2,260 2,985 1,144 1,570 629 2,029 5,255 15,872 (2,572) 13,300 (1,585) (138) (6,190) (419) (4,915) (715) (66) (14,028) $ (728) The valuation allowance mainly relates to deferred tax assets of the consolidated subsidiaries with operating loss carryforwards for tax purposes that are not expected to be realized. The net changes in the total valuation allowance for deferred tax assets for the years ended March 31, 2008, 2009 and 2010 consist of the following: Yen in millions For the years ended March 31, 2009 2008 2010 U.S. dollars in millions For the year ended March 31, 2010 Valuation allowance at beginning of year ······················ Additions ······················································································ Deductions ·················································································· Other ······························································································· Valuation allowance at end of year ···································· ¥ 95,225 4,783 (13,508) (4,309) ¥ 82,191 ¥ 82,191 145,707 (3,511) (15,760) ¥208,627 ¥208,627 46,704 (14,066) (1,996) ¥239,269 $2,242 502 (151) (21) $2,572 The other amount includes the impact of consolidation and deconsolidation of certain entities due to changes in ownership interest and currency translation adjustments during the years ended March 31, 2008, 2009 and 2010. Yen in millions March 31, 2009 2010 Deferred tax assets Deferred income taxes (Current assets) ························································· Investments and other assets - other ······························································ ¥ 605,331 149,511 ¥ 632,164 122,617 Deferred tax liabilities Other current liabilities ···························································································· Deferred income taxes (Long-term liabilities) ············································ Net deferred tax asset (liability) ······································································ (13,863) (642,293) ¥ 98,686 (9,338) (813,221) ¥ (67,778) U.S. dollars in millions March 31, 2010 $ 6,795 1,318 (100) (8,741) $ (728) Because management intends to reinvest undistributed earnings of foreign subsidiaries to the extent not expected to be remitted in the foreseeable future, management has made no provision for income taxes on those undistributed earnings aggregating ¥2,429,578 million ($26,113 million) as of March 31, 2010. Toyota estimates an additional tax provision of ¥98,035 million ($1,054 million) would be required if the full amount of those undistributed earnings were remitted. Operating loss carryforwards for tax purposes attributed to consolidated subsidiaries as of March 31, 2010 were approximately ¥506,209 million ($5,441 million) and are available as an off set against future taxable income of such subsidiaries. The majority of these carryforwards expire in years 2011 to 2030. 　A summary of the gross unrecognized tax benefi ts changes for the years ended March 31, 2009 and 2010 is as follows: Balance at beginning of year ··················································································· Additions based on tax positions related to the current year ··············· Additions for tax positions of prior years ·························································· Reductions for tax positions of prior years ························································ Reductions for tax positions related to lapse of statute of limitations ···· Reductions for settlement ························································································· Other ····································································································································· Balance at end of year ····························································································· Yen in millions For the years ended March 31, 2009 ¥ 37,722 858 35,464 (24,061) (114) (128) (2,938) ¥ 46,803 2010 ¥ 46,803 2,702 6,750 (2,802) (106) (27,409) (1,973) ¥ 23,965 U.S. dollars in millions For the year ended March 31, 2010 $ 503 29 73 (30) (1) (295) (21) $ 258 The amount of unrecognized tax benefi ts that, if recognized, would aff ect the eff ective tax rate was not material at March 31, 2009 and 2010, respectively. Toyota does not believe it is reasonably possible that the total amounts of unrecognized tax benefi ts will signifi cantly increase or decrease within the next 12 months. Interest and penalties related to income tax liabilities are included in “Other income (loss), net”. The amounts of interest and penalties TOYOTA ANNUAL REPORT 2010 78 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information accrued as of and recognized for the years ended March 31, 2009 and 2010, respectively, were not material. Toyota remains subject income tax to examination for the tax returns related to the years beginning on and after January 1, 2000, with various tax jurisdictions including Japan. 17 Shareholdersʼ equity: Changes in the number of shares of common stock issued have resulted from the following: For the years ended March 31, 2009 2010 2008 Common stock issued Balance at beginning of year ·········································································· Issuance during the year ··················································································· Purchase and retirement ·················································································· Balance at end of year ···················································································· 3,609,997,492 ̶ (162,000,000) 3,447,997,492 3,447,997,492 ̶ ̶ 3,447,997,492 3,447,997,492 ̶ ̶ 3,447,997,492 The Corporation Act provides that an amount equal to 10% of distributions from surplus paid by the parent company and its Japanese subsidiaries be appropriated as a capital reserve or a retained earnings reserve. No further appropriations are required when the total amount of the capital reserve and the retained earnings reserve reaches 25% of stated capital. The retained earnings reserve included in retained earnings as of March 31, 2009 and 2010 was ¥167,722 million and ¥168,680 million ($1,813 million), respectively. The Corporation Act provides that the retained earnings reserve of the parent company and its Japanese subsidiaries is restricted and unable to be used for dividend payments, and is excluded from the calculation of the profi t available for dividend. The amounts of statutory retained earnings of the parent company available for dividend payments to shareholders were ¥5,624,709 million and ¥5,478,747 million ($58,886 million) as of March 31, 2009 and 2010, respectively. In accordance with customary practice in Japan, the distributions from surplus are not accrued in the fi nancial statements for the corresponding period, but are recorded in the subsequent accounting period after shareholdersʼ approval has been obtained. Retained earnings at March 31, 2010 include amounts representing year-end cash dividends of ¥78,400 million ($843 million), ¥25 ($0.27) per share, which were approved at the Ordinary General Shareholdersʼ Meeting, held on June 24, 2010. Retained earnings at March 31, 2010 include ¥1,344,903 million ($14,455 million) relating to equity in undistributed earnings of companies accounted for by the equity method. On June 23, 2006, at the Ordinary General Shareholdersʼ Meeting, the shareholders of the parent company approved to purchase up to 30 million shares of its common stock at a cost up to ¥200,000 million during the purchase period of one year from the following day. As a result, the parent company repurchased approximately 28 million shares during the approved period of time. On June 22, 2007, at the Ordinary General Shareholdersʼ Meeting, the shareholders of the parent company approved to purchase up to 30 million shares of its common stock at a cost up to ¥250,000 million during the purchase period of one year from the following day. As a result, the parent company repurchased 30 million shares during the approved period of time. On February 5, 2008, the Board of Directors resolved to purchase up to 12 million shares of its common stock at a cost up to ¥60,000 million in accordance with the Corporation Act. As a result, the parent company repurchased approximately 10 million shares. On the same date, the Board of Directors also resolved to retire 162 million shares of its common stock, and then the parent company retired its common stock on March 31, 2008. This retirement, in accordance with the Corporation Act and related regulations, is treated as a reduction from additional paid-in capital and retained earnings. As a result, treasury stock, additional paid-in capital and retained earnings decreased by ¥646,681 million, ¥3,499 million and ¥643,182 million, respectively. On June 24, 2008, at the Ordinary General Shareholdersʼ Meeting, the shareholders of the parent company approved to purchase up to 30 million shares of its common stock at a cost up to ¥200,000 million during the purchase period of one year from the following day. As a result, the parent company repurchased approximately 14 million shares during the approved period of time. These approvals by the shareholders are not required under the current regulation. Detailed components of accumulated other comprehensive income (loss) in Toyota Motor Corporation shareholdersʼ equity at March 31, 2009 and 2010 and the related changes, net of taxes for the years ended March 31, 2008, 2009 and 2010 consist of the following: Balances at March 31, 2007 ················································ Other comprehensive income (loss) ······························ Balances at March 31, 2008 ················································ Other comprehensive income (loss) ······························ Balances at March 31, 2009 ················································ Other comprehensive income ··········································· Balances at March 31, 2010 ················································ Balances at March 31, 2009 ················································ Other comprehensive income ··········································· Balances at March 31, 2010 ················································ Foreign currency translation adjustments ¥ (40,178) (461,189) (501,367) (381,303) (882,670) 9,894 ¥ (872,776) Yen in millions Unrealized gains on securities ¥ 658,808 (347,829) 310,979 (293,101) 17,878 176,407 ¥ 194,285 Pension liability adjustments ¥ 82,760 (133,577) (50,817) (192,172) (242,989) 74,645 ¥ (168,344) Accumulated other comprehensive income (loss) ¥ 701,390 (942,595) (241,205) (866,576) (1,107,781) 260,946 ¥ (846,835) U.S. dollars in millions Foreign currency translation adjustments (9,487) 107 (9,380) $ $ Unrealized gains on securities 192 $ 1,896 $ 2,088 Pension liability adjustments (2,612) 802 (1,810) $ $ Accumulated other comprehensive income (loss) (11,907) 2,805 (9,102) $ $ TOYOTA ANNUAL REPORT 2010 79 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Tax eff ects allocated to each component of other comprehensive income (loss) for the years ended 18 Stock-based compensation: March 31, 2008, 2009 and 2010 are as follows: For the year ended March 31, 2008 Foreign currency translation adjustments ················································ Unrealized losses on securities: Unrealized net holding losses arising for the year ···························· Less: reclassifi cation adjustments for gains included in net Yen in millions Pre-tax amount Tax amount Net-of-tax amount ¥ (460,723) ¥ (466) ¥ (461,189) (545,555) 219,313 (326,242) income attributable to Toyota Motor Corporation ······················· Pension liability adjustments ············································································ Other comprehensive income (loss)····················································· (36,099) (221,142) 14,512 87,565 ¥ (1,263,519) ¥ 320,924 (21,587) (133,577) (942,595) ¥ For the year ended March 31, 2009 Foreign currency translation adjustments ··············································· Unrealized losses on securities: Unrealized net holding losses arising for the year ···························· Less: reclassifi cation adjustments for losses included in net loss ¥ (391,873) ¥ 10,570 ¥ (381,303) (677,710) 255,890 (421,820) attributable to Toyota Motor Corporation ········································ Pension liability adjustments ············································································ Other comprehensive income (loss)····················································· 215,249 (319,613) (86,530) 127,441 ¥ (1,173,947) ¥ 307,371 128,719 (192,172) ¥ (866,576) For the year ended March 31, 2010 Foreign currency translation adjustments ················································ Unrealized gains on securities: Unrealized net holding gains arising for the year ······························ Less: reclassifi cation adjustments for gains included in net ¥ 10,809 ¥ (915) ¥ 9,894 277,838 (102,538) 175,300 income attributable to Toyota Motor Corporation ······················· Pension liability adjustments ············································································ Other comprehensive income ································································· 1,852 124,526 ¥ 415,025 (745) (49,881) ¥ (154,079) 1,107 74,645 ¥ 260,946 For the year ended March 31, 2010 Foreign currency translation adjustments ················································· Unrealized gains on securities: Unrealized net holding gains arising for the year ······························· Less: reclassifi cation adjustments for gains included in net U.S. dollars in millions Pre-tax amount Tax amount Net-of-tax amount $ 117 $ (10) $ 107 2,986 (1,102) 1,884 income attributable to Toyota Motor Corporation ························ Pension liability adjustments ············································································· Other comprehensive income ·································································· 20 1,338 $ 4,461 (8) (536) $ (1,656) 12 802 $ 2,805 In June 1997, the parent companyʼs shareholders approved a stock option plan for board members. In June 2001, the shareholders approved an amendment of the plan to include both board members and key employees. Each year, since inception, the shareholders have the plansʼ approved the authorization for the grant of options for the purchase of Toyotaʼs common stock. Authorized shares for each year that remain ungranted are unavailable for grant in future years. Stock options granted in and after August 2002 have terms ranging from 6 years to 8 years and an exercise price equal to 1.025 times the closing price of Toyotaʼs common stock on the date of grant. These options generally vest 2 years from the date of grant. On June 24, 2010, at the Ordinary General Shareholdersʼ Meeting, the shareholders of the parent company approved the authorization of an additional up to 3,600,000 shares for issuance under the Toyotaʼs stock option plan for directors, offi cers and employees of the parent company, its subsidiaries and affi liates. For the years ended March 31, 2008, 2009 and 2010, Toyota recognized stock-based compensation expenses for stock options of ¥3,273 million, ¥3,015 million and ¥2,446 million ($26 million) as selling, general and administrative expenses. The weighted-average grant-date fair value of options granted during the years ended March 31, 2008, 2009 and 2010 was ¥1,199, ¥635 and ¥803 ($9), respectively per share. The fair value of options granted is amortized over the option vesting period income attributable to Toyota Motor Corporation in the consolidated statements of income. The grant-date fair value of options granted is estimated using the Black-Scholes option pricing model with the following weighted-average assumptions: in determining net Dividend rate ···················································································································· Risk-free interest rate···································································································· Expected volatility ········································································································· Expected holding period (years) ············································································ 2008 1.7% 1.3% 23% 5.0 2009 3.0% 1.1% 23% 5.0 2010 2.4% 0.7% 30% 5.0 TOYOTA ANNUAL REPORT 2010 80 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information The following table summarizes Toyotaʼs stock option activity: 19 Employee benefi t plans: Yen Weighted- average exercise price ¥ 5,175 7,278 4,208 6,196 6,038 4,726 3,626 6,889 5,631 4,193 3,116 4,646 ¥ 5,363 ¥ 4,225 ¥ 5,302 ¥ 6,132 Number of shares 6,292,700 3,264,000 (792,100) (423,000) 8,341,600 3,494,000 (119,900) (375,000) 11,340,700 3,492,000 (157,800) (958,200) 13,716,700 2,354,600 4,971,700 7,515,700 Yen in millions Aggregate intrinsic value ¥ 14,947 Weighted- average remaining contractual life in years 5.53 5.71 1,753 5.51 1 5.23 2.76 3.76 3.86 ¥ ̶ ¥ 1,753 1 ¥ ¥ ̶ Options outstanding at March 31, 2007 ····················· Granted ······················································································· Exercised ···················································································· Canceled ···················································································· Options outstanding at March 31, 2008 ····················· Granted ······················································································· Exercised ···················································································· Canceled ···················································································· Options outstanding at March 31, 2009 ····················· Granted ······················································································· Exercised ···················································································· Canceled ···················································································· Options outstanding at March 31, 2010 ····················· Options exercisable at March 31, 2008 ························· Options exercisable at March 31, 2009 ························· Options exercisable at March 31, 2010 ························· The total intrinsic value of options exercised for the years ended March 31, 2008, 2009 and 2010 was ¥1,651 million, ¥97 million and ¥113 million ($1 million), respectively. As of March 31, 2010, there were unrecognized compensation expenses of ¥1,822 million ($20 million) for stock options granted. Those expenses are expected to be recognized over a weighted-average period of 1.1 years. Cash received from the exercise of stock options for the years ended March 31, 2008, 2009 and 2010 was ¥3,333 million, ¥435 million and ¥492 million ($5 million), respectively. The following table summarizes information for options outstanding and options exercisable at March 31, 2010: Outstanding Weighted- average exercise price Weighted- average exercise price Weighted- average remaining life Exercisable Weighted- average exercise price Weighted- average exercise price Yen ¥4,429 6,723 5,363 Dollars $48 72 58 Years 5.50 4.85 5.23 Number of shares 1,932,700 5,583,000 7,515,700 Yen ¥4,427 6,723 6,132 Dollars $48 72 66 Exercise price range Yen ¥4,193 − 6,000 6,001 − 7,278 4,193 − 7,278 Number of shares 8,133,700 5,583,000 13,716,700 TOYOTA ANNUAL REPORT 2010 Pension and severance plans Upon terminations of employment, employees of the parent company and subsidiaries in Japan are entitled, under the retirement plans of each company, to lump-sum indemnities or pension payments, based on current rates of pay and lengths of service or the number of “points” mainly determined by those. Under normal circumstances, the minimum payment prior to retirement age is an amount based on voluntary additional retirement. benefi ts on involuntary retirement, including retirement at the age limit. Employees receive Eff ective October 1, 2004, the parent company amended its retirement plan to introduce a “point” based retirement benefi t plan. Under the new plan, employees are entitled to lump- sum or pension payments determined based on accumulated “points” vested in each year of service. There are three types of “points” that vest in each year of service consisting of “service period points” which are attributed to the length of service, “job title points” which are attributed to the job title of each employee, and “performance points” which are attributed to the annual performance evaluation of each employee. Under normal circumstances, the minimum payment prior to retirement age is an amount refl ecting an adjustment rate applied to represent voluntary retirement. Employees receive additional benefi ts upon involuntary retirement, including retirement at the age limit. Eff ective October 1, 2005, the parent company partly amended retirement plan and introduced the quasi cash-balance plan under which benefi ts are determined based on the its variable-interest crediting rate rather than the fi xed-interest crediting rate as was in the pre- amended plan. The parent company and most subsidiaries in Japan have contributory funded defi ned benefi t pension plans, which are pursuant to the Corporate Defi ned Benefi t Pension Plan Law (CDBPPL). The contributions to the plans are funded with several fi nancial institutions in accordance with the applicable laws and regulations. These pension plan assets consist principally of common stocks, government bonds and insurance contracts. Most foreign subsidiaries have pension plans or severance indemnity plans covering substantially all of their employees under which the cost of benefi ts are currently invested or accrued. The benefi ts for these plans are based primarily on lengths of service and current rates of pay. Toyota uses a March 31 measurement date for its benefi t plans. 81 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Information regarding Toyotaʼs defi ned benefi t plans is as follows: The accumulated benefi t obligation for all defi ned benefi t pension plans was ¥1,524,556 million and Yen in millions March 31, 2009 2010 U.S. dollars in millions March 31, 2010 Change in benefi t obligation Benefi t obligation at beginning of year ····················································· Service cost ················································································································ Interest cost ··············································································································· Plan participantsʼ contributions ····································································· Plan amendments·································································································· Net actuarial (gain) loss ······················································································· Acquisition and other ·························································································· Benefi ts paid ············································································································· Benefi t obligation at end of year ······························································· Change in plan assets Fair value of plan assets at beginning of year ········································· Actual return on plan assets ············································································· Acquisition and other ·························································································· Employer contributions ······················································································ Plan participantsʼ contributions ····································································· Benefi ts paid ············································································································· Fair value of plan assets at end of year ··················································· Funded status ·············································································································· ¥ 1,693,155 84,206 52,959 750 (2,096) (47,272) (64,784) (84,139) 1,632,779 1,282,048 (307,293) (43,851) 131,412 835 (84,139) 979,012 ¥ 653,767 ¥ 1,632,779 75,558 50,559 657 (3,080) 56,843 (2,829) (83,740) 1,726,747 979,012 171,043 158 111,815 763 (83,740) 1,179,051 ¥ 547,696 $ 17,549 812 543 7 (33) 611 (30) (900) 18,559 10,522 1,838 2 1,202 8 (900) 12,672 $ 5,887 Amounts recognized in the consolidated balance sheet as of March 31, 2009 and 2010 are comprised of the following: Accrued expenses (Accrued pension and severance costs) ··············· Accrued pension and severance costs ··························································· Investments and other assets ‒ other (Prepaid pension and severance costs) ······································································································ Net amount recognized ····················································································· Yen in millions March 31, 2009 ¥ 30,658 634,612 2010 ¥ 28,573 678,677 U.S. dollars in millions March 31, 2010 $ 307 7,294 (11,503) ¥ 653,767 (159,554) ¥ 547,696 (1,714) $ 5,887 Amounts recognized in accumulated other comprehensive income (loss) as of March 31, 2009 and 2010 are comprised of the following: Net actuarial loss ······································································································· Prior service costs ······································································································ Net transition obligation ······················································································· Net amount recognized ···················································································· TOYOTA ANNUAL REPORT 2010 Yen in millions March 31, 2009 ¥ (497,055) 109,570 (5,514) ¥ (392,999) 2010 ¥ (385,266) 97,587 (3,570) ¥ (291,249) U.S. dollars in millions March 31, 2010 $ (4,141) 1,049 (38) $ (3,130) ¥1,571,061 million ($16,886 million) at March 31, 2009 and 2010, respectively. The projected benefi t obligation, accumulated benefi t obligation and fair value of plan assets for which the accumulated benefi t obligations exceed plan assets are as follows: Projected benefi t obligation ···················································································· Accumulated benefi t obligation ··········································································· Fair value of plan assets ······························································································ Components of the net periodic pension cost are as follows: Yen in millions March 31, 2009 ¥1,076,362 1,039,314 614,377 2010 ¥508,501 452,019 65,905 Yen in millions For the years ended March 31, 2009 2008 2010 Service cost ······················································································ Interest cost ····················································································· Expected return on plan assets ············································ Amortization of prior service costs ····································· Recognized net actuarial loss ················································ Amortization of net transition obligation ······················· Net periodic pension cost ··················································· ¥ 96,454 54,417 (43,450) (17,162) 4,013 1,944 ¥ 96,216 ¥ 84,206 52,959 (43,053) (17,677) 5,752 1,944 ¥ 84,131 ¥ 75,558 50,559 (32,251) (15,063) 27,246 1,944 ¥ 107,993 U.S. dollars in millions March 31, 2010 $5,465 4,858 708 U.S. dollars in millions For the year ended March 31, 2010 $ 812 543 (346) (162) 293 21 $ 1,161 Other changes in plan assets and benefi t obligations recognized in other comprehensive income (loss) are as follows: Yen in millions For the years ended March 31, 2009 2008 2010 Net actuarial gain (loss) ····························································· Recognized net actuarial loss ················································ Prior service costs ········································································· Amortization of prior service costs ····································· Amortization of net transition obligation ······················· Other ··································································································· Total recognized in other comprehensive income (loss) ···· ¥(227,439) 4,013 7,619 (17,162) 1,944 24,882 ¥(206,143) ¥(303,074) 5,752 2,096 (17,677) 1,944 17,003 ¥(293,956) ¥ 81,949 27,246 3,080 (15,063) 1,944 2,594 ¥ 101,750 U.S. dollars in millions For the year ended March 31, 2010 $ 881 293 33 (162) 21 28 $ 1,094 The estimated prior service costs, net actuarial loss and net transition obligations that will be amortized from accumulated other comprehensive income (loss) into net periodic pension cost during the year 82 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section ending March 31, 2011 are ¥(15,000) million ($(161) million), ¥15,700 million ($169 million) and ¥1,900 million ($20 million), respectively. Weighted-average assumptions used to determine benefi t obligations as of March 31, 2009 and 2010 are as follows: Discount rate ········································································································································· Rate of compensation increase ··································································································· 2.8% 0.1 ‒ 10.0% 2009 2010 2.8% 0.5 ‒ 10.0% March 31, Weighted-average assumptions used to determine net periodic pension cost for the years ended March 31, 2008, 2009 and 2010 are as follows: Discount rate ································································································ Expected return on plan assets ·························································· Rate of compensation increase ·························································· 2.7% 3.4% 0.1 ‒ 10.0% 2.8% 3.6% 0.1 ‒ 10.0% 2.8% 3.6% 0.1 ‒ 10.0% For the years ended March 31, 2009 2008 2010 is the results of to maximize The expected rate of return on plan assets is determined after considering several applicable factors including, the composition of plan assets held, assumed risks of asset management, historical returns on plan assets, Toyotaʼs principal policy for plan asset management, and forecasted market conditions. Toyotaʼs policy and objective for plan asset management returns on plan assets to meet future benefi t payment requirements under risks which Toyota considers permissible. Asset allocations under the plan asset management are determined based on plan asset management policies of each plan which are established to achieve the optimized asset compositions in terms of the long-term overall plan asset management. Excepting equity securities contributed by Toyota, approximately 50% of the plan assets is invested in equity securities, approximately 30% is invested in debt securities, and the rest of them is invested in insurance contracts and other products. When actual allocations are not in line with target allocations, Toyota rebalances its investments in accordance with the policies. Prior to making individual investments, Toyota performs in-depth assessments of corresponding factors including category of products, industry type, currencies and liquidity of each potential investment under consideration to mitigate concentrations of risks such as market risk and foreign currency exchange rate risk. To assess performance of the investments, Toyota establishes bench mark return rates for each investment, combines these individual bench mark rates based on the asset composition ratios within each asset category, and compares the combined rates with the corresponding actual return rates on each asset category. individual The following table summarizes the fair value of classes of plan assets as of March 31, 2010. See note 26 to the consolidated fi nancial statements for three levels of input which are used to measure fair value. Equity securities Common stocks ········································································ Commingled funds ································································· Debt securities Government bonds ································································· Commingled funds ································································· Other ······························································································· Insurance contracts ····································································· Other ··································································································· Total ································································································· Equity securities ··········································································· Common stocks ······································································· Commingled funds ································································ Debt securities Government bonds ································································ Commingled funds ································································ Other ······························································································ Insurance contracts ···································································· Other ·································································································· Total ································································································ Yen in millions March 31, 2010 Level 1 Level 2 Level 3 Total ¥ 471,262 ̶ 471,262 79,739 ̶ 39,231 118,970 ̶ 35,774 ¥ 626,006 ¥ ̶ 237,495 237,495 ̶ 147,345 19,561 166,906 97,086 1,449 ¥ 502,936 ¥ ̶ ¥ 471,262 237,495 708,757 ̶ ̶ ̶ 2,663 928 3,591 ̶ 46,518 ¥ 50,109 79,739 150,008 59,720 289,467 97,086 83,741 ¥ 1,179,051 U.S. dollars in millions March 31, 2010 Level 1 Level 2 Level 3 Total $ 5,065 ̶ 5,065 857 ̶ 422 1,279 ̶ 384 $ 6,728 $ ̶ 2,553 2,553 ̶ 1,584 210 1,794 1,043 16 $ 5,406 $ ̶ ̶ ̶ ̶ 28 10 38 ̶ 500 $ 538 $ 5,065 2,553 7,618 857 1,612 642 3,111 1,043 900 $ 12,672 The following is description of the assets, information about the valuation techniques used to measure fair value, key inputs and signifi cant assumptions: Quoted market prices for identical securities are used to measure fair value of common stocks. As of March 31, 2010, common stocks include 64% of Japanese stocks and 36% of foreign stocks. Quoted market prices for identical securities are used to measure fair value of government bonds. As of March 31, 2010, government bonds include 25% of Japanese government bonds and 75% of foreign government bonds. Commingled funds are benefi cial interests of collective trust, which are mainly invested by the parent company and Japanese subsidiaries. The fair values of commingled funds are measured using the net asset value (“NAV”) provided by the administrator of the fund, and are categorized by the ability to redeem investments at the TOYOTA ANNUAL REPORT 2010 83 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information measurement day. The fair values of insurance contracts are measured using contracted amount with accrued interest. Other consists of cash equivalents, other private placement investment funds and other assets. The fair values of other private placement investment funds are measured using the NAV provided by the administrator of the fund, and are categorized by the ability to redeem investments at the measurement day. Postretirement benefi ts other than pensions and postemployment benefi ts Toyotaʼs U.S. subsidiaries provide certain health insurance benefi ts to eligible care and retired employees. In addition, Toyota provides benefi ts to certain former or inactive employees after employment, but before retirement. These life benefi ts are currently unfunded and provided through various insurance companies and health care providers. The costs of these benefi ts are recognized over the period the employee provides credited service to Toyota. Toyotaʼs obligations under these arrangements are not material. The following table summarizes the changes in Level 3 plan assets measured at fair value for the period ended March 31, 2010: Balance at beginning of year ······································································· Actual return on plan assets ····································································· Purchases, sales and settlements ·························································· Other ····················································································································· Balance at end of year ····················································································· Balance at beginning of year ······································································· Actual return on plan assets ····································································· Purchases, sales and settlements ·························································· Other ····················································································································· Balance at end of year ····················································································· Yen in millions For the year ended March 31, 2010 Other ¥45,825 (2,206) 3,467 (568) ¥46,518 Debt securities ¥ 5,242 818 (2,233) (236) ¥ 3,591 Total ¥51,067 (1,388) 1,234 (804) ¥50,109 U.S. dollars in millions For the year ended March 31, 2010 Other $ 493 (24) 37 (6) $ 500 Debt securities $ 56 9 (24) (3) $ 38 Total $ 549 (15) 13 (9) $ 538 Toyota expects to contribute ¥111,112 million ($1,194 million) to its pension plans in the year ending March 31, 2011. The following pension benefi t payments, which refl ect expected future service, as appropriate, are expected to be paid: Years ending March 31, 2011 ········································································································································································ 2012 ········································································································································································ 2013 ········································································································································································ 2014 ········································································································································································ 2015 ········································································································································································ from 2016 to 2020 ·········································································································································· Total ···································································································································································· Yen in millions ¥ 79,457 75,952 74,915 76,933 80,622 455,453 ¥843,332 U.S. dollars in millions $ 854 816 805 827 867 4,895 $9,064 20 Derivative fi nancial instruments: Toyota employs derivative fi nancial 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 fl uctuations in interest rates and foreign currency exchange rates. Toyota does not use derivatives for speculation or trading. into Fair value hedges interest rate swaps and Toyota enters interest rate currency swap agreements mainly to convert its fi xed-rate debt to variable-rate debt. Toyota uses interest rate swap agreements in managing interest rate risk exposure. Interest rate swap agreements are executed as either an integral part of specifi c debt transactions or on a portfolio basis. Toyota uses interest rate currency swap agreements to hedge exposure to currency exchange rate fl uctuations 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 obligations at agreed-upon currency exchange and interest rates. For the years ended March 31, 2008, 2009 and 2010, the ineff ective portion of Toyotaʼs fair value hedge relationships was not material. For fair value hedging relationships, the components of each derivativeʼs gain or loss are included in the assessment of hedge eff ectiveness. Undesignated derivative fi nancial 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 rate fl uctuations and interest rate fl uctuations from an economic perspective, and for which Toyota is unable or has elected not to apply hedge accounting. TOYOTA ANNUAL REPORT 2010 84 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section Fair value and gains or losses on derivative fi nancial instruments The following table summarizes the fair values of derivative fi nancial instruments at March 31, 2009 and 2010: Yen in millions For the years ended March 31, 2009 2010 U.S. dollars in millions For the year ended March 31, 2010 Derivative fi nancial instruments designated as hedging instruments Interest rate and currency swap agreements Prepaid expenses and other current assets ··········································· Investments and other assets − Other ···················································· Total ························································································································ Other current liabilities ······················································································ Other long-term liabilities ················································································ Total ························································································································ ¥ 35,882 83,014 ¥ 118,896 ¥ (47,022) (79,634) ¥ (126,656) ¥ 45,567 94,430 ¥ 139,997 ¥ (21,786) (12,045) ¥ (33,831) Undesignated derivative fi nancial instruments Interest rate and currency swap agreements $ 490 1,015 $ 1,505 (234) $ (130) (364) $ Prepaid expenses and other current assets ··········································· Investments and other assets − Other ···················································· Total ························································································································ Other current liabilities ······················································································ Other long-term liabilities ················································································ Total ························································································································ Foreign exchange forward and option contracts Prepaid expenses and other current assets ··········································· Investments and other assets − Other ···················································· Total ························································································································ Other current liabilities ······················································································ Other long-term liabilities ················································································ Total ························································································································ ¥ 58,454 177,487 ¥ 235,941 ¥ (61,593) (236,877) ¥ (298,470) ¥ 32,443 250 ¥ 32,693 ¥ (25,675) ̶ ¥ (25,675) ¥ 54,474 168,349 ¥ 222,823 ¥ (38,152) (179,765) ¥ (217,917) ¥ 6,135 38 ¥ 6,173 ¥ (20,843) (138) ¥ (20,981) $ 586 1,809 $ 2,395 (410) $ (1,932) $ (2,342) $ $ $ $ 66 0 66 (224) (2) (226) The following table summarizes the notional amounts of derivative fi nancial instruments at March 31, 2009 and 2010: Yen in millions For the years ended March 31, 2009 2010 U.S. dollars in millions For the year ended March 31, 2010 Designated derivative fi nancial instruments Undesignated derivative fi nancial instruments Designated derivative fi nancial instruments Undesignated derivative fi nancial instruments Designated derivative fi nancial instruments Undesignated derivative fi nancial instruments ¥1,907,927 ¥12,472,179 ¥1,168,882 ¥11,868,039 $12,563 $127,559 ̶ ¥1,907,927 1,562,876 ¥14,035,055 ̶ ¥1,168,882 1,487,175 ¥13,355,214 ̶ $12,563 15,984 $143,543 Interest rate and currency swap agreements ······ Foreign exchange forward and option contracts ·················· Total ······················ TOYOTA ANNUAL REPORT 2010 85 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information The following table summarizes the gains and losses on derivative fi nancial instruments and hedged items reported in the consolidated statement of income for the years ended March 31, 2009 and 2010: Yen in millions For the years ended March 31, 2009 2010 U.S. dollars in millions For the year ended March 31, 2010 Gains (losses) on derivative fi nancial instruments Gains (losses) on hedged items Gains (losses) on derivative fi nancial instruments Gains (losses) on hedged items Gains (losses) on derivative fi nancial instruments Gains (losses) on hedged items Derivative fi nancial instruments designated as hedging instruments - Fair value hedge Interest rate and currency swap agreements Cost of fi nancing operations ·············································· Interest expense ······································································· ¥ (288,553) (439) ¥ 293,637 439 ¥ 138,677 (265) ¥ (135,163) 265 Undesignated derivative fi nancial instruments Interest rate and currency swap agreements Cost of fi nancing operations ·············································· Foreign exchange gain (loss), net ··································· Foreign exchange forward and option contracts Cost of fi nancing operations ·············································· Foreign exchange gain (loss), net ·································· ¥ (72,696) (3,016) 24,183 174,158 ¥ ̶ ̶ ̶ ̶ ¥ 77,939 (2,819) (21,841) 60,599 ¥ ̶ ̶ ̶ ̶ $ 1,491 (3) $ 838 (30) (235) 651 $ (1,453) 3 $ ̶ ̶ ̶ ̶ Undesignated derivative fi nancial instruments are used to manage risks of fl uctuations in interest rates to certain borrowing transactions in foreign currency exchange rates of and certain currency receivables and payables. Toyota accounts for these derivative fi nancial instruments as economic hedges with changes in the fair value recorded directly into current period earnings. instruments reported Unrealized gains or (losses) on undesignated in derivative fi nancial the cost of fi nancing operations for the years ended March 31, 2008, 2009 and 2010 were ¥(67,991) million, ¥(80,298) million and ¥71,538 million ($769 million) those reported in foreign gain (loss), net were ¥45,670 million, ¥(33,578) million and ¥(26,476) million ($(285) million), respectively. Toyota corrected the gains or losses on derivative fi nancial instruments and hedged items disclosed for the year ended March 31, 2009 as a result of changes to information gathered from certain subsidiaries. These adjustments do not have a material impact on Toyotaʼs consolidated fi nancial statements. into Credit risk related contingent features Toyota enters International Swaps and Derivatives Association Master Agreements with counterparties. These Master Agreements contain a provision requiring either Toyota or the counterparty to settle the contract or to post assets to the other party in the event of a ratings downgrade below a specifi ed threshold. The aggregate fair value amount of derivative fi nancial instruments that contain credit risk related contingent features that are in a net liability position as of March 31, 2010 is ¥63,445 million ($682 million). The aggregate fair value amount of assets that are already posted as of March 31, 2010 is ¥9,469 million ($102 million). If the ratings of Toyota decline below specifi ed thresholds, the maximum amount of assets to be posted or for which Toyota could be required to settle the contracts is ¥63,445 million ($682 million) as of March 31, 2010. TOYOTA ANNUAL REPORT 2010 86 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section 21 Other fi nancial instruments: Toyota has certain fi nancial instruments, including fi nancial assets and liabilities and off - balance sheet fi nancial instruments which arose in the normal course of business. These fi nancial instruments are executed with creditworthy fi nancial institutions, and virtually all foreign currency contracts are denominated in U.S. dollars, euros and other currencies of major industrialized countries. Financial instruments involve, to varying degrees, market risk as instruments are subject to price fl uctuations, and elements of credit risk in the event a counterparty should default. In the unlikely event the counterparties fail to meet the contractual terms of a foreign currency or an interest rate instrument, Toyotaʼs risk is limited to the fair value of the instrument. Although Toyota may be exposed to losses in the event of non-performance by counterparties on fi nancial instruments, it does not anticipate signifi cant losses due to the nature of its counterparties. Counterparties to Toyotaʼs fi nancial instruments represent, international fi nancial institutions. Additionally, Toyota does not have a signifi cant exposure to any individual counterparty. Toyota believes that the overall credit risk related to its fi nancial instruments is not signifi cant. in general, The estimated fair values of Toyotaʼs fi nancial instruments, excluding marketable securities and other securities investments and affi liated companies and derivative fi nancial instruments, are summarized as follows: Yen in millions March 31, 2009 Carrying amount Estimated fair value Asset (Liability) Cash and cash equivalents ·················································· Time deposits ············································································· Total fi nance receivables, net ············································ Other receivables ····································································· Short-term borrowings ························································· Long-term debt including the current portion ······· ¥ 2,444,280 45,178 8,450,709 332,722 (3,617,672) (8,949,615) ¥ 2,444,280 45,178 8,677,228 332,722 (3,617,672) (9,026,007) Yen in millions March 31, 2010 U.S. dollars in millions March 31, 2010 Carrying amount Estimated fair value Carrying amount Estimated fair value Asset (Liability) Cash and cash equivalents ················································· Time deposits ············································································ Total fi nance receivables, net ··········································· Other receivables ···································································· Short-term borrowings ························································ Long-term debt including the current portion ······ ¥ 1,865,746 392,724 8,759,826 360,379 (3,279,673) (9,191,490) ¥ 1,865,746 392,724 9,112,527 360,379 (3,279,673) (9,297,904) $ 20,053 4,221 94,151 3,873 (35,250) (98,791) $ 20,053 4,221 97,942 3,873 (35,250) (99,934) Cash and cash equivalents, time deposits and other receivables In the normal course of business, substantially all cash and cash equivalents, time deposits and other receivables are highly liquid and are carried at amounts which approximate fair value. Finance receivables, net The carrying value of variable rate fi nance to approximate receivables was assumed fair value as they were repriced at prevailing market rates. The fair value of fi xed rate fi nance receivables was estimated by discounting expected cash fl ows to present value using the rates at which new loans of similar credit quality and maturity would be made. long-term debt Short-term borrowings and long-term debt The fair values of short-term borrowings and total including the current portion were estimated based on the discounted amounts of future cash fl ows using Toyotaʼs current incremental borrowing rates for similar liabilities. 22 Lease commitments: Toyota leases certain assets under capital lease and operating lease arrangements. An analysis of leased assets under capital leases is as follows: Class of property Building ····························································································································· Machinery and equipment ····················································································· Less - Accumulated depreciation ······································································· Yen in millions March 31, 2009 2010 U.S. dollars in millions March 31, 2010 ¥ 24,369 51,971 (33,845) ¥ 42,495 ¥ 23,518 48,043 (36,926) ¥ 34,635 $ 253 516 (397) $ 372 TOYOTA ANNUAL REPORT 2010 87 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Amortization expenses under capital leases for the years ended March 31, 2008, 2009 and 2010 were 23 Other commitments and contingencies, concentrations and factors that may aff ect future operations : ¥7,846 million, ¥12,183 million and ¥12,606 million ($135 million), respectively. Future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of March 31, 2010 are as follows: Years ending March 31, 2011 ········································································································································································· 2012 ········································································································································································· 2013 ········································································································································································· 2014 ········································································································································································· 2015 ········································································································································································· Thereafter ····························································································································································· Total minimum lease payments ··········································································································· Less ‒ Amount representing interest ···································································································· Present value of net minimum lease payments ·········································································· Less ‒ Current obligations ··························································································································· Long-term capital lease obligations ·································································································· Yen in millions ¥ 26,327 3,585 2,366 2,028 1,795 16,413 52,514 (10,271) 42,243 (24,089) ¥ 18,154 U.S. dollars in millions $ 283 39 25 22 19 176 564 (110) 454 (259) $ 195 Rental expenses under operating leases for the years ended March 31, 2008, 2009 and 2010 were ¥100,319 million, ¥106,653 million and ¥93,994 million ($1,010 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 March 31, 2010 are as follows: Years ending March 31, 2011 ·········································································································································································· 2012 ·········································································································································································· 2013 ·········································································································································································· 2014 ·········································································································································································· 2015 ·········································································································································································· Thereafter ······························································································································································ Total minimum future rentals ················································································································· Yen in millions ¥ 9,900 8,136 6,493 5,029 4,273 18,122 ¥51,953 U.S. dollars in millions $106 87 70 54 46 195 $558 Commitments Commitments outstanding at March 31, 2010 for the purchase of property, plant and equipment and other assets totaled ¥74,529 million ($801 million). Guarantees Toyota enters into contracts with Toyota dealers to guarantee customersʼ payments of their installment payables that arise 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 at March 31, 2010, range from 1 month to 35 years; 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 March 31, 2010 is ¥1,604,893 million ($17,249 million). Liabilities for guarantees totaling ¥5,969 million ($64 million) have been provided as of March 31, 2010. Under these guarantee contracts, Toyota is entitled to recover any amount paid by Toyota from the customers whose original obligations Toyota has guaranteed. Legal proceedings Product Recalls From time-to-time, Toyota issues vehicle recalls and takes other safety measures including safety campaigns in its vehicles. In November 2009, Toyota announced a safety campaign in North America for certain models of Toyota and Lexus vehicles related to fl oor mat entrapment of accelerator pedals, and later expanded it to include additional models. In January 2010, Toyota announced a recall in North America for certain models of Toyota vehicles related to sticking and slow-to-return accelerator pedals. Also in January 2010, Toyota recalled in Europe and China certain models of Toyota vehicles related to sticking accelerator pedals. In February 2010, Toyota announced a worldwide recall related to the software program that controls the antilock braking system (ABS) in certain vehicles models including the Prius. Set forth below is a description of the various claims, lawsuits and government investigations against Toyota in the United States relating to recalls and other safety measures. There are approximately 200 putative class actions that have been fi led since November 2009 alleging that certain Toyota, Lexus and Scion vehicles contain defects that lead to unintended acceleration. Many of the putative class actions allege that malfunctions involving the fl oor mats and accelerator pedals do not cover the full scope of possible defects related to unintended acceleration. Rather, they allege that Electronic Throttle Control-intelligent (ETCS-i) is the true cause and that Toyota has failed to inform consumers despite its awareness of the problem. In general, these cases seek recovery for the alleged diminution in value of the vehicles, injunctive and other relief. In April 2010, the approximately 190 federal cases were consolidated for most purposes into a single multi-district in the United States District Court for the Central District of California. In addition, around half of the approximately 125 litigation TOYOTA ANNUAL REPORT 2010 88 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information individual product liability personal injury cases relating to unintended acceleration pending against Toyota have been consolidated into the federal class action suit. (The remaining individual product liability personal injury cases relating to unintended acceleration remain pending in various state courts in the United States.) This consolidated federal class action suit is in its very early stages and currently activity centers around case organization and scheduling. Additionally, there are approximately 10 putative class actions in various state courts, including California. The claims are similar to the class actions in federal court. One of the putative California class actions was fi led by the Orange County District Attorney and, among other things, seeks statutory penalties alleging that Toyota sold and marketed defective vehicles and that consumers have been harmed as a result of diminution in value of their vehicles. Beginning in February 2010, Toyota has also been sued in 9 putative class actions in federal and state courts alleging defects in the braking systems in various hybrid vehicles that causes the vehicles to fail to stop in a timely manner when driving in certain road conditions. The plaintiff s claim that while a remedy for this braking issue has been implemented on vehicles in production since January 2010 and has been off ered to current owners of certain of the vehicles, that owners and lessees of all of the vehicles should recover for diminution in the value of the vehicles. They also seek injunctions ordering Toyota to repair the vehicles and to take other actions, punitive damages and other relief. From February through April 2010, Toyota has also been sued in the United States District Court for the Central District of California in 6 putative shareholder class actions on behalf of investors in Toyota American Depository Shares and common stock, and in a putative bondholder class action. The complaints of these securities class action lawsuits allege that defendants made statements that were false or misleading in that they failed to disclose problems with, or the causes of, sudden unintended acceleration in a number of vehicle models. Plaintiff s seek monetary damages in an amount to be proven at trial, interest and attorneysʼ fees and costs. On May 21, 2010, a shareholder derivative action was fi led against certain offi cers and directors of Toyota in the Superior Court of the State of California, County of Los Angeles. The complaint alleges that the defendants breached their fi duciary duties of care and loyalty as well as wasted corporate assets and unjustly enriched themselves, with respect to and as a result of their handling of design defects in Toyota vehicles, alleging facts similar to those alleged in the securities class actions. The plaintiff seeks to recover on behalf of Toyota amounts spent by Toyota as a result of the defendantsʼ alleged mishandling of the problem of unintended acceleration and of the alleged failure to make accurate and timely public disclosure. Toyota believes that it has meritorious defenses to all of the cases and will vigorously defend against them. In February 2010, Toyota received a subpoena from the U.S. Attorney for the Southern District of New York and a voluntary request and subpoena from the U.S. Securities and Exchange Commission (“SEC”). The subpoenas and the voluntary request primarily request documents and related certain fi nancial records. This is a coordinated to unintended acceleration investigation and has included interviews of Toyota and non-Toyota witnesses, as well as production of documents. On June 23, 2010, request and Toyota subpoena from the SEC that primarily requested production of documents related to the steering relay rod. received a voluntary respectively. The During the fi rst quarter of calendar year 2010, Toyota received three formal inquires from the National Highway Traffi c Safety Administration (“NHTSA”) related to the recalls related to fl oor mat entrapment and sticking accelerator pedals. The fi rst two, TQ10-001 and TQ10-002, address the timing of the announcement of the recalls related to fl oor mat entrapment and sticking third, accelerator pedals, RQ10-003, addresses the scope of the recalls and unintended acceleration generally. On April 19, 2010, Toyota and the Department of Transportation announced a settlement resolving TQ10-002 pursuant to which Toyota paid $16.4 million to the U.S. Treasury. Toyota denied the allegations that it violated the Motor Vehicle Safety Act or its implementing regulations but agreed to the settlement to avoid a protracted dispute and possible litigation. TQ10-001 is still pending, and on June 4, Toyota fi led its fi nal response to RQ10-003. On May 10, 2010, NHTSA notifi ed Toyota that it had also opened a Timeliness Query regarding the 2005 recall of certain pickup trucks and sport utility vehicles for a possible issue with the steering relay rod. Toyota has also received subpoenas and formal and informal requests from various statesʼ attorneys general and certain local governmental agencies regarding various recalls, the facts its recent recalls and customer underlying handling related to those recalls. Toyota is cooperating with the government agencies in their investigations, which generally are on-going. The recalls and other safety measures described above have led to a number of claims, lawsuits and government investigations against Toyota in the United States as set forth in the preceding paragraphs. Amounts accrued as of March 31, 2010 relate to these legal actions are not material to Toyotaʼs fi nancial position, results of operations, or cash fl ows. Toyota cannot currently estimate its potential liability, damages or range of potential loss, if any, beyond the amounts accrued; however, the resolution of these matters could have an adverse eff ect on Toyotaʼs fi nancial position, results of operations or cash fl ows. United States Antitrust Proceedings In February 2003, Toyota, General Motors Corporation, Ford, DaimlerChrysler, Honda, Nissan and 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. 26 similar actions were fi led in federal district courts in California, Illinois, New York, Massachusetts, Florida, New Jersey and Pennsylvania. Additionally, 56 parallel class actions were fi led in state courts in California, Minnesota, New Mexico, New York, Tennessee, Wisconsin, Arizona, Florida, Iowa, New Jersey and Nebraska on behalf of the same purchasers in these states. As of April 1, 2005, actions fi led in federal district courts were consolidated in Maine and actions fi led in the state courts of California TOYOTA ANNUAL REPORT 2010 89 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section and New Jersey were also consolidated. 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. injunctions The complaints seek permanent against the alleged antitrust violations and treble damages in an unspecifi ed amount. In March 2004, the federal district court of Maine (i) dismissed claims against certain Canadian companies, 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 based on the Sherman Antitrust Act but did not bar the plaintiff s from seeking injunctive relief against the alleged antitrust violations. The plaintiff s have submitted an amended compliant adding a claim for damages based on state antitrust laws and Toyota has responded to the plaintiff ʼs discovery requests. Toyota believes that its actions have been lawful. In the interest of quickly resolving these legal actions, however, Toyota entered into a settlement agreement with the plaintiff s at the end of February 2006. The settlement agreement is pending the approval of the federal district court, and immediately upon approval the plaintiff s will, in accordance with the terms of the settlement agreement, withdraw all pending actions against Toyota in the federal district court as well as all state courts and all related actions will be closed. Other Proceedings Toyota has various other legal actions, other governmental proceedings and other claims pending against it, including other product liability claims in the United States. Although the claimants in some of these actions seek potentially substantial damages, Toyota cannot currently estimate its potential liability, damages or range of potential loss, if any, beyond the amounts accrued, 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 eff ect on Toyotaʼs fi nancial position, results of operations or cash fl ows. Environmental matters and others In October 2000, the European Union brought into eff ect a directive that requires member states to promulgate regulations implementing the following: (i) manufacturers shall bear all or a signifi cant part of the costs 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, this requirement became applicable to vehicles put on the market before July 1, 2002; (ii) manufacturers may not use certain hazardous materials in vehicles to be sold after July 2003; (iii) vehicles type-approved and put on the market after December 15, 2008, 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 (iv) end-of-life vehicles must meet actual re-use of 80% and re-use as material or energy of 85%, respectively, of vehicle weight by 2006, rising respectively to 85% and 95% by 2015. A law to implement the directive came into eff ect in all member states including Bulgaria, Romania that joined the European Union in January 2007. Currently, there are uncertainties surrounding the implementation of the applicable regulations in diff erent European Union member states, particularly regarding manufacturer resultant expenses that may be incurred. responsibilities and In addition, under this directive member states must take measures to ensure that car manufacturers, distributors and other auto- related economic operators establish adequate used vehicle collection and treatment facilities and to ensure that hazardous materials and recyclable parts are removed from vehicles prior to shredding. This directive impacts Toyotaʼs vehicles sold in the European Union and Toyota is introducing 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 24 Segment data: The operating segments reported below are the segments of Toyota for which separate fi nancial 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 Toyotaʼs operations on a worldwide basis are derived from the Automotive and Financial Services business segments. The Automotive segment designs, manufactures and distributes sedans, minivans, compact cars, sport-utility vehicles, trucks and related parts and accessories. The Financial Services segment consists primarily of fi nancing, and vehicle and equipment leasing operations to assist in the to date, Toyota has provided for its estimated liability related to covered vehicles in existence as of March 31, 2010. Depending on the legislation that will be enacted subject to other circumstances, Toyota may be required to revise the accruals for the expected costs. Although Toyota does not expect its compliance with the directive to result in signifi cant cash expenditures, Toyota is continuing to assess the impact of this future legislation on its results of operations, cash fl ows and fi nancial position. Toyota purchases materials that are equivalent to approximately 10% of material costs from a supplier which is an affi liated company. 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, 2011. merchandising of the parent company and its affi liate companies products as well as other products. The All Other segment includes the design, manufacturing and sales of housing, telecommunications and other business. The following tables present certain informa- tion regarding Toyotaʼs industry segments and operations by geographic areas and overseas revenues by destination as of and for the years ended March 31, 2008, 2009 and 2010. TOYOTA ANNUAL REPORT 2010 90 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section Segment operating results and assets As of and for the year ended March 31, 2008: Yen in millions Automotive Financial Services All Other Inter-segment Elimination/ Unallocated Amount Consolidated Net revenues Sales to external customers ··· ¥ 24,160,254 Inter-segment sales and 17,052 transfers ············································ Total ················································ 24,177,306 22,005,401 Operating expenses ··················· Operating income ······················ ¥ 2,171,905 Assets ················································· ¥ 13,593,025 Investment in equity method investees ··················· Depreciation expenses············· Capital expenditure ··················· 1,777,956 1,050,541 1,546,524 ¥ 1,468,730 ¥ 660,256 ¥ ̶ ¥ 26,289,240 29,624 1,498,354 1,411,860 ¥ 86,494 ¥ 13,942,372 235,166 409,725 1,149,842 686,699 1,346,955 1,313,875 ¥ 33,080 ¥ 1,273,560 ̶ 30,869 56,439 (733,375) (733,375) (712,271) ¥ (21,104) ¥ 3,649,363 ̶ 26,289,240 24,018,865 ¥ 2,270,375 ¥ 32,458,320 52,656 ̶ 7,170 2,065,778 1,491,135 2,759,975 As of and for the year ended March 31, 2009: Yen in millions Automotive Financial Services All Other Inter-segment Elimination/ Unallocated Amount Consolidated Net revenues Sales to external customers ··· ¥ 18,550,501 Inter-segment sales and 14,222 transfers ········································ 18,564,723 Total ················································ 18,959,599 Operating expenses ··················· Operating income (loss) ·········· ¥ (394,876) Assets ················································· ¥ 11,716,316 Investment in equity method investees ··················· Depreciation expenses············· Capital expenditure ··················· 1,606,013 1,072,848 1,343,572 ¥ 1,355,850 ¥ 623,219 ¥ ̶ ¥ 20,529,570 21,698 1,377,548 1,449,495 ¥ (71,947) ¥ 13,631,662 561,728 1,184,947 1,175,034 ¥ 9,913 ¥ 1,131,400 (597,648) (597,648) (593,547) ¥ (4,101) ¥ 2,582,659 ̶ 20,529,570 20,990,581 ¥ (461,011) ¥ 29,062,037 168,057 389,937 883,968 ̶ 32,385 35,334 36,036 ̶ 62,023 1,810,106 1,495,170 2,324,897 As of and for the year ended March 31, 2010: Yen in millions Automotive Financial Services All Other Inter-segment Elimination/ Unallocated Amount Consolidated Net revenues Sales to external customers ··· ¥ 17,187,308 Inter-segment sales and 10,120 transfers ············································ 17,197,428 Total ················································ 17,283,798 Operating expenses ··················· (86,370) Operating income (loss) ·········· ¥ Assets ················································· ¥ 12,359,404 Investment in equity method investees ··················· Depreciation expenses············· Capital expenditure ··················· 1,692,702 1,018,935 616,216 ¥ 1,226,244 ¥ 537,421 ¥ ̶ ¥ 18,950,973 19,163 1,245,407 998,480 246,927 ¥ ¥ 13,274,953 410,194 947,615 956,475 (8,860) ¥ ¥ 1,119,635 (439,477) (439,477) (435,296) (4,181) ¥ ¥ 3,595,295 ̶ 18,950,973 18,803,457 147,516 ¥ ¥ 30,349,287 129,745 348,820 774,102 ̶ 46,814 21,751 44,993 ̶ 25,532 1,867,440 1,414,569 1,437,601 U.S. dollars in millions Automotive Financial Services All Other Inter-segment Elimination/ Unallocated Amount Consolidated $ 184,730 $ 13,180 $ 5,777 $ ̶ $ 203,687 109 184,839 185,767 $ (928) $ 132,840 18,193 10,952 6,623 206 13,386 10,732 $ 2,654 $ 142,680 1,394 3,749 8,320 4,409 10,186 10,281 $ (95) $ 12,034 ̶ 503 234 (4,724) (4,724) (4,679) $ (45) $ 38,642 484 ̶ 275 ̶ 203,687 202,101 $ 1,586 $ 326,196 20,071 15,204 15,452 Net revenues Sales to external customers ··· Inter-segment sales and transfers ··········································· Total ················································ Operating expenses ··················· Operating income (loss) ·········· Assets ················································· Investment in equity method investees ··················· Depreciation expenses············· Capital expenditure ··················· TOYOTA ANNUAL REPORT 2010 91 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Geographic information As of and for the year ended March 31, 2008: Net revenues Sales to external customers ··························································· Inter-segment sales and transfers ··············································· Total ········································································································ Operating expenses ··········································································· Operating income ··············································································· Assets ········································································································· Long-lived assets ················································································· As of and for the year ended March 31, 2009: Net revenues Sales to external customers ··························································· Inter-segment sales and transfers ··············································· Total ········································································································ Operating expenses ··········································································· Operating income (loss) ··································································· Assets ········································································································· Long-lived assets ················································································· As of and for the year ended March 31, 2010: Net revenues Japan North America Europe Asia Other Inter-segment Elimination/ Unallocated Amount Consolidated Yen in millions ¥ 8,418,620 6,897,192 15,315,812 13,875,526 ¥ 1,440,286 ¥ 12,883,255 3,696,081 ¥ 9,248,950 174,308 9,423,258 9,117,906 ¥ 305,352 ¥ 10,779,947 2,808,782 ¥ 3,802,814 190,620 3,993,434 3,851,863 ¥ 141,571 ¥ 3,125,572 574,854 ¥ 2,790,987 329,839 3,120,826 2,864,470 ¥ 256,356 ¥ 1,792,681 446,513 Yen in millions ¥ 2,027,869 266,268 2,294,137 2,150,159 ¥ 143,978 ¥ 1,703,533 285,772 ¥ ̶ (7,858,227) (7,858,227) (7,841,059) ¥ (17,168) ¥ 2,173,332 ̶ ¥ 26,289,240 ̶ 26,289,240 24,018,865 ¥ 2,270,375 ¥ 32,458,320 7,812,002 Japan North America Europe Asia Other Inter-segment Elimination/ Unallocated Amount Consolidated ¥ 7,471,916 4,714,821 12,186,737 12,424,268 ¥ (237,531) ¥ 11,956,431 3,658,719 ¥ 6,097,676 125,238 6,222,914 6,613,106 ¥ (390,192) ¥ 10,685,466 2,726,419 ¥ 2,889,753 123,375 3,013,128 3,156,361 ¥ (143,233) ¥ 2,324,528 410,185 ¥ 2,450,412 268,917 2,719,329 2,543,269 ¥ 176,060 ¥ 1,547,890 372,330 Yen in millions ¥ 1,619,813 263,087 1,882,900 1,795,252 ¥ 87,648 ¥ 1,446,505 234,028 ¥ ̶ (5,495,438) (5,495,438) (5,541,675) ¥ 46,237 ¥ 1,101,217 ̶ ¥ 20,529,570 ̶ 20,529,570 20,990,581 ¥ (461,011) ¥ 29,062,037 7,401,681 Japan North America Europe Asia Other Inter-segment Elimination/ Unallocated Amount Consolidated Sales to external customers ·························································· Inter-segment sales and transfers ·············································· Total ······································································································· Operating expenses ·········································································· Operating income (loss) ·································································· Assets ········································································································ Long-lived assets ················································································ ¥ 7,314,813 3,905,490 11,220,303 11,445,545 (225,242) ¥ ¥ 12,465,677 3,347,896 ¥ 5,583,228 87,298 5,670,526 5,585,036 85,490 ¥ ¥ 10,223,903 2,401,172 ¥ 2,082,671 64,378 2,147,049 2,180,004 (32,955) ¥ ¥ 2,060,962 351,037 ¥ 2,431,648 223,679 2,655,327 2,451,800 ¥ 203,527 ¥ 1,925,126 361,296 ¥ 1,538,613 135,248 1,673,861 1,558,287 ¥ 115,574 ¥ 1,803,703 249,500 ¥ ̶ (4,416,093) (4,416,093) (4,417,215) 1,122 ¥ ¥ 1,869,916 ̶ ¥ 18,950,973 ̶ 18,950,973 18,803,457 147,516 ¥ ¥ 30,349,287 6,710,901 Japan North America Europe Asia Other Inter-segment Elimination/ Unallocated Amount Consolidated U.S. dollars in millions Net revenues Sales to external customers ···································································· $ 78,620 $ 60,009 Inter-segment sales and transfers ······················································· Total ················································································································ Operating expenses ···················································································· Operating income (loss) ··········································································· Assets ·················································································································· Long-lived assets ·························································································· 41,976 120,596 123,017 $ (2,421) $ 133,982 35,983 * “Other” consists of Central and South America, Oceania and Africa. 938 60,947 60,028 $ 919 $ 109,887 25,808 $ 22,385 692 23,077 23,431 $ (354) $ 22,151 3,773 $ 26,136 2,404 28,540 26,352 $ 2,188 $ 20,692 3,883 $ 16,537 1,454 17,991 16,749 $ 1,242 $ 19,386 2,682 $ ̶ (47,464) (47,464) (47,476) $ 12 $ 20,098 ̶ $ 203,687 ̶ 203,687 202,101 $ 1,586 $ 326,196 72,129 TOYOTA ANNUAL REPORT 2010 92 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information 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, assets and long-lived assets included in other foreign countries. Unallocated amounts in assets represent assets held for corporate purposes, which mainly consist of cash and cash equivalents included and marketable securities. Such corporate assets were ¥4,352,498 million, ¥3,225,901 million and ¥4,205,402 million ($45,200 million), as of March 31, 2008, 2009 and 2010, respectively. Transfers between industries or geographic segments are made at amounts which Toyotaʼs management believes approximate armʼs- length transactions. In measuring the reportable segmentsʼ income or losses, operating income consists of revenue less operating expenses. Overseas Revenues by destination The following information shows revenues that are attributed to countries based on location of customers, excluding customers in Japan. In addition to the disclosure requirements under U.S. GAAP, Toyota discloses this information in order to provide fi nancial statement users with valuable information. Yen in millions For the years ended March 31, 2009 2008 2010 North America ·············································································· Europe ······························································································· Asia ······································································································ Other ·································································································· ¥9,606,481 3,746,362 2,968,460 3,831,739 ¥6,294,230 2,861,351 2,530,352 3,421,881 ¥5,718,381 2,023,280 2,641,471 2,838,671 “Other” consists of Central and South America, Oceania, Africa and the Middle East, etc. U.S. dollars in millions For the year ended March 31, 2010 $61,462 21,746 28,391 30,510 Certain fi nancial statement data on non-fi nancial services and fi nancial services businesses The fi nancial data below presents separately Toyotaʼs non-fi nancial services and fi nancial services businesses. Balance sheets Non-Financial Services Businesses Current assets Cash and cash equivalents ·········································································· Marketable securities ····················································································· Trade accounts and notes receivable, less allowance for doubtful accounts ··························································································· Inventories ··········································································································· Prepaid expenses and other current assets ······································· Total current assets ····················································································· Investments and other assets ········································································ Property, plant and equipment ···································································· Total Non-Financial Services Businesses assets ··························· Financial Services Businesses Current assets Yen in millions March 31, 2009 2010 U.S. dollars in millions March 31, 2010 ¥ 1,648,143 494,476 ¥ 1,338,821 1,783,629 $ 14,390 19,170 1,404,292 1,459,394 1,534,119 6,540,424 4,254,126 5,504,559 16,299,109 1,908,884 1,422,373 1,793,622 8,247,329 4,549,658 4,996,321 17,793,308 Cash and cash equivalents ·········································································· Marketable securities ····················································································· Finance receivables, net ··············································································· Prepaid expenses and other current assets ······································· Total current assets ····················································································· Noncurrent fi nance receivables, net ······················································ Investments and other assets ···································································· Property, plant and equipment ································································ Total Financial Services Businesses assets ······································ Eliminations ········································································································· Total assets ······································································································· 796,137 850 3,891,406 790,901 5,479,294 5,655,545 599,701 1,897,122 13,631,662 (868,734) ¥ 29,062,037 526,925 9,536 4,209,496 653,798 5,399,755 5,630,680 529,938 1,714,580 13,274,953 (718,974) ¥ 30,349,287 Assets in the non-fi nancial services include unallocated corporate assets. 20,517 15,288 19,278 88,643 48,900 53,701 191,244 5,663 103 45,244 7,027 58,037 60,519 5,696 18,428 142,680 (7,728) $ 326,196 TOYOTA ANNUAL REPORT 2010 93 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section Non-Financial Services Businesses Current liabilities Short-term borrowings ················································································· Current portion of long-term debt ························································· Accounts payable ···························································································· Accrued expenses ···························································································· Income taxes payable ···················································································· Other current liabilities ·················································································· Total current liabilities ··············································································· ¥ Long-term liabilities Long-term debt ································································································· Accrued pension and severance costs ················································· Other long-term liabilities ··········································································· Total long-term liabilities ········································································· Total Non-Financial Services Businesses liabilities ····················· Financial Services Businesses Current liabilities Short-term borrowings ················································································· Current portion of long-term debt ························································· Accounts payable ···························································································· Accrued expenses ···························································································· Income taxes payable ···················································································· Other current liabilities ·················································································· Total current liabilities ··············································································· Long-term liabilities Yen in millions March 31, 2009 2010 825,029 115,942 1,299,523 1,432,988 47,648 944,303 4,665,433 850,233 629,870 444,529 1,924,632 6,590,065 3,370,981 2,640,104 10,001 111,766 3,650 515,166 6,651,668 ¥ 575,890 289,447 1,954,147 1,627,228 140,210 931,727 5,518,649 1,095,270 672,905 604,903 2,373,078 7,891,727 3,118,938 1,968,908 13,063 113,559 13,177 519,011 5,746,656 U.S. dollars in millions March 31, 2010 $ 6,190 3,111 21,003 17,490 1,507 10,014 59,315 11,772 7,232 6,502 25,506 84,821 33,523 21,162 140 1,221 141 5,578 61,765 Long-term debt ································································································· Accrued pension and severance costs ················································· Other long-term liabilities ··········································································· Total long-term liabilities ········································································· Total Financial Services Businesses liabilities································· Eliminations ············································································································· Total liabilities ································································································· Total Toyota Motor Corporation shareholdersʼ equity ····················· Noncontrolling interest ···················································································· Total shareholdersʼ equity ······································································· Total liabilities and shareholdersʼ equity·········································· 5,592,641 4,742 491,397 6,088,780 12,740,448 (869,213) 18,461,300 10,061,207 539,530 10,600,737 ¥ 29,062,037 6,060,349 5,772 433,641 6,499,762 12,246,418 (719,301) 19,418,844 10,359,723 570,720 10,930,443 ¥ 30,349,287 65,137 62 4,661 69,860 131,625 (7,731) 208,715 111,347 6,134 117,481 $ 326,196 Statements of income Yen in millions For the years ended March 31, 2009 2010 2008 U.S. dollars in millions For the year ended March 31, 2010 Non-Financial Services Businesses Net revenues ········································································ Costs and expenses Cost of revenues ····························································· Selling, general and administrative ······················ Total costs and expenses ······································· Operating income (loss) ················································· Other income (expense), net ······································· Income (loss) before income taxes and equity in earnings of affi liated companies···························· Provision for income taxes ············································ Equity in earnings of affi liated companies ··········· Net income (loss)································································ Less: Net (income) loss attributable to the noncontrolling interest ··············································· to Toyota (loss) attributable Motor Corporation‒ Non‒Financial Services Businesses ·········································································· income Net Financial Services Businesses Net revenues ········································································ Costs and expenses Cost of revenues ····························································· Selling, general and administrative ······················ Total costs and expenses ······································· Operating income (loss) ················································· Other expense, net ···························································· Income (loss) before income taxes and equity in earnings of affi liated companies ······················ Provision for income taxes ············································ Equity in earnings (losses) of affi liated companies ····················································· Net income (loss)································································ Less: Net income attributable to the noncontrolling interest ··············································· Net income (loss) attributable to Toyota Motor Corporation − Financial Services Businesses · Eliminations ··········································································· Net income (loss) attributable to Toyota ¥ 24,831,172 ¥ 19,182,161 ¥ 17,732,143 $ 190,586 20,459,061 2,181,491 22,640,552 2,190,620 176,417 2,367,037 889,660 268,025 1,745,402 17,470,791 2,097,674 19,568,465 (386,304) (71,925) (458,229) (10,152) 53,226 (394,851) 15,973,442 1,854,710 17,828,152 (96,009) 144,625 48,616 42,342 109,944 116,218 171,684 19,934 191,618 (1,032) 1,554 522 455 1,182 1,249 (73,543) 26,282 (32,103) (345) 1,671,859 (368,569) 84,115 904 1,498,354 1,377,548 1,245,407 13,386 1,075,972 335,888 1,411,860 86,494 (16,265) 70,229 21,904 2,089 50,414 994,191 455,304 1,449,495 (71,947) (30,233) (102,180) (46,298) (10,502) (66,384) 716,997 281,483 998,480 246,927 (3,923) 243,004 50,362 (64,536) 128,106 (4,419) (2,004) (2,653) 45,995 25 (68,388) 20 125,453 (112) 7,706 3,026 10,732 2,654 (42) 2,612 541 (694) 1,377 (29) 1,348 (1) TOYOTA ANNUAL REPORT 2010 94 Motor Corporation ························································ ¥ 1,717,879 ¥ (436,937) ¥ 209,456 $ 2,251 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section Statement of cash fl ows Cash fl ows from operating activities Net income (loss)········································································································ Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation ········································································································· Provision for doubtful accounts and credit losses ··························· Pension and severance costs, less payments ······································ Losses on disposal of fi xed assets······························································ Unrealized losses on available-for-sale securities, net ···················· Deferred income taxes ···················································································· Equity in (earnings) losses of affi liated companies ·························· Changes in operating assets and liabilities, and other ··················· Net cash provided by operating activities ········································ Cash fl ows from investing activities Additions to fi nance receivables ······································································· Collection of and proceeds from sales of fi nance receivables··········· Additions to fi xed assets excluding equipment leased to others ···· Additions to equipment leased to others ····················································· Proceeds from sales of fi xed assets excluding equipment leased to others ···························································································································· Proceeds from sales of equipment leased to others ······························ Purchases of marketable securities and security investments ·········· Proceeds from sales of and maturity of marketable securities and security investments ···························································································· Payment for additional investments in affi liated companies, net of cash acquired ··········································································································· Changes in investments and other assets, and other ···························· Net cash used in investing activities ···················································· Cash fl ows from fi nancing activities Yen in millions For the year ended March 31, 2008 Yen in millions For the year ended March 31, 2009 Non-Financial Services Businesses Financial Services Businesses Consolidated Non-Financial Services Businesses Financial Services Businesses Consolidated ¥ 1,745,402 ¥ 50,414 ¥ 1,795,841 ¥ (394,851) ¥ (66,384) ¥ (461,215) 1,081,410 357 (54,868) 44,993 11,346 80,027 (268,025) (220,217) 2,420,425 ̶ ̶ (1,472,422) (137,711) 56,603 80,944 (936,324) 409,725 122,433 527 444 ̶ 1,500 (2,089) 215,218 798,172 (16,644,139) 15,095,380 (8,148) (1,141,694) 10,948 294,937 (215,316) 1,491,135 122,790 (54,341) 45,437 11,346 81,458 (270,114) (241,928) 2,981,624 (8,647,717) 7,332,697 (1,480,570) (1,279,405) 67,551 375,881 (1,151,640) 1,105,233 (1,663) (21,428) 68,546 220,920 (132,127) (53,226) (223,101) 568,303 389,937 259,096 470 136 ̶ (62,871) 10,502 186,234 717,120 ̶ (14,230,272) ̶ 13,959,045 (6,064) (877,904) (1,358,518) (82,411) 41,285 55,896 (418,342) 6,101 472,853 (217,688) 1,495,170 257,433 (20,958) 68,682 220,920 (194,990) (42,724) 154,587 1,476,905 (8,612,111) 8,155,094 (1,364,582) (960,315) 47,386 528,749 (636,030) 789,366 198,044 987,410 1,295,561 180,316 1,475,877 (4,406) (44,891) (1,668,841) ̶ 23,024 (2,386,964) (4,406) (74,687) (3,874,886) (45) 129,834 (336,740) ̶ (2,091) (715,704) (45) 135,757 (1,230,220) Proceeds from issuance of long-term debt ················································· Payments of long-term debt ··············································································· Increase in short-term borrowings ··································································· Dividends paid ············································································································· Purchase of common stock, and other ·························································· Net cash provided by (used in) fi nancing activities ····················· Eff ect of exchange rate changes on cash and cash equivalents ·········· Net increase (decrease) in cash and cash equivalents ······························· Cash and cash equivalents at beginning of year ·········································· Cash and cash equivalents at end of year ························································ 17,162 (226,561) 24,126 (430,860) (311,667) (927,800) (65,405) (241,621) 1,714,722 ¥ 1,473,101 3,364,351 (2,156,709) 370,293 ̶ ̶ 1,577,935 (19,354) (30,211) 185,657 ¥ 155,446 3,349,812 (2,310,008) 408,912 (430,860) (311,667) 706,189 (84,759) (271,832) 1,900,379 ¥ 1,628,547 545,981 (150,097) 138,387 (439,991) (70,587) 23,693 (80,214) 175,042 1,473,101 ¥ 1,648,143 3,030,029 (2,580,637) 239,462 ̶ ̶ 688,854 (49,579) 640,691 155,446 ¥ 796,137 3,506,990 (2,704,078) 406,507 (439,991) (70,587) 698,841 (129,793) 815,733 1,628,547 ¥ 2,444,280 TOYOTA ANNUAL REPORT 2010 95 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section Statement of cash fl ows Cash fl ows from operating activities Net income ···················································································································· Adjustments to reconcile net income to net cash provided by operating activities Yen in millions For the year ended March 31, 2010 U.S. dollars in millions For the year ended March 31, 2010 Non-Financial Services Businesses Financial Services Businesses Consolidated Non-Financial Services Businesses Financial Services Businesses Consolidated ¥ 116,218 ¥ 128,106 ¥ 244,212 $ 1,249 $ 1,377 $ 2,625 Depreciation ········································································································· Provision for doubtful accounts and credit losses ··························· Pension and severance costs, less payments ······································ Losses on disposal of fi xed assets······························································ Unrealized losses on available-for-sale securities, net ···················· Deferred income taxes ···················································································· Equity in (earnings) losses of affi liated companies ·························· Changes in operating assets and liabilities, and other ··················· Net cash provided by operating activities ········································ 1,065,749 1,905 55 46,661 2,486 (14,183) (109,944) 733,338 1,842,285 348,820 98,870 1,199 276 ̶ 39,759 64,536 133,275 814,841 Cash fl ows from investing activities Additions to fi nance receivables ······································································· Collection of and proceeds from sales of fi nance receivables··········· Additions to fi xed assets excluding equipment leased to others ···· Additions to equipment leased to others ····················································· Proceeds from sales of fi xed assets excluding equipment leased to others ···························································································································· Proceeds from sales of equipment leased to others ······························ Purchases of marketable securities and security investments ·········· Proceeds from sales of and maturity of marketable securities and security investments ···························································································· Payment for additional investments in affi liated companies, net of cash acquired ··········································································································· Changes in investments and other assets, and other ···························· Net cash used in investing activities ························································ Cash fl ows from fi nancing activities ̶ (13,492,119) 13,107,531 ̶ (5,382) (599,154) (768,720) (64,345) 46,070 36,668 (2,310,912) 6,403 428,424 (101,270) 1,414,569 100,775 1,254 46,937 2,486 25,537 (45,408) 768,168 2,558,530 (7,806,201) 7,517,968 (604,536) (833,065) 52,473 465,092 (2,412,182) 11,455 20 0 502 27 (152) (1,182) 7,882 19,801 ̶ ̶ (6,440) (692) 495 394 (24,838) 3,749 1,063 13 3 ̶ 427 694 1,432 8,758 (145,014) 140,880 (58) (8,262) 69 4,605 (1,088) 15,204 1,083 13 505 27 274 (488) 8,256 27,499 (83,902) 80,804 (6,498) (8,954) 564 4,999 (25,926) 1,012,781 95,960 1,108,741 10,886 1,031 11,917 (1,020) (259,089) (2,139,001) ̶ 102,497 (626,676) (1,020) (337,454) (2,850,184) (11) (2,784) (22,990) ̶ 1,101 (6,736) (11) (3,627) (30,634) Proceeds from issuance of long-term debt ················································· Payments of long-term debt ··············································································· Decrease in short-term borrowings ································································· Dividends paid ············································································································· Purchase of common stock, and other ·························································· Net cash used in fi nancing activities ······················································· Eff ect of exchange rate changes on cash and cash equivalents ·········· Net decrease in cash and cash equivalents ····················································· Cash and cash equivalents at beginning of year ·········································· Cash and cash equivalents at end of year ························································ 492,300 (77,033) (249,238) (172,476) (10,251) (16,698) 4,092 (309,322) 1,648,143 ¥ 1,338,821 2,733,465 (2,926,308) (251,544) ̶ ̶ (444,387) (12,990) (269,212) 796,137 ¥ 526,925 3,178,310 (2,938,202) (335,363) (172,476) (10,251) (277,982) (8,898) (578,534) 2,444,280 ¥ 1,865,746 5,292 (828) (2,679) (1,854) (110) (179) 44 (3,324) 17,714 $ 14,390 29,379 (31,452) (2,704) ̶ ̶ (4,777) (139) (2,894) 8,557 $ 5,663 34,161 (31,580) (3,605) (1,854) (110) (2,988) (95) (6,218) 26,271 $ 20,053 TOYOTA ANNUAL REPORT 2010 96 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section 25 Per share amounts: Reconciliations of the diff erences between basic and diluted net income (loss) attributable to Toyota Motor Corporation per share for the years ended March 31, 2008, 2009 and 2010 are as follows: Yen in millions Thousands of shares Net income (loss) attributable to Toyota Motor Corporation Weighted- average shares Yen Net income (loss) attributable to Toyota Motor Corporation per share U.S. dollars in millions U.S. dollars Net income attributable to Toyota Motor Corporation Net income attributable to Toyota Motor Corporation per share For the year ended March 31, 2008 Basic net income attributable to Toyota Motor Corporation per common share ··································· Eff ect of dilutive securities Assumed exercise of dilutive stock options ····················· Diluted net income attributable to Toyota Motor Corporation per common share ··································· For the year ended March 31, 2009 Basic net loss attributable to Toyota Motor Corporation per common share ··································· Eff ect of dilutive securities Assumed exercise of ¥ 1,717,879 3,177,445 ¥ 540.65 (1) 1,217 ¥ 1,717,878 3,178,662 ¥ 540.44 ¥ (436,937) 3,140,417 ¥ (139.13) dilutive stock options ······················ (0) ̶ Diluted net loss attributable to Toyota Motor Corporation per common share ··································· ¥ (436,937) 3,140,417 ¥ (139.13) For the year ended March 31, 2010 Basic net income attributable to Toyota Motor Corporation per common share ··································· Eff ect of dilutive securities Assumed exercise of dilutive stock options ····················· Diluted net income attributable to Toyota Motor Corporation per common share ·························· ¥ 209,456 3,135,986 ¥ 66.79 $ 2,251 $ 0.72 ̶ 12 ¥209,456 3,135,998 ¥66.79 $ 2,251 $ 0.72 Certain stock options were not included in the computation of diluted net income attributable to Toyota Motor Corporation per share for the year ended March 31, 2008 and 2010 because the optionsʼ exercise prices were greater than the average market price per common share during the period. Assumed exercise of certain stock options was not included in the computation of diluted net loss attributable to Toyota Motor Corporation per share for the year ended March 31, 2009 because it had an antidilutive eff ect due to the net loss attributable to Toyota Motor Corporation for the period. In addition to the disclosure requirements under U.S. GAAP, Toyota discloses the information below in order to provide fi nancial statement users with valuable information. The following table shows Toyota Motor Corporation shareholdersʼ equity per share as of March 31, 2009 and 2010. Toyota Motor Corporation shareholdersʼ equity per share amounts are calculated by dividing Toyota Motor Corporation shareholdersʼ equitiesʼ amount at the end of each period by the number of shares issued and outstanding, excluding treasury stock at the end of the corresponding period. Yen in millions Toyota Motor Corporation Shareholdersʼ equity ¥10,061,207 Thousands of shares Shares issued and outstanding at the end of the year (excluding treasury stock) 3,135,882 Yen U.S. dollars in millions U.S. dollars Toyota Motor Corporation Shareholdersʼ equity per share ¥3,208.41 Toyota Motor Corporation Shareholdersʼ equity Toyota Motor Corporation Shareholdersʼ equity per share 10,359,723 3,135,995 3,303.49 $111,347 $35.51 As of March 31, 2009 As of March 31, 2010 TOYOTA ANNUAL REPORT 2010 97 Notes to Consolidated Financial Statements Financial Section Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information 26 Fair value measurements: In accordance with U.S. GAAP, Toyota classifi es fair value into three levels of input as follows which are used to measure it. Level 1: Quoted prices in active markets for identical assets or liabilities Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the assets or liabilities Level 3: Unobservable liabilities inputs for assets or Assets Cash equivalents ································································· Time deposits ········································································ Marketable securities and other securities investments Government bonds ················································· Common stocks ························································ Other ··············································································· Derivative fi nancial instruments ································· Total ······················································································ Liabilities U.S. dollars in millions March 31, 2010 Level 1 Level 2 Level 3 Total $ 7,281 ̶ $ 749 1,865 $ ̶ ̶ $ 8,030 1,865 28,534 9,166 401 ̶ $ 45,382 ̶ ̶ 3,987 3,757 $ 10,358 ̶ ̶ 141 209 $ 350 $ (146) $ (146) 28,534 9,166 4,529 3,966 $ 56,090 $ (2,932) $ (2,932) The following table summarizes the fair values of the assets and liabilities measured at fair value on a recurring basis at March 31, 2009 and 2010: Derivative fi nancial instruments ································· Total ······················································································ $ ̶ $ ̶ $ (2,786) $ (2,786) Yen in millions March 31, 2009 The following is description of the assets and liabilities measured at fair value, information about the valuation techniques used to measure fair value, key inputs and signifi cant assumptions: Assets Cash equivalents ································································· Marketable securities and other securities investments ··································· Derivative fi nancial instruments Total ······················································································ Liabilities Level 1 Level 2 Level 3 Total ¥ 1,473,407 ¥ 115,339 ¥ ̶ ¥ 1,588,746 2,273,294 ̶ ¥ 3,746,701 187,236 369,572 ¥ 672,147 19,581 17,958 ¥ 37,539 2,480,111 387,530 ¥ 4,456,387 Derivative fi nancial instruments ································· Total ······················································································ ¥ ¥ ̶ ̶ ¥ (427,109) ¥ (427,109) ¥ (23,692) ¥ (23,692) ¥ (450,801) ¥ (450,801) Yen in millions March 31, 2010 Cash equivalents and time deposits Cash equivalents include money market funds and other investments with original maturities of three months or less. Time deposits include negotiable certifi cate of deposit with original maturities over three months. These are highly liquid investments, and quoted market prices are used to determine the fair value of these investments. Level 1 Level 2 Level 3 Total Marketable securities and other securities Assets Cash equivalents ································································· Time deposits ········································································ Marketable securities and other securities investments ¥ 677,442 ̶ ¥ 69,702 173,500 ¥ ̶ ̶ ¥ 747,144 173,500 Government bonds ················································· Common stocks ························································ Other ··············································································· Derivative fi nancial instruments ································· Total ······················································································ 2,654,829 852,775 37,296 ̶ ¥ 4,222,342 ̶ ̶ 370,933 349,556 ¥ 963,691 ̶ ̶ 13,134 19,437 ¥ 32,571 2,654,829 852,775 421,363 368,993 ¥ 5,218,604 Liabilities Derivative fi nancial instruments ································· Total ······················································································ ¥ ¥ ̶ ¥ (259,184) ̶ ¥ (259,184) ¥ (13,545) ¥ (13,545) ¥ (272,729) ¥ (272,729) investments Marketable securities and other securities include government bonds, investments common stocks and other investments. As of March 31, 2010, government bonds include 76% of Japanese government bonds, and 24% of U.S. and European government bonds. As of March 31, 2010, listed stocks on Japanese stock market represent 88% of common stocks. Toyota uses quoted market prices for identical assets to measure fair value of these securities. “Other” includes primarily commercial paper. Generally, Toyota uses quoted market prices for similar assets or quoted non-active market prices for identical assets to measure fair value of these securities. Marketable securities and other securities investments classifi ed as Level 3 primarily included retained interests in securitized fi nancial receivables, which are measured at fair value using assumptions such as interest rate, loss severity and other factors. Derivative fi nancial instruments See note 20 to the consolidated fi nancial statements about derivative fi nancial instruments. Toyota estimates the fair value of derivative industry-standard fi nancial valuation models that require observable inputs including interest rates and foreign exchange rates, and the contractual terms. The usage of these models does not require signifi cant instruments using TOYOTA ANNUAL REPORT 2010 98 Top Messages Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Financial Section judgment to be applied. In other certain cases when market data is not available, key inputs to the fair value measurement include quotes from counterparties, and other market data. Toyota assesses the reasonableness of changes of the quotes using observable market data. Toyotaʼs derivative fair value measurements consider assumptions about counterparty and our own non-performance risk, using such as credit default probabilities. The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the periods ended March 31, 2009 and 2010: Yen in millions For the year ended March 31, 2009 Balance at beginning of year ···················································································· Total gains (losses) Marketable securities and other securities investments ¥ 23,818 Included in earnings ··························································································· Included in other comprehensive income (loss) ································· Purchases, issuances and settlements···························································· Other ································································································································· Balance at end of year ·································································································· 586 (1,398) (1,665) (1,760) ¥ 19,581 Derivative fi nancial instruments ¥ 25,499 (38,538) ̶ 7,026 279 ¥ (5,734) Total ¥ 49,317 (37,952) (1,398) 5,361 (1,481) ¥ 13,847 Yen in millions For the year ended March 31, 2010 Balance at beginning of year ···················································································· Total gains (losses) Marketable securities and other securities investments ¥ 19,581 Included in earnings ··························································································· Included in other comprehensive income (loss) ································· Purchases, issuances and settlements···························································· Other ································································································································· Balance at end of year ·································································································· (641) (99) (6,376) 669 ¥ 13,134 Derivative fi nancial instruments ¥ (5,734) 25,057 ̶ (13,582) 151 ¥ 5,892 Total ¥ 13,847 24,416 (99) (19,958) 820 ¥ 19,026 U.S. dollars in millions For the year ended March 31, 2010 Balance at beginning of year ···················································································· Total gains (losses) Marketable securities and other securities investments $ 211 Derivative fi nancial instruments $ (62) Included in earnings ··························································································· Included in other comprehensive income (loss) ································· Purchases, issuances and settlements···························································· Other ································································································································· Balance at end of year ·································································································· (7) (1) (69) 7 $ 141 269 ̶ (146) 2 $ 63 Total $ 149 262 (1) (215) 9 $ 204 In the reconciliation table above, derivative fi nancial instruments are presented net of assets and liabilities. The other amount primarily impact of currency translation includes the adjustments. Certain assets and liabilities are measured at fair value on a nonrecurring basis. During the years ended March 31, 2009 and 2010, Toyota measured certain fi nance receivables at fair value of ¥25,932 million and ¥13,343 million ($143 million) based on the collateral value, resulting in loss of ¥10,011 million and ¥2,485 million ($27 million). This fair value measurement on a nonrecurring basis was classifi ed as level 3. During the year ended March 31, 2010, Toyota measured certain investment in affi liated company at fair value of ¥119,821 million ($1,288 million) based on the quoted market price resulting in impairment loss of ¥63,575 million ($683 million). This fair value measurement on a nonrecurring basis was classifi ed as level 1. TOYOTA ANNUAL REPORT 2010 99 Management’s Annual Report on Internal Control over Financial Reporting Financial Section Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information Toyota’s management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Toyota’s internal control over financial reporting includes those policies and procedures that: １）pertain to the maintenance of records that in reasonable detail, accurately and fairly reflect the transactions and dispositions of Toyota’s assets; ２）provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that Toyota’s receipts and expenditures are being made only in accordance with authorizations of Toyota’s management and directors; and ３）provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Toyota’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Toyota’s management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that Toyota’s internal control over financial reporting was effective as of March 31, 2010. PricewaterhouseCoopers Aarata, an independent registered public accounting firm that audited the consolidated financial statements included in this report, has also audited the effectiveness of Toyota’s internal control over financial reporting as of March 31, 2010, as stated in its report included herein. TOYOTA ANNUAL REPORT 2010 100 Report of Independent Registered Public Accounting Firm Financial Section Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information To the Shareholders and Board of Directors of Toyota Jidosha Kabushiki Kaisha （“Toyota Motor Corporation”） statements for external purposes in accordance with generally accepted accounting principles. A company’ s internal control over financial reporting includes those policies and procedures that （ⅰ）pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; （ⅱ）provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and （ⅲ）provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Nagoya, Japan June 25, 2010 In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Toyota Motor Corporation and its subsidiaries at March 31, 2009 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2010, based on criteria established in Internal Control−Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission （COSO）. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board（United States）. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial TOYOTA ANNUAL REPORT 2010 101 Investor Information As of March 31, 2010 Top Messages Special Feature Special Feature Consolidated Performance Highlights Business Overview Corporate Information Financial Section Investor Information ■ Corporate Data ■ Major Shareholders (Top 10) ■ Ownership Breakdown Company Name: Toyota Motor Corporation Number of Affiliates: [Consolidated Subsidiaries]522 [Affiliates Accounted for by the Equity Method] 56 Name Number of Shares Held (Thousands) 17.5% Other corporate entities 35.4% Financial institutions, Brokerages Number of Employees: 71,567 (Consolidated: 320,590) Corporate Web Site: [Corporate Information] http://www.toyota.co.jp/en [IR Information] http://www.toyota.co.jp/en/ir Established: August 28, 1937 Common Stock: ¥397,049 million Fiscal Year-End: March 31 Public Accounting Firm: PricewaterhouseCoopers Aarata ■ Stock Data Number of Shares Authorized: 10,000,000,000 shares Number of Shares Issued: 3,447,997,492 shares Number of Treasury Stock: 312,002,149 shares Number of Shareholders: 660,922 Number of Shares per Trading Unit: 100 shares Japan Trustee Services Bank, Ltd. Toyota Industries Corporation The Master Trust Bank of Japan, Ltd. Nippon Life Insurance Company State Street Bank and Trust Company Trust & Custody Services Bank, Ltd. The Bank of New York Mellon as Depositary Bank for Depositary Receipt Holders 355,468 201,195 191,402 130,469 87,827 86,649 79,850 Tokio Marine & Nichido Fire Insurance Co., Ltd. 77,431 Mitsui Sumitomo Insurance Company, Limited 65,166 22.6% Individuals, etc. 24.5% Foreign corporate entities and others Note: Individuals, etc. includes shares of 312 million treasury stock. Stock Listings: [Japan] Tokyo, Nagoya, Osaka, Fukuoka, Sapporo　　[Overseas] New York, London DENSO Corporation 58,678 Securities Code: [Japan] 7203 American Depositary Receipts (ADR): [Ratio] 1ADR=2 common stocks　　[Symbol] TM Transfer Agent in Japan: Mitsubishi UFJ Trust and Banking Corporation 10-11, Higashisuna, 7-chome, Koutou-ku, Tokyo 137-8081, Japan Japan Toll-Free: (0120) 232-711 Depositary and Transfer Agent for ADR: The Bank of New York Mellon 101 Barclay Street, New York, NY 10286, U.S.A. Tel: (866) 238-8978　　U.S. Toll-Free: (888) 269-2377, (888) BNY-ADRS [Depositary Receipts] http://www.adrbnymellon.com [Transfer Agent] http://www.bnymellon.com/shareowner ■ Contact Points for Investors Japan Toyota City Head Office 1, Toyota-cho, Toyota City, Aichi Prefecture 471-8571, Japan Tel: (0565) 28-2121　 Fax: (0565) 23-5721 Tokyo Head Office 4-18, Koraku 1-chome, Bunkyo-ku, Tokyo 112-8701, Japan Tel: (03) 3817-7111　 Fax: (03) 3817-9092 Toyota Motor North America, Inc. 601 Lexington Avenue, 49th Floor, New York, NY 10022, U.S.A. Tel: (212) 223-0303　 Fax: (212) 759-7670 Toyota Motor Europe Curzon Square, 25 Park Lane, London W1K 1RA, U.K. Tel: (020) 7290-8500 　 Fax: (020) 7290-8502 U.S.A. U.K. ■ Toyotaʼs Stock Price and Trading Volume on the Tokyo Stock Exchange Stock price (¥) 10,000 8,000 6,000 4,000 2,000 0 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 High (¥) Low (¥) At Year-End (¥) 6,560 3,790 6,430 Note: Fiscal years ended March 31 8,350 5,430 7,550 7,880 4,810 4,970 5,710 2,585 3,120 4,235 3,140 3,745 Trading volume (Million shares) 400 300 200 100 0 TOYOTA ANNUAL REPORT 2010 102 

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